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+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No.  84055 / September 7, 2018 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No.  3969 / September 7, 2018 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-17628 
+ 
+In the Matter of  
+SARAH E. ADAMS, CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+RESPONSIBLE FOR THE PREPARATION OR 
+REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+TO BE FILED WITH THE COMMISSION 
+ 
+On October 18, 2016, Sarah E. Adams, CPA (“Adams”) was denied the privilege of 
+appearing or practicing before the Commission as an accountant as a result of settled public 
+administrative proceedings instituted by the Commission against her pursuant to Rule 102(e)(1) 
+of the Commission’s Rules of Practice.1  This order is issued in response to Adams’s application 
+for reinstatement to appear and practice before the Commission as an accountant responsible for 
+the preparation or review of financial statements required to be filed with the Commission. 
+The Commission found that Adams caused Weatherford International Ltd.’s 
+(“Weatherford”) violations of Section 13(a) of the Securities Exchange Act of 1934 and Rules 
+12b-20, 13a-1, and 13a-13 thereunder, and engaged in improper professional conduct under Rule 
+102(e)(1) of the Commission’s Rules of Practice between 2007 and the third quarter of 2010.  
+The Commission’s findings related to her work as a tax partner on the audits and reviews of 
+Weatherford’s financial statements.  During the relevant period, Weatherford improperly inflated 
+its earnings and materially understated its effective tax rate and tax expense through the use of 
+deceptive intercompany tax accounting.  The Commission found that Adams and others failed to 
+comply with Public Company Accounting Oversight Board standards related to due professional 
+care, professional skepticism, supervision, staffing, training, and documentation.    
+ 
+In her capacity as a preparer or reviewer, or as a person responsible for the preparation or 
+review, of financial statements of a public company to be filed with the Commission, Adams 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 3814 dated October 18, 2016.  Adams was permitted, 
+pursuant to the order, to apply for reinstatement after one year upon making certain showings. 
+ 
+ 2 
+attests that she will undertake to have her work reviewed by the independent audit committee of 
+any company for which she works, or in some other manner acceptable to the Commission, 
+while practicing before the Commission in this capacity.  Adams is not, at this time, seeking to 
+appear or practice before the Commission as an independent accountant.  If she should wish to 
+resume appearing and practicing before the Commission as an independent accountant, she will 
+be required to submit an application to the Commission showing that she has complied and will 
+comply with the terms of the original suspension order in this regard.  Therefore, Adams’s 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+ 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+ 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Adams, it appears that she has complied with the terms of the October 18, 2016 order 
+suspending her from appearing or practicing before the Commission as an accountant, that no 
+information has come to the attention of the Commission relating to her character, integrity, 
+professional conduct or qualifications to practice before the Commission that would be a basis 
+for adverse action against her pursuant to Rule 102(e) of the Commission's Rules of Practice, and 
+that Adams, by undertaking to have her work reviewed by the independent audit committee of 
+any company for which she works, or in some other manner acceptable to the Commission, in 
+her practice before the Commission as a preparer or reviewer of financial statements required to 
+be filed with the Commission, has shown good cause for reinstatement.  Therefore, it is 
+accordingly, 
+ 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission’s Rules of Practice that 
+Sarah E. Adams, CPA is hereby reinstated to appear and practice before the Commission as an 
+accountant responsible for the preparation or review of financial statements required to be filed 
+with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+Brent J. Fields  
+Secretary  
+                                                 
+2 Rule 102(e)(5)(i) provides: 
+ 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this rule may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a hearing; 
+however, the suspension or disqualification shall continue unless and until the applicant has been reinstated by the 
+Commission for good cause shown.”  17 C.F.R. § 201.102(e)(5)(i). 
+ 

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+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 84281 / September 25, 2018 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 3987 / September 25, 2018 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18838  
+ 
+In the Matter of 
+ 
+Lichter, Yu and Associates, Inc.,  
+Lawrence P. Lichter, CPA, and  
+Peter L. Yu, CPA, 
+ 
+Respondents. 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+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 Lichter, Yu 
+and Associates, Inc. (“LYA” or the “Firm”), Lawrence P. Lichter, CPA (“Lichter”), and Peter L. 
+Yu, CPA (“Yu”) (collectively, “Respondents”) pursuant Sections 4C1 and 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), and Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice.2 
+                                                 
+1  Section 4C provides, in relevant part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that 
+person is found . . . to be lacking in character or integrity, or to have engaged in 
+unethical or improper professional conduct. 
+ 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have 
+engaged in unethical or improper professional conduct.   
+2 
+ 
+II. 
+ In anticipation of the institution of these proceedings, Respondents have submitted Offers 
+of Settlement (“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 them and the subject matter of these proceedings, which are 
+admitted, and except as provided herein in Section V, Respondents consent to the entry of this 
+Order, as set forth below. 
+III. 
+On the basis of this Order and Respondents’ Offers, the Commission finds3 that: 
+ 
+A. SUMMARY 
+ 
+1. These proceedings involve Respondents’ improper professional conduct and 
+violations of the federal securities laws in their audit of the FY 2015 financial statements of Code 
+Rebel Corporation (“Code Rebel” or “the Company”) in which Code Rebel materially overstated 
+the Company’s assets by recording as “Cash and Cash Equivalents” approximately $2.2 million 
+that had been misappropriated.  The misappropriated cash constituted 77% of Code Rebel’s 
+reported current assets and approximately 80% of its reported cash and cash equivalents.     
+ 
+2. During the audit of Code Rebel’s FY 2015 financial statements, Lichter and Yu 
+were confronted with a series of significant red flags regarding the Company’s cash and cash 
+equivalents supposedly held by an entity called Thorsdale Fiduciary and Guarantee Company Ltd. 
+(“Thorsdale”).  By the time the audit was completed, they had learned, among other things, that, 
+contrary to Code Rebel’s representations in the financial statements: Thorsdale was not an FDIC-
+insured bank but was instead a family trust nominally managed by a related party who was the 
+father-in-law of Jason Galanis, who they also learned had twice been charged by the Commission 
+with violations of the federal securities laws and had recently been indicted in a parallel criminal 
+fraud case.  They had also learned that Thorsdale had refused to promptly return to Code Rebel 
+funds that the Company had requested, claiming that it was entitled to 90 days’ notice of Code 
+Rebel’s intent to withdraw funds.  In addition, they knew or should have known that Thorsdale had 
+named Galanis as its agent in the agreement that purportedly governed the Thorsdale-Code Rebel 
+relationship.  
+ 
+3. Despite all the indications that $2.2 million of the Company’s funds should not 
+have been reported as cash or a cash equivalent, LYA issued an audit report that included an 
+                                                 
+3  The findings herein are made pursuant to Respondents’ Offers of Settlement and are not 
+binding on any other person or entity in this or any other proceeding. 
+3 
+ 
+unqualified opinion on Code Rebel’s FY 2015 financial statements.  In that audit report, which was 
+included in Code Rebel’s Form 10-K along with the financial statements, LYA incorrectly stated 
+that the Firm had conducted its audit in accordance with the standards of the Public Company 
+Accounting Oversight Board (United States) (“PCAOB”) and opined that Code Rebel’s 
+consolidated financial statements  presented fairly, in all material respects, Code Rebel’s financial 
+position as of December 31, 2015 and the Company’s results of operations and cash flows for the 
+year then ended, in conformity with U.S. generally accepted accounting principles (“GAAP”).   
+ 
+4.  As a result, Respondents engaged in improper professional conduct, violated 
+Section 10A(a)(1) of the Exchange Act, and caused Code Rebel’s violations of Section 13(a) of the 
+Exchange Act and Rule 13a-1 thereunder.  In addition, LYA violated Rule 2-02 (b) of Regulation 
+S-X and Lichter and Yu caused that violation. 
+ 
+B. RESPONDENTS 
+ 
+5. Lichter, Yu and Associates, Inc. (“LYA” or “the Firm”) is located in Woodland 
+Hills, California and was registered with the PCAOB from September 2009 until July 2018 and 
+from November 2003 until October 2006.  At all relevant times, LYA consisted of owners Lichter 
+and Yu, one other individual who was also a Certified Public Accountant (“CPA”), and another 
+individual who was not a CPA.   
+ 
+6. Lawrence P. Lichter, age 56, resides in Woodland Hills, California.  He has been 
+a CPA licensed by the state of California since 1988.  Throughout the relevant period, Lichter was 
+a 50% owner of LYA.  Lichter was the engagement partner on the Code Rebel FY 2015 audit. 
+ 
+7. Peter L. Yu, age 46, resides in Canoga Park, California.  He has been a CPA 
+licensed by the state of California since 2004.  He began to work for Lichter’s firm in December 
+1998 and became the co-owner in 2006.  As discussed below, Yu purportedly acted as the 
+engagement quality reviewer on the Code Rebel FY 2015 audit but he also performed some of the 
+work on the audit, including the audit of cash and cash equivalents. 
+ 
+C. OTHER RELEVANT PERSONS AND ENTITIES 
+ 
+8. Code Rebel Corporation (“Code Rebel” or “the Company”) was, at all relevant 
+times, an information technology company with its principal executive offices in Kahului, Hawaii.  
+The Company was formed as a Hawaii limited liability company in 2007, and subsequently 
+incorporated in Delaware in May 2014.  On May 19, 2015, the Company conducted an initial 
+public offering and its stock began trading on the Nasdaq Capital Market under the symbol 
+“CDRB.”  On May 6, 2016, the Commission suspended trading of Code Rebel stock.  At all 
+relevant times, Code Rebel was subject to the reporting requirements of Section 12(b) of the 
+Exchange Act.  Code Rebel’s fiscal year ended on December 31.  In addition to information 
+technology contractors who worked in the Ukraine, for most of the relevant period, the Company’s  
+personnel consisted of its CEO, CFO, Chief Technology Officer, and a bookkeeper, who was the 
+Company’s primary contact with LYA.  The CEO was also the president of Code Rebel at all 
+4 
+ 
+relevant times until the Company’s September 2015 acquisition of a privately-held information 
+technology consulting company, when the consulting company’s owner became president of Code 
+Rebel. 
+ 
+9. Jason Galanis (“Galanis”), age 48, is currently incarcerated at the Terminal Island 
+Federal Correctional Institution near Los Angeles.  Galanis’s regulatory and criminal history dates 
+from at least 2005 and includes two recent Commission securities fraud cases and parallel criminal 
+cases.   
+ 
+10. In 2005, the Commission brought an accounting fraud case against Galanis based 
+on his conduct while serving as a major shareholder of Penthouse International, Inc., SEC v. 
+Penthouse International, Inc., et al., 05-cv-0780 (S.D.N.Y.).  On September 24, 2015, the 
+Commission and the Office of the United States Attorney for the Southern District of New York 
+brought parallel civil and criminal actions against Galanis and five others (including his father and 
+two brothers) for their manipulation of the market for the stock of Gerova Financial Group, Ltd., 
+SEC v. Jason W. Galanis, et al., 15-cv-07547-VSB (S.D.N.Y.); United States v. Jason Galanis, et 
+al., 15-cr-0643 (PKC) (S.D.N.Y.)  (collectively, the “Gerova cases”).  The second set of parallel 
+Commission and criminal cases (SEC v. Devon D. Archer, et al., 16-cv-3505 (WHP) (S.D.N.Y.); 
+United States v. Jason Galanis, et al., 16-cr-371 (RA) (S.D.N.Y.) (collectively the “Archer cases”) 
+was announced on May 11, 2016.  Galanis pleaded guilty in both criminal cases and was sentenced 
+to a total of 173 months incarceration, with 113 months to be served concurrently, and ordered to 
+forfeit a total of over $80 million. 
+ 
+11. Thorsdale Fiduciary and Guaranty Company Ltd. (“Thorsdale”) was 
+incorporated in Nevada on June 23, 2011 as a “Family Trust Company” for “members of the 
+Berger family and its Family Affiliates.”  Ralph Berger, Galanis’s father-in-law (now deceased) 
+was one of Thorsdale’s two members. 
+  
+12. Burnham Securities, Inc. (“Burnham”) was, at all relevant times, a registered 
+broker-dealer.  Burnham was the sole book-running manager and underwriter of Code Rebel’s 
+initial public offering. 
+ 
+13. Devon Archer, age 44, resides in Brooklyn, N.Y.  At all relevant times, Archer was 
+an officer, director, direct or indirect owner, and/or investor in various entities controlled by 
+Galanis or another Galanis associate.  During the relevant period, he was part of the group that was 
+in contract to buy the holding company for Burnham and had loaned the broker-dealer working 
+capital.  On June 28, 2018, after a 5½ week-long jury trial, Archer was convicted on all counts of 
+the superseding indictment against him.  
+ 
+  
+5 
+ 
+D. FACTS 
+ 
+1. Background 
+ 
+14. In December 2011, Galanis’s father-in-law, Ralph Berger, and the other member of 
+Thorsdale opened an account with Bank A, a national, FDIC-insured bank in the name of 
+Thorsdale (the “Thorsdale Bank A account”).  Initially Berger and the other member were the only 
+signatories on the Thorsdale Bank A account but in June 2014, Galanis was added as a signatory 
+and was issued the sole ATM/debit card for the account.      
+ 
+15. That same month, Archer invested $485,000 in a Code Rebel convertible note. 
+Shortly thereafter, at the direction of Code Rebel’s CEO, $484,000 was transferred from a Code 
+Rebel bank account to the Thorsdale Bank A account.  No one from Code Rebel received copies of 
+account statements or had online access to the account.  Code Rebel’s board of directors had not 
+authorized the transfer of Code Rebel’s funds to the Thorsdale Bank A account.  Indeed, until the 
+audit of Code Rebel’s FY 2015 financial statements, none of Code Rebel’s officers and directors 
+other than the CEO were aware that Code Rebel’s funds had been entrusted to Thorsdale or were 
+aware that anyone other than the three individuals authorized by the board of directors (the CEO, 
+CFO, and bookkeeper) had control over any of Code Rebel’s funds.    
+   
+16. In April 2014, in anticipation of an initial public offering and upon the 
+recommendation of a friend of Galanis, Code Rebel engaged LYA to audit Code Rebel’s financial 
+statements for FY 2013 and FY 2014.    
+ 
+17. The IPO occurred on May 19, 2015.  The offering raised net proceeds (after 
+underwriting discounts, commissions and estimated expenses) of approximately $4.3 million.  On 
+May 21, 2015, again at the CEO’s direction, $1,766,000 of the offering proceeds was transferred 
+from one of Code Rebel’s bank accounts to the Thorsdale Bank A account (for a total of $2.25 
+million of Code Rebel funds transferred to the account).  
+ 
+2.   Respondents Ignored Red Flags and Failed to Adhere to PCAOB Standards in 
+Their Audit of Code Rebel’s 2015 Year-End Cash Balance 
+ 
+18.   PCAOB standards require the auditor to exercise due professional care in planning 
+and performing the audit and preparing the audit report. (AU § 230, Due Professional Care in the 
+Performance of Work)4  Auditors are required to maintain an attitude of professional skepticism 
+that includes a “questioning mind and a critical assessment of audit evidence.”  (AU § 230.07)  In 
+addition, the auditor should “consider the competency and sufficiency of the evidence.  Since 
+evidence is gathered and evaluated throughout the audit, professional skepticism should be 
+                                                 
+4  Citations in this Order to PCAOB standards are to the standards that were in effect at the 
+time of the audit. 
+ 
+6 
+ 
+exercised throughout the audit process.” (AU § 230.08) 
+ 
+19. At December 31, 2015, Code Rebel reported total assets of $12,069,365, the 
+majority of which (roughly $9 million) consisted of goodwill resulting from the September 2015 
+acquisition.  The Company also reported total current assets of $2,849,217, nearly all of which 
+($2,717,414) was reportedly cash and cash equivalents.  The $2.2 million on deposit with 
+Thorsdale represented approximately 80% of the Company’s cash and cash equivalents, 77% of its 
+total current assets and roughly 18% of its total assets.  Accordingly, the audit of the Company’s 
+year-end cash balance was a critical part of the audit.  
+ 
+20. Lichter and Yu were unaware of the Thorsdale Bank A account. 5  Based on the 
+account statements and confirmations they obtained during the audit, they apparently believed that 
+$2.2 million of Code Rebel’s funds were on deposit with Thorsdale at December 31, 2015 and 
+assumed that Thorsdale was an FDIC-insured bank.  Until the events described below, they 
+operated under this belief even though Code Rebel’s accounting records – and thus LYA’s work 
+papers – identified the custodian of the $2.2 million as “Escrow – Bank A” 
+ 
+a. Respondents Encountered a Series of Red Flags During the FY 2015 
+Audit 
+ 
+21. During the audit, Lichter and Yu were confronted with a number of significant red 
+flags suggesting that the $2.2 million supposedly held by Thorsdale should not be reported as a 
+cash or cash equivalent. 
+ 
+22. First, the Thorsdale account statements Lichter and Yu received from Code Rebel 
+during the audit contained red flags.  For example, these purported account statements, for the 
+periods “30 Sep 2015 through 31 Dec 2015” and “31 Dec 2015 through 31 Jan 2016” contained a 
+client number but no account number and contained a website address but no phone number, street 
+address or email address.  The statements included a field for “Investment Category,” for which the 
+entry was “Cash,” and showed no interest accrued or fees charged.  Moreover, the statements did 
+not indicate that Thorsdale was a bank or that its accounts were covered by FDIC insurance.   
+ 
+23. In addition, the January 2016 statement reflected two “debits,” which had 
+purportedly reduced the account balance from $2.2 million on December 31, 2015 to $1.4 million  
+by the middle of January 2016.  The statement described the two transactions as “debits” and stated 
+the amounts of the debits in the “Balance” column but left the column for “Funds Paid” blank.  The 
+statement identified the payee for one debit but for the other debit it reported only that the payment 
+was for “legal expenses.”  The statement did not indicate whether the payments from the account 
+were effected by check or wire transfer.   
+                                                 
+5  The Thorsdale Bank A account had been fully depleted and closed by the end of 
+November 2015.  Galanis used almost all of the funds in the account to support his lavish 
+lifestyle, fund his criminal defense, and for other purposes unrelated to Code Rebel.   
+ 
+7 
+ 
+ 
+24. Second, on or around March 19, 2016, Lichter and Yu learned from Code Rebel’s 
+CFO that the CEO had been unable to withdraw funds from Thorsdale on demand, because – 
+according to the CEO – there was a 90-day hold on the money, i.e. Code Rebel was required to 
+provide Thorsdale with 90-days’ notice of its intent to withdraw the funds.   
+ 
+25. Third, on or around March 22, Lichter and Yu learned from Code Rebel’s CFO that 
+Code Rebel had received an administrative subpoena issued earlier that month in a Commission 
+investigation. The subpoena sought documents concerning nineteen listed individuals and entities, 
+including Thorsdale, Galanis, Burnham and Archer.   
+ 
+26. Fourth, from their internet research during the audit, Lichter and Yu learned that 
+Thorsdale was not an FDIC-member bank but instead a limited liability company registered with 
+the Nevada Secretary of State for the benefit of eleven related families; they also learned from the 
+CFO that one of Thorsdale’s managers was Galanis’s father-in-law, who was also a 12.5% 
+shareholder.  
+ 
+27. Fifth, they learned that the address to which they had been directed by Code 
+Rebel’s bookkeeper to send the requests for Thorsdale confirmations was the address of a mailbox 
+store.  
+ 
+28. Sixth, Respondents learned from Code Rebel’s CEO that he had entrusted the Code 
+Rebel funds to Thorsdale at the direction of Archer, who reportedly wanted an independent 
+fiduciary overseeing the disbursement of Code Rebel’s funds, to prevent them from being 
+squandered.   
+ 
+29. Finally, Lichter and Yu learned that Galanis had been charged by the Commission 
+and indicted for securities fraud in September 2015 and had been charged by the Commission with 
+violations of the federal securities laws once before. 
+ 
+b. Code Rebel’s Efforts to Recover the $1.3 Million6 Respondents Believed 
+Was Still Held by Thorsdale  
+ 
+30. On or about March 21, 2016, Lichter notified the chairman of Code Rebel’s audit 
+committee, of the issues concerning Thorsdale and the January $300,000 debit for legal fees for 
+which the receiving law firm had not provided LYA an adequate explanation.  On March 23, 
+Lichter, the CFO, and the chairman of the audit committee spoke with the CEO, who provided 
+them with the “Cash Management Custodial Account Agreement” (the “Custody Agreement”) that 
+                                                 
+6  On March 10, 2016, Code Rebel had received $100,000 of the funds supposedly then 
+held for it by Thorsdale, reducing the purported Thorsdale account balance from $1.4 
+million in January 2016, as described above. 
+ 
+8 
+ 
+supposedly governed the arrangement between Code Rebel and Thorsdale.  On the call, all agreed 
+that the funds then still supposedly held by Thorsdale should be returned to Code Rebel’s control 
+and the law firm should be asked to provide a more detailed invoice.   
+ 
+31. On April 7, Lichter and Yu learned that Code Rebel’s CFO and Thorsdale’s 
+attorney had reached an agreement in principle concerning the return of the Code Rebel funds 
+purportedly still held by Thorsdale, with the terms of the agreement – including Code Rebel’s 
+release of potential claims against Thorsdale – to later be memorialized in writing.  Thorsdale’s 
+attorney had agreed that the $1.3 million would be returned to Code Rebel in two installments:  
+$200,000 that day or the following day and the remaining $1.1 million on April 11. 
+ 
+32. Lichter and Yu then learned that $200,000 was returned to Code Rebel on April 8, 
+but that the promised $1.1 million payment was not made on April 11.  
+ 
+33. On April 11, Lichter and Code Rebel’s CFO spoke to Thorsdale’s attorney who told 
+them that Thorsdale would enter into a settlement agreement with Code Rebel in which it would 
+agree to pay Code Rebel $200,000 on April 12 and the remaining $900,000 on April 26.  In an 
+email he sent to the chairman of Code Rebel’s audit committee later that day, Lichter stated: 
+“Based on [the earlier conversation with Thorsdale’s attorney], and the settlement agreement with 
+Thorsdale we will move forward in filing the audit and the 10K will be filed on time.  We are just 
+going to add some descriptions to the footnotes on the [Custody Agreement].7 
+ 
+34.  Lichter and Yu learned that $200,000 was returned to Code Rebel on April 13, but 
+they knew that Thorsdale purportedly still had possession of $900,000 of Code Rebel’s funds when 
+Code Rebel filed its Form 10-K.  
+  
+  c. The Filing of the 2015 Form 10-K and the End of Code Rebel 
+ 
+35. On April 14, 2016, Code Rebel filed its 2015 Form 10-K.  In the 2015 audited 
+financial statements contained therein, the Company reported total assets of $12,069,365, roughly 
+$9 million of which consisted of goodwill, and total current assets of $2,849,217.  The audited 
+financial statements included as roughly 80% of the Company’s “Cash and Cash Equivalents” at 
+December 31, 2015 the $2.2 million that was supposedly held by Thorsdale on that date,  
+constituting 77% of Code Rebel’s total current assets and roughly 18% of its total assets.     
+ 
+36. The only changes to the financial statements made in light of the developments 
+described in Paragraphs 21-34 above were: (1) the addition to the Related Party Transactions note 
+of the following disclosure: “The Company has a cash deposit of $2,200,000 with another 
+                                                 
+7  On March 30, 2016, Code Rebel filed a Notification of Late Filing on Form 12b-25 
+disclosing that the Company was unable to timely file its 2015 Form 10-K but would do 
+so by April 15, 2016.   
+ 
+9 
+ 
+Company whose member owns approximately 12.5% shares of Code Rebel,” and (2) the following 
+indication in the Company’s standard note on cash and cash equivalents that the entire $2.2 million 
+entrusted to Thorsdale was uninsured, instead of just the amount over $250,000 (the standard 
+insurance limit for deposits with FDIC-member banks): 
+ 
+Cash and equivalents include cash in hand and cash in demand deposits, certificates 
+of deposit and all highly liquid debt instruments with original maturities of three 
+months or less.  We maintain cash deposits at banks located in Hawaii and New 
+York. Deposits at the banks are insured up to $250,000 by the Federal Deposit 
+Insurance Corporation. The Company’s uninsured portion of the balances held at 
+the banks aggregated to approximately $2,365,069 and $184,000 [on December 31, 
+2015 and December 31, 2014], respectively.  No reserve has been made in the 
+financial statements for any possible loss due to any financial institution failure.  
+The Company has not experienced any losses in such accounts and believes we are 
+not exposed to any significant risk on cash and cash equivalents. 
+ 
+37. The Form 10-K also contained LYA’s audit report which included an unqualified 
+opinion on the financial statements.  LYA’s audit report stated that the Firm’s audit of the 
+consolidated financial statements had been conducted in accordance with PCAOB standards and, 
+based on that audit, LYA was of the opinion that the consolidated financial statements presented 
+fairly, in all material respects, Code Rebel’s financial position as of December 31, 2015 and the 
+Company’s results of operations and cash flows for the year then ended, in conformity with U.S. 
+GAAP. 
+ 
+38. The $900,000 payment to Code Rebel was not made on April 26 as promised.  On 
+May 5 and 6, the Company received two payments totaling $300,000.  On May 6, 2016, the 
+Commission suspended trading of Code Rebel stock.  And, on May 18, Code Rebel filed for 
+liquidation.  
+ 
+  d.  Respondents’ Failures to Adhere to PCAOB Standards in the Audit of the 
+Balance in the Thorsdale Bank A Account 
+ 
+39. Under AU § 230, Due Professional Care in the Performance of Work, the auditor is 
+required to exercise due professional care and professional skepticism in conducting the audit.  
+“Professional skepticism is an attitude that includes a questioning mind and a critical assessment of 
+audit evidence[.]” (AU § 230.07)  Moreover, the auditor has a responsibility to plan and perform 
+the audit to obtain reasonable assurance about whether the financial statements are free of material 
+misstatement, whether caused by fraud or error.  (AU § 316.01, Consideration of Fraud in a 
+Financial Statement Audit)  AU § 316 identifies two types of misstatements that are relevant to the 
+auditor's consideration of fraud:  (1) misstatements arising from fraudulent financial reporting and 
+(2) misstatements arising from misappropriation of assets. (AU §316.06)   
+ 
+40. AU § 316 also notes that management and employees engaged in fraud will 
+typically take steps to conceal the fraud from auditors (AU § 316.09) and points out that fraud may 
+10 
+ 
+be concealed through collusion among management and third parties, who may, for example, 
+provide the auditor with false confirmations. (AU § 316.10)   
+ 
+41. Accordingly, AU § 316.13 emphasizes the importance of the auditor’s exercise of 
+professional skepticism when considering fraud risks and requires an ongoing questioning of 
+whether the information and evidence obtained during the audit suggests that a material 
+misstatement due to fraud has occurred.  In exercising professional skepticism in gathering and 
+evaluating evidence, the standard warns that the auditor should not be satisfied with less-than-
+persuasive evidence because of a belief that management is honest.   
+ 
+42. AU § 316 also advises that significant unusual transactions may be used to engage 
+in fraudulent financial reporting or conceal misappropriation of assets (AU §316.66) and requires  
+auditors to design and perform procedures to obtain an understanding of the business purpose (or 
+the lack thereof) of any significant unusual transaction that the auditor has identified. (AU 
+§316.66A)  Among the procedures the auditor should follow to gain an understanding of the 
+business purpose (or the lack thereof) of significant unusual transactions are: 
+ 
+a. Reading the underlying documentation and evaluating whether the terms and other 
+information about the transaction are consistent with explanations from inquiries 
+and other audit evidence about the business purpose (or the lack thereof) of the 
+transaction; 
+ 
+b. Determining whether the transaction has been authorized and approved in 
+accordance with the company's established policies and procedures; and  
+ 
+c. Evaluating the financial capability of the other parties with respect to significant 
+uncollected balances, loan commitments, supply arrangements, guarantees, and 
+other obligations, if any.  (AU §316.66A)   
+ 
+43. To evaluate whether the business purpose (or the lack thereof) of a significant 
+unusual transaction indicates that the transaction may have been entered into to conceal 
+misappropriation of assets, AU §316.67 also requires the auditor to evaluate whether, among other 
+things: 
+ 
+a. The transaction involves related parties or relationships or transactions with related 
+parties previously undisclosed to the auditor; and 
+ 
+b. Management has discussed the nature of and accounting for the transaction with the 
+audit committee or another committee of the board of directors or the entire board. 
+  
+44. AU §316.56 advises that the scope of the auditor’s work in response to a fraud risk 
+related to misappropriation of assets should be linked to the specific information about the 
+misappropriation risk that has been identified. For example, if a particular asset is highly 
+susceptible to misappropriation and a potential misstatement would be material to the financial 
+11 
+ 
+statements – the situation Respondents faced – obtaining an understanding of the controls related to 
+the prevention and detection of such misappropriation and testing the design and operating 
+effectiveness of such controls may be warranted.  In addition, in response to an assessed fraud risk, 
+it may be appropriate to, among other things, “interview[] personnel involved in activities in areas 
+in which a fraud risk has been identified to obtain their insights about the risk and how controls 
+address the risk.”  (AU §316.53)  
+ 
+45. During the 2015 audit, Lichter and Yu became aware of a significant unusual 
+transaction — the deposit of 80% of the Company’s cash and cash equivalents with Thorsdale, a 
+family trust not covered by FDIC insurance and controlled by a related party.  But Lichter and Yu 
+either failed to follow the procedures required or suggested by AU § 316 or disregarded the results 
+of those procedures.   
+ 
+46. Lichter and Yu received a copy of the Custody Agreement that supposedly 
+governed the relationship between Code Rebel and Thorsdale and they knew or should have 
+known that the terms of the transaction were inconsistent with explanations they had received from 
+the CEO and Thorsdale’s attorney about the business purpose (or lack thereof) of the transaction.    
+For example, the terms of the transaction were inconsistent with its purported rationale – to serve 
+as a check on Code Rebel’s management, to prevent the funds from being squandered.  That 
+purpose could have been achieved through more appropriate means, such as requiring a second 
+signature or approval for the expenditure of funds or creating a segregation of duties between those 
+authorized to disburse the Company’s funds and those responsible for financial reporting.  (There 
+was no such segregation of duties at Code Rebel.)   Moreover, as Respondents knew or should 
+have known, the CEO had not taken advantage of the opportunity provided by the Custody 
+Agreement to designate someone to monitor activity in the account.  They also knew or should 
+have known that Thorsdale had supposedly delegated its responsibilities under the agreement to 
+Galanis, who they knew had recently been indicted for securities fraud and had twice been charged 
+by the Commission with violations of the securities laws.  In addition, they knew or should have 
+known that the 90-day hold made no sense for a cash account, and the Custody Agreement did not 
+provide for such a hold.  
+ 
+47. Respondents also knew or should have known that the transaction had not been 
+authorized and approved in accordance with the Company's established policies and procedures.  
+The CFO and the chairman of the audit committee made clear to Lichter and Yu that neither the 
+deposit of Company funds with Thorsdale nor control of Company funds by Thorsdale, Berger, 
+Galanis or anyone other than Code Rebel’s CEO, CFO, and bookkeeper had been authorized by 
+Code Rebel’s board of directors, as required under the Company’s established policies and 
+procedures.  Indeed, the CFO and head of the audit committee made clear to Respondents that they 
+had been unaware of the transaction before they learned of it during the audit. 
+ 
+48. Respondents also failed to evaluate Thorsdale’s ability to repay the $900,000 they 
+understood Thorsdale owed Code Rebel at the time the Form 10-K was filed, much less the entire 
+$2.2 million that had been entrusted to it.  Respondents failed to make this evaluation even though 
+12 
+ 
+they knew that Thorsdale was not a bank and not even $250,000 of Code Rebel’s funds entrusted 
+to it were covered by FDIC insurance.  
+ 
+49. Moreover, Respondents failed to interview the bookkeeper, from whom they might 
+have learned that the $2.2 million had been transferred to a bank account over which no one from 
+Code Rebel had control and for which Galanis was Code Rebel’s only source of information.  
+Respondents might also have learned from the bookkeeper that she received the name and address 
+of the person to whom the Thorsdale confirmation requests should be sent from the CEO, and that 
+the CEO had likely received the information from Galanis. 
+ 
+50. Finally, Respondents knew that the deposit with Thorsdale involved a related party 
+previously undisclosed to them:  Berger, one of Thorsdale’s two principals, who was a 12.5% 
+shareholder of Code Rebel.     
+ 
+51. The objective of the auditor is to evaluate the results of the audit to determine 
+whether the audit evidence obtained is sufficient and appropriate to support the opinion to be 
+expressed in the auditor's report.  (AS No. 14, Evaluating Audit Results ¶ 2; AS No. 15, Audit 
+Evidence ¶ 3)  Sufficiency is the measure of the quantity of audit evidence.  (AS No. 15 ¶ 5)  
+Appropriateness is the measure of the quality of audit evidence, i.e., its relevance and reliability.  
+(AS No. 15 ¶ 6).  The quantity of audit evidence needed depends on the risk of material 
+misstatement and the quality of the audit evidence obtained.  As the quality of the evidence 
+increases, the need for additional corroborating evidence decreases.  (AS No. 15 ¶ 5)  If the auditor 
+is unable to obtain sufficient appropriate audit evidence to have a reasonable basis to conclude 
+about whether the financial statements as a whole are free of material misstatement, the auditor 
+should express a qualified opinion or a disclaimer of opinion.  (AS No. 14 ¶ 35) 
+ 
+52. When LYA issued its audit report on Code Rebel’s FY 2015 financial statements,  
+Lichter and Yu knew or should have known that: 
+ 
+ Code Rebel’s board of directors had not authorized the deposit of Company funds 
+with Thorsdale; 
+ 
+ Code Rebel’s board of directors had not authorized anyone other than the Code 
+Rebel’s CEO, CFO, and bookkeeper to disburse Company funds; 
+ 
+ Thorsdale was not an FDIC-insured bank but rather a trust company established for 
+the benefit of Galanis’s extended family. 
+ 
+ At least $900,000 of the Company’s cash – 32% of Code Rebel’s total current 
+assets as of December 31, 2015 and roughly 40% of the total Code Rebel funds that 
+had been transferred to Thorsdale – was still not accounted for at the time of the FY 
+2015 Form 10-K filing.    
+ 
+13 
+ 
+ Code Rebel’s CEO had recently been unable to withdraw funds from Thorsdale on 
+demand because of a purported 90-day notice requirement, a requirement that was 
+not reflected in the operative agreement and made no sense for a cash account. 
+ 
+ One of the two principals of Thorsdale was Galanis’s father-in-law, whose only 
+connection to Code Rebel was that he was a 12.5% shareholder (the other principal 
+was unknown to Lichter or Yu). 
+ 
+ The Commission had recently subpoenaed Code Rebel for documents concerning 
+Thorsdale and Galanis, as well as Burnham, the underwriter of Code Rebel’s IPO, 
+and Archer; 
+ 
+ Galanis had been charged by the Commission and indicted for securities fraud in 
+September 2015 and had been charged by the Commission in an earlier case; 
+ 
+ The Thorsdale account statements differed from typical bank statements in a 
+number of respects and the most recent statements contained no contact information 
+for Thorsdale other than a website address; and  
+ 
+ The address Respondents had been given to use for the Thorsdale confirmations 
+was the address of a mailbox store in a strip mall.  
+ 
+53. Moreover, Lichter and Yu knew that Thorsdale was not a bank, knew that during 
+the first quarter of 2016 a portion of the funds Code Rebel had entrusted to Thorsdale was not 
+available to the Company on demand, and knew or should have known that at December 31, 2015 
+there was a significant risk that $2.2 million (over 80%) of Code Rebel’s reported cash had been 
+misappropriated.  Thus they knew or should have known that the amount of the Company’s cash 
+and cash equivalents reported in the Company FY 2015 financial statements was materially 
+overstated. 
+ 
+54. LYA nonetheless did not express a qualified opinion or disclaim an opinion as 
+required under AS No. 14 ¶ 35.   
+ 
+55. Accordingly, in their audit of Code Rebel’s year-end 2015 cash balance, 
+Respondents failed to act in accordance with applicable professional standards, specifically the 
+standards on Due Professional Care in the Performance of Work (AU § 230), Audit Evidence (AS. 
+No. 15), Evaluating Audit Results (AS No. 14) and Consideration of Fraud in a Financial 
+Statement Audit (AU § 316).    
+ 
+3. Additional Audit Deficiencies 
+ 
+56. LYA failed to obtain an engagement quality review for the 2015 Code Rebel audit, 
+as required under AS No. 7, Engagement Quality Review ¶ 1.  The objective of the engagement 
+quality reviewer is to perform an evaluation of the significant judgments made by the engagement 
+14 
+ 
+team and the related conclusions in forming the overall conclusion on the engagement . . .  in order 
+to determine whether to provide concurring approval [of an engagement report].  (AS No. 7 ¶ 2)  
+The engagement quality reviewer (“EQR”) must maintain objectivity in performing the review.  To 
+maintain objectivity, the EQR reviewer should not make decisions on behalf of the engagement 
+team or assume any of the responsibilities of the engagement team.  (AS No. 7 ¶ 6 and ¶ 7)   
+ 
+57. Although Yu was identified in the work papers as the EQR for the audit, he and 
+Lichter both worked on the cash audit and other aspects of the audit.  Accordingly, Yu could not 
+provide an objective evaluation of the significant judgments made by the engagement team and the 
+related conclusions in forming the overall conclusion on the engagement, as required by AS No. 7  
+¶ 1, and LYA failed to adhere to AS No. 7. 
+ 
+58. LYA also failed to adhere to PCAOB Standard QC § 20, System of Quality Control 
+for a CPA Firm's Accounting and Auditing Practice.  PCAOB Standard QC § 20.1 requires an 
+auditor to have a system of quality control for its auditing practice and describes elements of 
+quality control essential to the effective design, implementation, and maintenance of that system.  
+A system of quality control includes adopting policies and establishing procedures to provide the 
+firm with reasonable assurance of complying with professional standards.  (QC § 20.04).   
+ 
+59. LYA failed to adhere to QC § 20 because the Firm’s quality control policies and 
+procedures manual failed to adequately address all phases of the design and execution of these 
+engagements.  LYA’s policies and procedures covering audits were deficient because they did not 
+discuss, for example: (1) exercising due professional care throughout the performance of the audit; 
+(2) the purpose of audit work papers and what should be included in the work papers; (3) 
+evaluating the results of the audit to determine whether the evidence is sufficient and appropriate to 
+support the conclusions reached and opinions expressed; and (4) evaluating significant unusual 
+transactions identified by the accountant or brought to the accountant’s attention. 
+ 
+E. VIOLATIONS 
+ 
+60. As a result of the conduct described above, Respondents were each a cause of Code 
+Rebel’s violation of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder, which require 
+an issuer to file with the Commission accurate annual reports.     
+ 
+61. As a result of the conduct described above, LYA violated Rule 2-02(b) of 
+Regulation S-X, which requires an accountant’s report to accurately state whether the audit was 
+made in accordance with generally accepted auditing standards,8 and Lichter and Yu were each a 
+cause of LYA’s violations of Rule 2-02(b) of Regulation S-X.   
+ 
+                                                 
+8  Pursuant to Commission interpretive guidance, generally accepted auditing standards, as 
+used in Regulation S-X, means the standards of the PCAOB and any applicable 
+Commission rules.  Securities Act Release No. 8422 (May 14, 2004). 
+15 
+ 
+62. As a result of the conduct described above, Respondents violated Section 10A(a)(1) 
+of the Exchange Act, which requires, among other things, each audit conducted of an issuer by a 
+registered public accounting firm to include “procedures designed to provide reasonable assurance 
+of detecting illegal acts that would have a direct and material effect on the determination of 
+financial statement amounts.”   
+ 
+F. FINDINGS 
+ 
+63. Based on the foregoing, the Commission finds that Respondents engaged in 
+improper professional conduct as defined in Section 4C(b)(2)(A) of the Exchange Act and Rule 
+102(e)(1)(iv)(B)(1) of the Commission’s Rules of Practice. 
+ 
+64. Based on the foregoing, the Commission finds that Respondent LYA violated 
+Section 10A(a)(1) of the Exchange Act and Rule 2-02(b) of Regulation S-X, and caused Code 
+Rebel’s violations of Sections 13(a) and Rule 13a-1 thereunder.  
+ 
+65. Based on the foregoing, the Commission finds that Respondent Lichter violated 
+Section 10A(a)(1) of the Exchange Act and caused Code Rebel’s violations of Sections 13(a) and 
+Rule 13a-1 thereunder and LYA’s violations of Rule 2-02(b) of Regulation S-X . 
+ 
+66. Based on the foregoing, the Commission finds that Respondent Yu violated Section 
+10A(a)(1) of the Exchange Act and caused Code Rebel’s violations of Sections 13(a) and Rule 
+13a-1 thereunder and LYA’s violations of Rule 2-02(b) of Regulation S-X. 
+ 
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offers. 
+ 
+Accordingly, it is hereby ORDERED that: 
+ 
+A. Respondents LYA, Lichter, and Yu shall cease and desist from committing or 
+causing any violations and any future violations of Sections 10A(a)(1) and 13(a) of the Exchange 
+Act and Rule 13a-1 thereunder and Rule 2-02(b) of Regulation S-X. 
+ 
+LYA 
+ 
+B. LYA is denied the privilege of appearing or practicing before the Commission as an 
+accountant. 
+ 
+C. After five (5) years from the date of this order, LYA may request that the 
+Commission consider its reinstatement by submitting an application to resume appearing or 
+practicing before the Commission as: 
+ 
+16 
+ 
+ 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 LYA’s 
+work in its practice before the Commission will be reviewed either by the 
+independent audit committee of the public company for which it works or in 
+some other acceptable manner, as long as it practices before the Commission 
+in this capacity; and/or 
+ 
+ 2. an independent accountant.   
+ 
+Such an application must satisfy the Commission that: 
+      
+           (a) LYA is registered with the Public Company Accounting Oversight 
+Board (“Board”) in accordance with the Sarbanes-Oxley Act of 
+2002, and such registration continues to be effective. However, if 
+registration with the Board is dependent upon reinstatement by the 
+Commission, the Commission will consider the application on its 
+other merits; 
+    
+   (b)  LYA has hired an independent CPA consultant (“consultant”), who 
+is not unacceptable to the staff of the Commission and is affiliated 
+with a public accounting firm registered with the Board, that has 
+conducted a review of LYA’s quality control system and submitted 
+to the staff of the Commission a report that describes the review 
+conducted and procedures performed, and represents that the review 
+did not identify any criticisms of or potential defects in the firm’s 
+quality control system that would indicate that any of LYA’s 
+employees will not receive appropriate supervision.  LYA agrees to 
+require the consultant, if and when retained, to enter into an 
+agreement that provides that for the period of review and for a period 
+of two years from completion of the review, the consultant shall not 
+enter into any employment, consultant, attorney-client, auditing or 
+other professional relationship with LYA, 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 this Order shall not, without 
+prior written consent of the staff, enter into any employment, 
+consultant, attorney-client, auditing or other professional relationship 
+with LYA, or any of its present or former affiliates, directors, 
+officers, employees, or agents acting in their capacity as such for the 
+period of the review and for a period of two years after the review; 
+ 
+17 
+ 
+   (c) LYA has resolved all disciplinary issues with the Board, and has 
+complied with all terms and conditions of any sanctions imposed by 
+the Board (other than reinstatement by the Commission); and 
+ 
+   (d) LYA acknowledges its responsibility, as long as it appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, 
+including, but not limited to, all requirements relating to registration, 
+inspections, engagement quality reviews and quality control 
+standards.   
+ 
+D. The Commission will consider an application by LYA to resume appearing or 
+practicing before the Commission provided that its CPA license is current and it has resolved all 
+other disciplinary issues with the applicable boards of accountancy.  However, if CPA licensure is 
+dependent on reinstatement by the Commission, the Commission will consider an application on its 
+own merits. The Commission’s review may include consideration of, in addition to the matters 
+referenced above, any other matters relating to LYA’s character, integrity, professional conduct, or 
+qualifications to appear or practice before the Commission.  Whether an application demonstrates 
+good cause will be considered on a facts and circumstances basis with due regard for protecting the 
+integrity of the Commission’s processes. 
+ 
+Lichter 
+ 
+E. Lichter is denied the privilege of appearing or practicing before the Commission as 
+an accountant. 
+ 
+F.  After five years from the date of this order, Lichter may request that the Commission 
+consider his reinstatement by submitting an application 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 (other than as a 
+member of an audit committee, as that term is defined in Section 3(a)(58) of the Exchange Act).  
+Such an application must satisfy the Commission that Lichter’s work in his practice before the 
+Commission as an accountant 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.    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 as a member of an 
+audit committee, as that term is defined in Section 3(a)(58) of the Exchange Act.  Such an 
+application will be considered on a facts and circumstances basis with respect to such membership, 
+and the applicant’s burden of demonstrating good cause for reinstatement will be particularly high 
+given the role of the audit committee in financial and accounting matters; and/or 
+18 
+ 
+ 
+ 3. an independent accountant.   
+ 
+Such an application must satisfy the Commission that: 
+      
+           (a) Lichter, or the public accounting firm with which he is associated, is 
+registered with the Board in accordance with the Sarbanes-Oxley Act 
+of 2002, and such registration continues to be effective; 
+ 
+   (b) Lichter, or the registered public accounting firm with which he is 
+associated, has been inspected by the Board and that inspection did 
+not identify any criticisms of or potential defects in the respondent’s 
+or the firm’s quality control system that would indicate that Lichter 
+will not receive appropriate supervision; 
+ 
+   (c) Lichter has resolved all disciplinary issues with the Board, and has 
+complied with all terms and conditions of any sanctions imposed by 
+the Board (other than reinstatement by the Commission); and 
+ 
+   (d) Lichter acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, 
+including, but not limited to, all requirements relating to registration, 
+inspections, engagement quality reviews and quality control 
+standards.   
+ 
+G. The Commission will consider an application by Lichter 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 state 
+licensure is dependent 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 Lichter’s character, integrity, 
+professional conduct, or qualifications to appear or practice before the Commission as an 
+accountant.  Whether an application demonstrates good cause will be considered on a facts and 
+circumstances basis with due regard for protecting the integrity of the Commission’s processes. 
+ 
+  
+19 
+ 
+Yu 
+ 
+H. Yu is denied the privilege of appearing or practicing before the Commission as an 
+accountant. 
+ 
+I.  After five years from the date of this order, Yu may request that the Commission 
+consider his reinstatement by submitting an application 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 (other than as a member of an audit committee, as that term is 
+defined in Section 3(a)(58) of the Exchange Act).  Such an application must 
+satisfy the Commission that Yu’s work in his practice before the 
+Commission as an accountant 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.    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 as a member of an audit committee, as that term is defined in 
+Section 3(a)(58) of the  Exchange Act.  Such an application will be 
+considered on a facts and circumstances basis with respect to such 
+membership, and the applicant’s burden of demonstrating good cause for 
+reinstatement will be particularly high given the role of the audit committee 
+in financial and accounting matters; and/or 
+ 
+  3. an independent accountant.   
+ 
+Such an application must satisfy the Commission that: 
+      
+           (a) Yu, or the public accounting firm with which he is associated, is 
+registered with the PCAOB in accordance with the Sarbanes-Oxley 
+Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Yu, or the registered public accounting firm with which he is 
+associated, has been inspected by the Board and that inspection did 
+not identify any criticisms of or potential defects in the respondent’s 
+or the firm’s quality control system that would indicate that Yu will 
+not receive appropriate supervision; 
+ 
+20 
+ 
+   (c) Yu has resolved all disciplinary issues with the Board, and has 
+complied with all terms and conditions of any sanctions imposed by 
+the Board (other than reinstatement by the Commission); and 
+ 
+   (d) Yu acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, 
+including, but not limited to, all requirements relating to registration, 
+inspections, engagement quality reviews and quality control 
+standards.   
+ 
+J. The Commission will consider an application by Yu 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 state 
+licensure is dependent 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 Yu’s character, integrity, professional 
+conduct, or qualifications to appear or practice before the Commission as an accountant.  Whether 
+an application demonstrates good cause will be considered on a facts and circumstances basis with 
+due regard for protecting the integrity of the Commission’s processes. 
+ 
+Monetary Remedies 
+ 
+K. Respondent LYA shall, within ten days of the entry of this Order, pay 
+disgorgement of $39,900, plus prejudgment interest thereon of $3,788.49 to the Securities and 
+Exchange Commission  for transfer to the general fund of the United States Treasury, subject to  
+Exchange Act Section 21F(g)(3).  If timely payment is not made, additional interest shall accrue 
+pursuant to SEC Rule of Practice 600. 
+ 
+L. Respondent LYA, shall, within ten days of the entry of this Order, pay a civil 
+money penalty of $25,000 to the Securities and Exchange Commission for transfer to the general 
+fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely 
+payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717. 
+ 
+ Payment must be made in one of the following ways:   
+ 
+(1)  Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
+ 
+21 
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange Commission and 
+hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+ Payments by check or money order must be accompanied by a cover letter identifying LYA 
+as a Respondent in these proceedings, and the file number of these proceedings; a copy of the 
+cover letter and check or money order must be sent to Lara Mehraban, Associate Regional 
+Director, Securities and Exchange Commission, Brookfield Place, 200 Vesey Street, Suite 400, 
+New York, New York 10281. 
+ 
+M. Respondent Lichter shall, within ten days of the entry of this Order, pay a civil 
+money penalty of $7,500 to the Securities and Exchange Commission for transfer to the general 
+fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely 
+payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717. 
+ 
+ Payment must be made in one of the following ways:   
+ 
+(1)  Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange Commission and 
+hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+ Payments by check or money order must be accompanied by a cover letter identifying 
+Lichter as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
+the cover letter and check or money order must be sent to Lara Mehraban, Associate Regional 
+Director, Securities and Exchange Commission, Brookfield Place, 200 Vesey Street, Suite 400, 
+New York, New York 10281. 
+22 
+ 
+ 
+N. Respondent Yu shall, within ten days of the entry of this Order, pay a civil money 
+penalty of $7,500 to the Securities and Exchange Commission for transfer to the general fund of 
+the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not 
+made, additional interest shall accrue pursuant to 31 U.S.C. §3717. 
+ 
+ Payment must be made in one of the following ways:   
+ 
+(1)  Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or 
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange Commission and 
+hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+ Payments by check or money order must be accompanied by a cover letter identifying Yu 
+as a Respondent in these proceedings, and the file number of these proceedings; a copy of the 
+cover letter and check or money order must be sent to Lara Mehraban, Associate Regional 
+Director, Securities and Exchange Commission, Brookfield Place, 200 Vesey Street, Suite 400, 
+New York, New York 10281. 
+ 
+O.    Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes. To 
+preserve the deterrent effect of the civil penalty, Respondents agree that in any Related Investor 
+Action, they shall not argue that they are entitled to, nor shall they benefit by, offset or reduction 
+of any award of compensatory damages by the amount of any part of Respondents’ payment of a 
+civil penalty in this action ("Penalty Offset"). If the court in any Related Investor Action grants 
+such a Penalty Offset, Respondents agree that they shall, within 30 days after entry of a final 
+order granting the Penalty Offset, notify the Commission's counsel in this action and pay the 
+amount of the Penalty Offset to the Securities and Exchange Commission. Such a payment shall 
+not be deemed an additional civil penalty and shall not be deemed to change the amount of the 
+civil penalty imposed in this proceeding.  For purposes of this paragraph, a "Related Investor 
+Action" means a private damages action brought against Respondents by or on behalf of one or 
+more investors based on substantially the same facts as alleged in the Order instituted by the 
+Commission in this proceeding. 
+23 
+ 
+ 
+V. 
+ 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondents, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondents under this Order or any other judgment, order, consent order, decree 
+or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondents of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+ 
+ 
+       Brent J. Fields 
+       Secretary 
+ 

raw/aaer/2019/AAER-4049.txt

@@ -0,0 +1,303 @@
+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 86034 / June 5, 2019 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4049 / June 5, 2019 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19194 
+ 
+ 
+In the Matter of 
+ 
+Pinnacle Accountancy Group, 
+PLLC  
+and Douglas W. Child, CPA,  
+ 
+Respondents. 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS 
+PURSUANT TO SECTIONS 4C AND 21C 
+OF THE SECURITIES EXCHANGE ACT 
+OF 1934 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 cease-
+and-desist proceedings be, and hereby are, instituted against Pinnacle Accountancy Group, PLLC 
+(“Pinnacle” or the “Firm”) and Douglas W. Child, CPA (collectively, “Respondents”) pursuant to 
+Section 21C of the Securities Exchange Act of 1934 (“Exchange Act”), and that public 
+administrative proceedings be, and hereby are, instituted against Child pursuant to Exchange Act 
+Section 4C1 and pursuant to Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.2 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ “The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that person is found .  . . 
+to have willfully violated, or willfully aided and abetted the violation of, any provision of the 
+securities laws or the rules and regulations issued thereunder.” 
+2  Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ “The Commission may . . . 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 
+2 
+ 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondents have submitted an Offer 
+of Settlement (the “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, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over them and the subject matter of these 
+proceedings, which are admitted, Respondents consent to the entry of this Order Instituting Public 
+Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the 
+Securities Exchange Act of 1934 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 Respondents’ Offer, the Commission finds that:  
+ 
+A. SUMMARY 
+ 
+ These proceedings arise out of the failure by Pinnacle to register with the Public Company 
+Accounting Oversight Board (the “PCAOB” or the “Board”), as required by Section 102(a) of the 
+Sarbanes-Oxley Act of 2002 (“SOX”)3 and Child’s willful aiding and abetting of Pinnacle’s 
+registration violation.   
+ 
+B. RESPONDENTS 
+ 
+1. Pinnacle is a Utah professional corporation and public accounting firm 
+headquartered in Farmington, Utah.  The Firm has never been registered with the PCAOB.   
+ 
+2. Child, 59, of East Eden, Utah, is a certified public accountant licensed in Utah 
+since 1986.  During the relevant time period, Child was the managing partner at Pinnacle.  At all 
+relevant times, Child was also a minority partner at Pritchett, Siler & Hardy, P.C. (“PSH”), a 
+PCAOB-registered public accounting firm, where he served as the engagement partner for PSH’s 
+audits of certain issuers (“Issuers”). 
+C. OTHER RELEVANT ENTITIES 
+ 
+3. PSH, a Utah professional corporation based in Salt Lake City, Utah, is a public 
+accounting firm that registered with the PCAOB in October 2003.  During the relevant time 
+                                                                                                                                                             
+and abetted the violation of any provision of the Federal securities laws or the rules and 
+regulations thereunder.” 
+3  See also PCAOB Rule 2100(b) which states in pertinent part that each public accounting firm that “plays a 
+substantial role in the preparation or furnishing of an audit report with respect to any issuer” must be registered with 
+the Board. 
+3 
+ 
+period, PSH was the principal auditor of the Issuers (the “Audits”) and signed the audit reports 
+with respect to the Audits (the “Audit Reports”).  Child served as engagement partner for the 
+Audits. 
+ 
+4. Issuers are companies as defined in Section 2(a)(7) of SOX. The overwhelming 
+majority of Issuers in this matter were penny stock, shell, or blank-check companies. 
+ 
+D. FACTS 
+ 
+5. Child joined PSH as a minority partner for the purpose of, among other things, 
+serving as the engagement partner on the Audits.  From 2015 through early 2018, Pinnacle played 
+a substantial role in the preparation of the Audit Reports at the direction of Child, Pinnacle’s 
+managing partner.4  During the relevant time period, PSH relied on the material services Pinnacle 
+performed when it issued the Audit Reports. 5  The Audit Reports were filed with the Commission 
+pursuant to Section 15(d) of the Exchange Act. 
+ 
+6. At all times, Pinnacle was not registered with the PCAOB, as required by Section 
+102(a) of SOX. 
+ 
+E. VIOLATIONS  
+ 
+7. Section 102(a) of SOX provides in pertinent part that it is unlawful for any person 
+that is not a registered public accounting firm to participate in the preparation or issuance of any 
+audit report with respect to any issuer.6 
+ 
+8. Based on the conduct described above, Pinnacle willfully7 violated Section 102(a) 
+of SOX. 
+ 
+9. Based on the conduct described above, Child willfully aided and abetted and caused 
+the Firm’s violation of Section 102(a) of SOX. 
+ 
+                                                 
+4  PCAOB Rule 1001(p)(ii)(1) defines the phrase “play a substantial role in the preparation or furnishing of 
+an audit report” as “perform[ing] material services that a public accounting firm uses or relies on in issuing all or 
+part of its audit report.”  
+5  PCAOB Rule 1001(p)(ii)(Note 1) defines the term “material services” as services, “for which the 
+engagement hours or fees constitute 20% or more of the total engagement hours or fees, respectively, provided by 
+the principal auditor in connection with the issuance of all or part of its audit report…” 
+6  A violation of SOX or any rule that the PCAOB issues under SOX is treated for all purposes in the same 
+manner as a violation of the Exchange Act, including with respect to penalties.  Sarbanes-Oxley Act of 2002, 15 
+U.S.C. § 7202(b)(1). 
+7  “Willfully” as used in this Order means intentionally committing the act that constitutes the violation.  
+There is no requirement that the actor also be aware that he is violating a rule or statute.  See Wonsover v. SEC, 205 
+F.3d 408, 414 (D.C. Cir. 2000); Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 1965). 
+4 
+ 
+F. FINDINGS 
+ 
+10. Based on the foregoing, the Commission finds that Pinnacle willfully violated 
+Section 102(a) of SOX and that Child caused the Firm’s violation of Section 102(a) of SOX. 
+ 
+11. Based on the foregoing, the Commission finds that Child willfully aided and 
+abetted Pinnacle’s violations of Section 102(a) of SOX pursuant to Section 4C(a)(3) of the 
+Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondents’ Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Pinnacle and Child shall cease and desist from committing or causing any violations 
+and any future violations of Section 102(a) of SOX. 
+ 
+ B. Child is denied the privilege of appearing or practicing before the Commission as 
+an accountant.  
+ 
+ C. After two years from the date of this order, Child 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 (other than as a member of an audit committee, as that term is 
+defined in Section 3(a)(58) of the Exchange Act).  Such an application must 
+satisfy the Commission that Child’s work in his practice before the 
+Commission as an accountant 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.    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 as a member of an audit committee, as that term is defined in 
+Section 3(a)(58) of the Exchange Act.  Such an application will be 
+considered on a facts and circumstances basis with respect to such 
+membership, and the applicant’s burden of demonstrating good cause for 
+reinstatement will be particularly high given the role of the audit committee 
+in financial and accounting matters; and/or 
+5 
+ 
+ 
+  3. an independent accountant.   
+ 
+  Such an application must satisfy the Commission that: 
+      
+           (a) Child, or the public accounting firm with which he is associated, is 
+registered with the Board in accordance with SOX, and such 
+registration continues to be effective; 
+ 
+   (b) Child, or the registered public accounting firm with which he is 
+associated, has been inspected by the Board and that inspection did 
+not identify any criticisms of or potential defects in the 
+respondent’s or the firm’s quality control system that would 
+indicate that Child will not receive appropriate supervision; 
+   (c) Child has resolved all disciplinary issues with the Board, and has 
+complied with all terms and conditions of any sanctions imposed 
+by the Board (other than reinstatement by the Commission); and 
+ 
+   (d) Child acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, 
+including, but not limited to, all requirements relating to 
+registration, inspections, engagement quality reviews and quality 
+control standards.   
+ 
+D. The Commission will consider an application by Child 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 state licensure is dependent 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 Child’s character, 
+integrity professional conduct, or qualifications to appear or practice before the Commission as 
+an accountant.  Whether an application demonstrates good cause will be considered on a facts 
+and circumstances basis with due regard for protecting the integrity of the Commission’s 
+processes. 
+ 
+E. Respondents shall pay, on a joint and several basis, a civil money penalty in the 
+amount of $30,000.00 to the Securities and Exchange Commission for transfer to the general 
+fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  Payment shall 
+be made in the following installments:  (1) $15,000.00 shall be due and payable within 10 days 
+of the entry of this Order; and (2) three equal payments each in the amount of $5,000.00 shall be 
+made within 120, 240, and 360 days of the entry of this Order.  Payments shall be applied first to 
+post order interest, which accrues pursuant to 31 U.S.C. 3717.  Prior to making the final payment 
+set forth herein, Respondents shall contact the staff of the Commission for the amount due.  If 
+6 
+ 
+Respondents fail to make any payment by the date agreed and/or in the amount agreed according 
+to the schedule set forth above, all outstanding payments under this Order, including post-order 
+interest, minus any payments made, shall become due and payable immediately at the discretion 
+of the staff of the Commission without further application to the Commission.     
+ 
+Payment must be made in one of the following ways:   
+ 
+(1) Respondents may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request;  
+ 
+(2) Respondents may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondents may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Pinnacle and Child as Respondents in these proceedings, and the file number of these proceedings; 
+a copy of the cover letter and check or money order must be sent to Glenn S. Gordon, Associate 
+Regional Director, Division of Enforcement, Securities and Exchange Commission, Miami 
+Regional Office, 801 Brickell Avenue, Suite 1800, Miami, FL 33134.   
+ 
+ F. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondents agree that in any Related Investor 
+Action, they shall not argue that they are entitled to, nor shall they benefit by, offset or reduction of 
+any award of compensatory damages by the amount of any part of Respondents payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondents agree that they shall, within 30 days after entry of a final order 
+granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of 
+the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
+deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
+penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
+means a private damages action brought against Respondents by or on behalf of one or more 
+investors based on substantially the same facts as alleged in the Order instituted by the 
+Commission in this proceeding. 
+7 
+ 
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondent Child, and further, any debt for disgorgement, prejudgment interest, civil penalty or 
+other amounts due by Respondent Child under this Order or any other judgment, order, consent 
+order, decree or settlement agreement entered in connection with this proceeding, is a debt for the 
+violation by Respondent Child of the federal securities laws or any regulation or order issued under 
+such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Vanessa A. Countryman 
+       Acting Secretary 

raw/aaer/2019/AAER-4056.txt

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+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 86240 / June 28, 2019 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4056 / June 28, 2019 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19225 
+ 
+ 
+In the Matter of  
+ 
+     S. JEFFREY JONES, CPA, 
+ 
+Respondent. 
+ ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 
+1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF 
+PRACTICE, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS  
+ 
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against S. Jeffrey Jones, CPA 
+(“Respondent” or “Jones”) pursuant to Section 4C1 of the Securities Exchange  
+Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.2 
+ 
+                                                 
+1  Section 4C provides, in relevant part, that:   
+ 
+The Commission may censure any person, or deny, temporarily or permanently, to any 
+person the privilege of appearing or practicing before the Commission in any way, if that 
+person is found … (2) … to have engaged in unethical or improper professional 
+conduct….  
+ 
+2   Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to have engaged in unethical or 
+improper professional conduct. 
+  
+ 
+2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+purposes 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 him and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public 
+Administrative Proceedings Pursuant to Section 4C of the Securities Exchange Act of 1934 and 
+Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds3 that:  
+ 
+A. SUMMARY 
+ 
+1. These proceedings arise out of Jones’s improper professional conduct as the lead 
+engagement partner on the audits of Blue Earth Inc.’s (“Blue Earth”) 2013 and 2014 fiscal year 
+financial statements and reviews of the fiscal year 2014 interim financial statements.  Blue Earth, a 
+provider of efficient and renewable energy solutions, has since filed for Chapter 11 bankruptcy.  
+Jones had overall responsibility for the conduct of the audits and interim reviews, including 
+supervision of team members and compliance with Public Company Accounting Oversight Board 
+(“PCAOB”) standards.  Jones caused the issuance of audit reports for those years, signed by Jones 
+on behalf of the audit firm, containing an unqualified opinion that Blue Earth’s financial statements 
+were presented fairly, in all material respects, in conformity with generally accepted accounting 
+principles (“GAAP”).  The audit reports also stated that the audits were conducted in accordance 
+with PCAOB standards.  The financial statements were included in the Forms 10-K for the fiscal 
+years 2013 and 2014.  The interim financial statements were included in the Forms 10-Q for the 
+first three quarters of 2014.   
+ 
+2. Jones failed to conduct the audits and interim reviews in accordance with PCAOB 
+standards referenced herein.    
+ 
+B. RESPONDENT  
+ 
+ 3. S. Jeffrey Jones, CPA, age 52, resides in South Jordan, Utah.  Jones has been 
+licensed as a CPA in the State of Utah since November 1997.  During and after the relevant period, 
+Jones was a partner at a PCAOB-registered accounting firm.   
+ 
+                                                 
+3   The findings herein are made pursuant to Respondent's Offer of Settlement and are not 
+binding on any other person or entity in this or any other proceeding.   
+3 
+C. RELEVANT ENTITY 
+ 
+4. Blue Earth, Inc. is incorporated in Nevada and, during the relevant period, was 
+headquartered in Henderson, Nevada.  During the relevant period, it provided a limited range of 
+renewable and energy efficient solutions for commercial and industrial facilities.  During the 
+relevant period up to August 28, 2014, the company had a class of common stock registered with 
+the Commission pursuant to Exchange Act Section 12(g) which was quoted on the OTC Bulletin 
+Board.  Effective August 28, 2014, the company registered its common stock with the Commission 
+pursuant to Section 12(b) of the Exchange Act, and the stock was listed on the NASDAQ Capital 
+Market.  On March 21, 2016, Blue Earth filed for Chapter 11 bankruptcy.  The NASDAQ 
+suspended Blue Earth’s common stock on March 28, 2016 and delisted the stock effective April 
+18, 2016.  Blue Earth filed with the Commission a Form 15 terminating the registration of its 
+common stock under Section 12(g) on August 1, 2016 and a Form 15 suspending its periodic 
+reporting obligations under Section 15(d) of the Exchange Act on January 4, 2017.   
+ 
+D. FACTS 
+ 
+Failure to Comply with PCAOB Auditing Standards During the Audit of Blue 
+Earth’s 2013 Fiscal Year Financial Statements   
+ 
+5. On July 15, 2013, Blue Earth acquired a subsidiary4 it eventually renamed Blue 
+Earth CHP (“BE CHP”).  Through BE CHP, Blue Earth intended to enter into agreements with 
+customers pursuant to which  Blue Earth would develop, build, own, and operate combined heat 
+and power plants on land leased from the customer.  The plants would generate steam and 
+electricity for the customer at below market rates, and Blue Earth would sell the excess electricity 
+to the local utility.  Blue Earth paid for BE CHP with 15,500,000 shares of restricted company 
+stock.  To determine the purchase price, the company multiplied the number of shares paid by the 
+share price resulting in a value of $44,035,500.   
+ 
+6. Shortly after the acquisition, BE CHP entered into seven non-binding term sheets 
+with a major meat processing company.  At the insistence of the meat processing company, the 
+term sheets expressly stated that they were non-binding.  The meat processing company would be 
+bound only when the parties signed a “definitive agreement” for each facility, meaning: (i) a 
+ground lease allowing Blue Earth access to the premises for purposes of constructing and operating 
+the plant; and (ii) a power purchase agreement obligating BE CHP to sell, and the meat processing 
+company to buy, steam and electricity at a set price.  No such contract was signed until August 
+2014, when Blue Earth and the meat processing company executed a definitive agreement for one 
+plant.  Blue Earth and the customer signed a definitive agreement for a second, smaller plant in 
+December 2014.  Definitive agreements were not executed for any other plants.  
+     
+                                                 
+4 Blue Earth initially acquired and combined two affiliated private entities to form BE CHP.  BE 
+CHP is used herein to refer to both the pre-merger entities and the single post-merger subsidiary 
+into which they were combined. 
+4 
+7. The GAAP governing accounting for business combinations, Accounting Standards 
+Codification (“ASC”) 805 Business Combinations (“ASC 805”), requires that a company: (a) 
+determine the purchase price which, in the case of a stock-for-stock acquisition, is the fair market 
+value of the shares paid (unless the acquiree’s share price is more reliably measured); (b) identify 
+all the assets acquired, including intangible assets; (c) determine the fair value of each asset; (d) 
+allocate the purchase price to each identified asset, offset by the liabilities; and (e) allocate the 
+residual to goodwill. 
+ 
+8. Instead of complying with ASC 805, Blue Earth erroneously concluded that 
+because BE CHP had no revenues and no customer base, it could not have any goodwill; did not 
+attempt to separately identify intangible assets or obtain a fair market value of any identifiable 
+intangible asset; and concluded that the amount of the purchase price in excess of the tangible 
+assets should be allocated to an asset, which Blue Earth incorrectly classified as a “Construction in 
+Progress” asset.    
+ 
+9. The company recorded the $44 million “Construction in Progress” asset on its 
+books and records during the third quarter of 2013.  The asset comprised 56% and 51% of Blue 
+Earth’s assets reported on its balance sheet in the financial statements for the quarter ended 
+September 30, 2013 and the fiscal year ended December 31, 2013, respectively.    
+ 
+10. Based on the reported $44 million value of the purported “Construction in 
+Progress” asset relative to all Blue Earth’s reported assets, the audit engagement team, led by 
+Jones, identified the asset as possessing  a risk of material misstatement during the audit of the 
+company’s 2013 fiscal year financial statements, meaning that the auditor was required to design 
+and implement an audit response that addresses the risks of material misstatement.  In the course of 
+doing that testing, Jones was put on notice of red flags indicating that the company had improperly 
+applied ASC 805 during the third quarter of 2013 and that almost the entire $44 million purchase 
+price should have been allocated to goodwill.  
+ 
+11. The red flags included the following:  
+ 
+a. For purposes of testing the company’s analysis of the $44 million 
+“Construction in Progress” asset for impairment, the audit team obtained from 
+the company a discounted cash flow (“DCF”) of future revenues from seven 
+sites.  On Jones’s asking to see the contracts for the seven sites underlying the 
+DCF, the company told Jones there were no contracts, only non-binding term 
+sheets, and that the company was in the process of negotiating contracts with a 
+potential customer with respect to the seven potential sites.   
+    
+b. The DCF provided by the company to the audit team reflected a value for the 
+entire enterprise of $42.3 million, whereas the “Construction in Progress” asset 
+was reported on the company’s balance sheet as having a $44 million value.    
+ 
+c. In light of information gathered during the audit, Jones advised the company to 
+obtain an independent valuation.  The company declined on the grounds that no 
+5 
+one was better positioned to value the asset than company insiders.  
+ 
+d. The audit team retained a valuation firm for the limited purpose of assessing 
+the reasonableness of the discount rate used by Blue Earth in its DCF.  The 
+valuation firm provided to the audit team a revision of the company’s DCF, 
+using the inputs from the company’s DCF and after correcting for errors in the 
+company’s DCF.  The valuation firm’s revised DCF arrived at a potential 
+enterprise value of BE CHP at the time of acquisition of $8.1 million -- not the 
+$42 million reflected in Blue Earth’s DCF.  
+ 
+e. Jones knew that ASC 805 required the identification of each discrete asset 
+acquired and a fair valuation of each asset.  He and the audit team under his 
+supervision, however, did not obtain sufficient information about whether and 
+how the company had performed a fair valuation pursuant to ASC 805 of the 
+$44 million “Construction in Progress” asset that was identified. 
+ 
+12. Jones failed to respond appropriately to these red flags.  Further, he took the 
+position that no portion of a purchase price is allocable to goodwill under ASC 805 if the company 
+acquired has no brand name or operations at the time of acquisition, as was the case with BE CHP.  
+As a result, Jones failed to test whether the company had properly applied ASC 805 in recording a 
+$44 million ”Construction in Progress” asset on its books and records.    
+ 
+13. Instead of questioning or testing the company’s application of ASC 805 at the 
+acquisition date during the 2013 fiscal year audit, Jones focused on whether the company had to 
+take an impairment on the purported $44 million “Construction in Progress” asset as of December 
+31, 2014.  The audit team, under Jones’s supervision, initially took the position that it needed to see 
+the executed contracts in order to complete its testing of the asset for impairment.  Despite this, and 
+in the face of the foregoing red flags, the audit team, under Jones’s supervision, ultimately relented 
+in the face of the company’s assurances that the contracts for the seven sites were being negotiated 
+and their execution was imminent.  While knowing that the $42.3 million DCF was based on an 
+assumption of seven contracts, the audit team, at Jones’s direction, relied on the company’s DCF to 
+conclude that no impairment of the purported $44 million “Construction in Progress” asset was 
+warranted.    
+  
+14. PCAOB Auditing Standard No. 9, Audit Planning (“AS No. 9”)5 required an 
+auditor to establish the overall audit strategy for the engagement and develop an audit plan, which 
+includes, in particular, planned risk assessment procedures and planned responses to the risks of 
+material misstatement.  (AS No. 9 at ¶ .05).  Jones failed to plan appropriate audit procedures, as 
+required by AS No. 9, in light of the audit team’s determination that the $44 million “Construction 
+in Progress” asset posed risks of material misstatement.   
+ 
+15. PCAOB Standard AU Section 230, Due Professional Care in the Performance of 
+                                                 
+5 All references to auditing standards in this Order are to PCAOB standards in effect at the time 
+the audit work was performed.   
+6 
+Work (“AU §230”) required that an auditor exercise professional skepticism.  Professional 
+skepticism is an attitude that includes a questioning mind and a critical assessment of audit 
+evidence.  In exercising professional skepticism, the auditor should not be satisfied with less than 
+persuasive evidence because of a belief that management is honest.  (AU §230 at ¶¶ .07, .09).  
+PCAOB Auditing Standard No. 13, The Auditor’s Responses to the Risks of Material 
+Misstatement (“AS No. 13”) requires the auditor design and implement audit responses that 
+address the risks of material misstatements and, when responding to the assessed risks of material 
+misstatement, to apply professional skepticism in gathering and evaluating audit evidence.  (AS 
+No. 13 at ¶¶ .03; .07).  PCAOB Auditing Standard No. 15, Audit Evidence (“AS No. 15”) states 
+that the auditor must plan and perform audit procedures to obtain sufficient appropriate audit 
+evidence to provide a reasonable basis for his or her opinion.  The auditor should perform 
+additional procedures if audit evidence from one source is inconsistent with that from another.  As 
+the risk increases, the amount of evidence that the auditor should obtain also increases.   (AS No. 
+15 at ¶¶ .04; .05; .29).  Jones failed to apply professional skepticism in gathering and evaluating 
+audit evidence given the assessed risks of material misstatement, as required by AU §230 and AS 
+Nos. 13 and 15.  For example, he accepted the company’s representation that lease and power 
+purchase agreements relating to seven sites on which the DCF was based were imminent, without 
+performing additional testing procedures.  Further, he also failed to follow up on the valuation 
+expert’s revised DCF reflecting an $8.1 million valuation, given that the company’s DCF arrived at 
+a valuation of $42 million. 
+ 
+16. PCAOB Standard AU Section 328, Auditing Fair Value Measurements and 
+Disclosures (“AU §328”) stated the auditor should obtain sufficient appropriate audit evidence to 
+provide reasonable assurance that fair value measurements and disclosures are in conformity with 
+GAAP.  (AU §328 at ¶ .03).  Jones failed to obtain sufficient appropriate audit evidence, as 
+required by AS No. 15 and AU §328, to evaluate management’s explanations or representations 
+concerning the purchase price allocation for the BE CHP acquisition and the fair value of the $44 
+million asset.  Despite the company’s rebuffing his advice that it obtain an independent valuation, 
+and the revised DCF of the independent valuation expert the audit engagement team retained 
+which reflected an $8.1 million valuation, Jones accepted management’s assertion as to the fair 
+value. 
+ 
+17. PCAOB Auditing Standard No. 3, Audit Documentation (“AS No. 3”) required 
+that an auditor prepare its documentation in sufficient detail as to provide a clear understanding of 
+its purpose, source, and the conclusions reached, including documenting evidence that is 
+inconsistent with or contradicts the audit conclusions.  (AS No. 3 at ¶¶ .04; .08).  Jones failed to 
+establish that the engagement team prepared its documentation in sufficient detail so as to support 
+its conclusions concerning the purchase price allocation under ASC 805 and documented the 
+inconsistent evidence of the valuation expert’s revised DCF reflecting an $8.1 million valuation.   
+ 
+ 
+ 
+ 
+ 
+ 
+7 
+Failure to Comply with PCAOB Auditing Standards During the Reviews of Blue 
+Earth’s Interim 2014 Financial Statements and Audit of Blue Earth’s 2014 Fiscal 
+Year Financial Statements 
+ 
+ Impairment Analysis of $44 Million “Construction in Progress” Asset  
+ 
+18.  In October 2014, the meat processing company with which Blue Earth had been 
+negotiating contracts to develop and operate plants at seven sites determined to proceed with only 
+two sites, one of which had been contracted in August 2014 and one that was subsequently 
+contracted in December 2014.  JBS would not even consider Blue Earth for other sites unless Blue 
+Earth successfully completed these two.  Pursuant to ASC 350-30-35, Intangibles—Goodwill and 
+Other, the $44 million “Construction in Progress” asset, which appeared under “Property and 
+Equipment” on the company’s balance sheet, but should have been allocated to goodwill if ASC 
+805 had been properly applied, should have been impaired if the fair value was less than the asset’s 
+carrying value on the company’s books and records.  A 70% reduction in the sites under 
+consideration in late 2014 should have prompted the company to determine whether a reduction in 
+the asset’s fair value had occurred and whether the company needed to take an impairment.  
+However, Blue Earth did not perform an impairment analysis with regard to the $44 million BE 
+CHP asset in its financial statements for the fiscal year ended December 31, 2014.   
+ 
+19. In February 2015, Blue Earth informed Jones that contracts still had not been 
+entered into with respect to five of the seven sites.  Although Blue Earth insisted that the customer 
+remained committed to pursuing all seven projects, it indicated that the customer had determined to 
+develop just the two contracted sites before proceeding with the remaining five.  Blue Earth also 
+referenced the customer’s interest in pursuing projects in the alternative or in addition to the five 
+uncontracted sites.   
+ 
+20. These developments should have prompted Jones and the audit team to conduct 
+further testing into the possible underlying causes and whether management’s representations were 
+reliable.  The audit team, however, under the supervision of Jones, limited the information it 
+sought to the two contracted sites.  In obtaining that limited information, a manufacturer of 
+equipment slated for one of two contracted sites informed the audit team that Blue Earth was 
+delinquent in paying, further calling into question Blue Earth’s ability to perform under the 
+existing two contracts and to undertake additional projects.  Despite these circumstances, the audit 
+team did not perform additional procedures in considering whether an impairment exists.  
+ 
+21. The audit team, under the supervision of Jones, relied on the discounted cash flow 
+figures in the exact same DCF which the company had provided a year earlier and on which the 
+auditor had relied in conducting the audit of the 2013 fiscal year financial statements.  Jones and 
+the rest of the audit team did not consider whether an updated impairment analysis was warranted 
+given information available to the audit team that, among other things, the customer had entered 
+into contracts with respect to only two sites and the progress on the remaining sites was held in 
+abeyance pending the completion of the first two sites. 
+ 
+22. Further, the audit team, under Jones’s supervision, also relied on the assertions of 
+8 
+management that Blue Earth and the customer were contemplating alternative and additional sites 
+to those reflected in the DCF.    
+ 
+23. The audit team, led by Jones, ultimately did not take issue with the company’s 
+failure to undertake an impairment analysis with respect to the $44 million “Construction in 
+Progress” asset.      
+ 
+24. Jones failed to plan and perform appropriate audit procedures, as required by AS 
+No. 9 and AS No. 13, in light of the audit team’s determination that the purported $44 million 
+“Construction in Progress” asset posed risks of material misstatement.   
+ 
+25. Jones failed to apply due professional care and professional skepticism in 
+gathering and evaluating audit evidence given the assessed risks of material misstatement for the 
+purported $44 million asset, as required by AU § 230 and AS Nos. 13 and 15.  Instead of following 
+up on multiple red flags that the value of the asset needed to be tested for impairment, Jones 
+accepted the representations of management and did not undertake further testing.  Jones failed to 
+obtain sufficient appropriate audit evidence to evaluate management’s explanations or 
+representations concerning the current status of the plants or to assess the possible impairment of 
+the “Construction in Progress” asset. 
+ 
+ Improper Capitalization of Compensation Expense  
+ 
+26. In February 2014, Blue Earth hired an individual to run its capital formation 
+subsidiary pursuant to a three-year employment agreement for a salary of $120,000 per year.  At 
+the same time, Blue Earth issued to the individual 1,725,000 shares of Blue Earth restricted 
+common stock, with no vesting schedule, valued at approximately $4.6 million.  The value of the 
+shares should have been expensed in the quarter they were issued as compensation expense under 
+ASC 718 Compensation — Stock Compensation (“ASC 718”).  Instead, Blue Earth improperly 
+recorded the $4.6 million as an asset, capitalized it, and amortized it over three years. 
+ 
+27. The shares were issued to the individual pursuant to a so-called “Sale of 
+Goodwill” agreement under which Blue Earth purported to purchase the individual’s “Seller’s 
+goodwill” which included, among other things, an agreement that the individual share information 
+about certain of his relationships, recommend Blue Earth to his contacts in the energy efficiency 
+and clean tech industry, and enter into an employment agreement with Blue Earth.  Under the 
+“Sale of Goodwill” agreement, Blue Earth issued the shares to the individual upon the execution of 
+the agreement.  There were no conditions to the individual receiving the shares, nor was there any 
+vesting period.       
+    
+28. Under GAAP provision ASC 718, the $4.6 million fair value of the shares issued 
+should have been treated as stock compensation.  As stock compensation, without a vesting period, 
+the $4.6 million share payment from Blue Earth to the individual should have been expensed in the 
+period it was made, instead of being capitalized as an asset and amortized over three years. 
+ 
+29. This accounting error caused Blue Earth to materially understate its expenses by 
+9 
+approximately $4.3 million, constituting a 43% understatement of its net income (loss) before taxes 
+and of its net loss, and overstate its assets by 5% for the quarter ending March 31, 2014.  Blue 
+Earth materially understated its expenses by nearly $3.2 million for the year ending December 31, 
+2014, which constituted a 10% understatement of its net income (loss) before taxes and 9.4% 
+understatement of its net loss.  This error also caused Blue Earth to overstate its assets by 3.1% for 
+the year ending December 31, 2014. 
+ 
+30. In February 2016, the company restated its financial statements for the year ending 
+December 31, 2014, after determining that the $4.6 million asset should have been treated as 
+compensation expense, and expensed in the quarter during which the shares were issued. 
+ 
+31. The audit team, under Jones’s supervision, conducted interim reviews of Blue 
+Earth’s financial statements for the first three quarters of 2014 and the audit of the year ended 
+December 31, 2014.   
+ 
+32. In the first quarter, Jones was aware of the details of this transaction and failed to 
+take the appropriate steps to address the likely misstatement.  Jones knew or should have known 
+that the compensation should have been expensed when the shares were issued.  For example, he 
+knew that the value derived from the transaction was the individual’s contacts within the industry 
+and his potential use of those contacts to raise funds for Blue Earth and that there was no vesting 
+period and no continuing employment obligation in order to receive the stock compensation.  
+Despite these red flags, Jones accepted the company’s capitalization of the fair value of the shares 
+as an intangible asset.   
+ 
+33. Further, in connection with the year end audit, Jones did not direct the audit team 
+to request evidence that a fair value assessment was conducted as to the $4.6 million purported 
+asset or collect any additional evidence as to the nature of the asset. 
+ 
+34. Jones failed to exercise due professional care and professional skepticism in his 
+communication with management and in gathering and evaluating audit evidence, as required by 
+AU § 230.  Despite understanding that there was no vesting period and no continuing employment 
+obligation in order to receive the stock compensation, Jones did not question Blue Earth’s 
+capitalization of the payment, even though he knew or should have known it was contrary to 
+GAAP.   
+ 
+35. Jones failed to obtain sufficient appropriate audit evidence to evaluate 
+management’s explanations or representations concerning the treatment of the stock payment, as 
+required by AS No. 13 and AU § 328.  Jones did not request or document evidence that the $4.6 
+million stock payment was a compensation expense.  Jones accepted management’s conclusion 
+that the $4.6 million payment should be treated as an asset valued at $4.6 million.  Insufficient 
+testing was done on the transaction.  
+ 
+36. The audit conclusion that Blue Earth had acquired an asset valued at $4.6 million 
+was not supported by the engagement team’s documentation.  Accordingly, Jones failed to prepare 
+audit documentation in sufficient detail to support the conclusions, as required by AS No. 3.   
+10 
+ 
+37. PCAOB Standard AU 722, Interim Financial Information, provided that the 
+objective of a review of interim financial information is to provide the accountant with a basis for 
+communicating whether he or she is aware of any material modifications that should be made to 
+the interim financial information for it to conform with GAAP, and not to provide a basis for 
+opining that the financial statements are presented fairly in all material respects.  Jones failed to 
+properly perform a review of interim financial information in connection with this transaction in 
+the first three quarters of 2014, because Jones was aware of information that should have put him 
+on notice that the interim financials with respect to the transaction did not comply with GAAP.  
+Therefore, Jones was required to make further inquiries or perform further procedures to determine 
+whether those changes should be made, but he failed to do so. 
+ 
+38. Findings  
+  
+ Based on the foregoing, the Commission finds that Jones engaged in improper professional 
+conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice. 
+  
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Jones’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Jones is denied the privilege of appearing or practicing before the Commission as 
+an accountant.   
+ 
+ B. After two years from the date of this order, Jones 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 (other than as a member of an audit committee, as that term is 
+defined in Section 3(a)(58) of the Exchange Act).  Such an application must 
+satisfy the Commission that Jones’s work in his practice before the 
+Commission as an accountant 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)    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 as a member of an audit committee, as that term is defined in 
+11 
+Section 3(a)(58) of the Exchange Act.  Such an application will be 
+considered on a facts and circumstances basis with respect to such 
+membership, and the applicant’s burden of demonstrating good cause for 
+reinstatement will be particularly high given the role of the audit committee 
+in financial and accounting matters; and/or 
+ 
+  (3) an independent accountant.   
+ 
+  Such an application must satisfy the Commission that: 
+      
+           a. Jones, or the public accounting firm with which he is associated, is 
+registered with the PCAOB in accordance with the Sarbanes-Oxley 
+Act of 2002, and such registration continues to be effective; 
+ 
+   b. Jones, or the registered public accounting firm with which he is 
+associated, has been inspected by the PCAOB and that inspection 
+did not identify any criticisms of or potential defects in the 
+respondent’s or the firm’s quality control system that would 
+indicate that Jones will not receive appropriate supervision; 
+   c.  Jones has resolved all disciplinary issues with the PCAOB, and has 
+complied with all terms and conditions of any sanctions imposed 
+by the PCAOB (other than reinstatement by the Commission); and 
+ 
+d. Jones acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the PCAOB, 
+including, but not limited to, all requirements relating to 
+registration, inspections, concurring partner reviews and quality 
+control standards.   
+ 
+C. The Commission will consider an application by Jones 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 state licensure is dependent 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 Jones’s character, 
+integrity professional conduct, or qualifications to appear or practice before the Commission as  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+12 
+an accountant.  Whether an application demonstrates good cause will be considered on a facts 
+and circumstances basis with due regard for protecting the integrity of the Commission’s 
+process.   
+ 
+ By the Commission. 
+ 
+ 
+       Vanessa A. Countryman 
+       Secretary 
+ 
+ 
+ 

raw/aaer/2019/AAER-4058.txt

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+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 86350 / July 10, 2019 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4058 / July 10, 2019 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19244 
+ 
+In the Matter of 
+THOMAS H. LAWS, CPA,  
+Respondent. 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+ PURSUANT TO SECTION 15(b) OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+ 
+ 
+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 Thomas 
+H. Laws (“Respondent” or “Laws”) pursuant to Section 15(b) of the Securities Exchange Act of 
+1934 (“Exchange Act”) and Rule 102(e)(3)(i) of the Commission’s Rules of Practice.1   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 
+ 
+ 2 
+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 him and the subject matter of these 
+proceedings, and the findings contained in Section III.3. below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to 
+Section 15(b) of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules 
+of Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+1. Laws, 61, is and has been a certified public accountant licensed to practice in the 
+State of New Mexico.  From February 2002 until November 2017, Laws was a registered 
+representative associated with a broker-dealer registered with the Commission.  Laws served as the 
+Chief Executive Officer of Santa Fe Gold Corporation (“Santa Fe”) from August 2016 until his 
+termination in September 2018.    
+ 
+2. Santa Fe, a small mining company, is Delaware corporation with its principal place 
+of business in Albuquerque, New Mexico.  At all relevant times, Santa Fe had a class of securities 
+registered under Section 12(g) of the Exchange Act, its common stock was quoted on the OTC 
+Link operated by OTC Markets Group Inc., and it filed periodic reports with the Commission 
+pursuant to Section 13 of the Exchange Act and related rules thereunder.   
+ 
+3. On June 28, 2019, 2019, a final judgment was entered by consent against Laws, 
+permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 
+[15 U.S.C. §§ 77q(a)], Sections 10(b) and 13(b)(5) of the Exchange Act [15 U.S.C. §§ 78j(b) and 
+78m(b)(5)] and Rules 10b-5, 13b2-1, 13b2-2, and 13a-14 thereunder [17 C.F.R. §§ 240.10b-5, 
+240.13b2-1, 240.13b2-2, and 240.13a-14], and from aiding and abetting violations of Sections 
+13(a) and 13(b)(2) of the Exchange Act [15 U.S.C. §§ 78m(a) and 78m(b)(2)] and Rules 12b-20, 
+13a-1, and 13a-13 thereunder [17 C.F.R. §§ 240.12b-20, 240.13a-1 and 240.13a-13], in the civil 
+action entitled Securities and Exchange Commission v. Thomas H. Laws, et al., Civil Action 
+Number 1:18-cv-1063, in the United States District Court for the District of New Mexico. 
+ 
+  4. The Commission’s complaint alleged, among other things, that from at least 
+August 2016 through February 2018, Santa Fe transferred directly to Laws and an entity he 
+controlled approximately $1.1 million of investors’ funds for various corporate purposes, 
+including the purchase of a silver mine, the acquisition of mining claims, the purchase of 
+mining equipment, and for third party services to the company.  Rather than use the funds for 
+corporate purposes, Laws misappropriated these funds and attempted to hide his theft by 
+fabricating documents, including by forging vendor invoices, agreements, bank records, 
+communications, and signatures.  Because Laws misappropriated investor funds, he knew that 
+ 
+ 
+ 3 
+multiple Santa Fe periodic reports filed with the Commission, each of which were signed and 
+certified by Laws, were materially false and misleading.   
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent Laws’ Offer. 
+ 
+ Accordingly, pursuant to Section 15(b)(6) of the Exchange Act and Rule 102(e) of the 
+Commission’s Rules of Practice, it is hereby ORDERED, effective immediately, that:  
+ 
+A. Laws be, and hereby is, barred from association with any broker, dealer, investment 
+adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally recognized 
+statistical rating organization. 
+ 
+Any reapplication for association by the Respondent will be subject to the applicable laws 
+and regulations governing the reentry process, and reentry may be conditioned upon a number of 
+factors, including, but not limited to, the satisfaction of any or all of the following:  (a) any 
+disgorgement ordered against the Respondent, whether or not the Commission has fully or partially 
+waived payment of such disgorgement; (b) any arbitration award related to the conduct that served 
+as the basis for the Commission order; (c) any self-regulatory organization arbitration award to a 
+customer, whether or not related to the conduct that served as the basis for the Commission order; 
+and (d) any restitution order by a self-regulatory organization, whether or not related to the conduct 
+that served as the basis for the Commission order. 
+ 
+B. Laws is suspended from appearing or practicing before the Commission as an 
+accountant.   
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Vanessa A. Countryman 
+       Secretary 
+ 

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+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 86385 / July 16, 2019 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4059 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19251 
+ 
+ 
+In the Matter of 
+ 
+DOV WEINSTEIN, CPA and 
+DOV WEINSTEIN & CO., CPA  
+ 
+Respondents. 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 
+1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF 
+PRACTICE, MAKING FINDINGS, 
+AND IMPOSING REMEDIAL 
+SANCTIONS 
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate 
+that public administrative proceedings be, and hereby are, instituted against Dov Weinstein, 
+CPA (“Weinstein”) and Dov Weinstein & Co., CPA (“WCPA”) (together, the 
+“Respondents”) pursuant to Section 4C1 of the Securities Exchange Act of 1934 
+(“Exchange Act”) and Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.2 
+ 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondents have submitted 
+an Offer of Settlement (the “Offer”) which the Commission has determined to accept.  
+                                                 
+1  Section 4C provides, in pertinent part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, to any 
+person the privilege of appearing or practicing before the Commission in any way, if that 
+person is found . . . to be lacking in character or integrity, or to have engaged in unethical 
+or improper professional conduct …. 
+ 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to have engaged in unethical or 
+improper professional conduct. 
+ 
+ 2 
+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 them and the 
+subject matter of these proceedings, which are admitted, Respondents consent to the entry 
+of this Order Instituting Public Administrative Proceedings Pursuant to Section 4C of the 
+Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, 
+Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+On the basis of this Order and Respondents’ Offer, the Commission finds3 that: 
+ 
+A. SUMMARY 
+1. Weinstein and his firm, WCPA, engaged in improper professional conduct 
+during the audits and interim reviews of thirteen public companies. 
+2. Between approximately 2012 and 2015, WCPA performed deficient audits and 
+interim reviews for four companies that were the products of a fraudulent scheme 
+orchestrated by others to create and market “shell companies”:  Duane Street Corp.; 
+Lollipop Corp.; Olivia Inc.; and Secure It Corp. (the “Shell Issuers”).4  Between 2013 and 
+2017, WCPA also performed deficient audits and interim reviews for nine other issuers 
+(“WCPA Clients 1- 9”).5   
+3. Weinstein served as the engagement partner for the audits and interim reviews 
+of the thirteen issuers, and he authorized the issuance of audit reports that were included in 
+the companies’ periodic reports filed with the Commission.   
+4. WCPA and Weinstein repeatedly violated Public Company Accounting 
+Oversight Board (“PCAOB” or “Board”) standards in connection with their audits and 
+interim reviews of the issuers.   
+                                                 
+3   The findings herein are made pursuant to Respondents’ Offer of Settlement and are not binding on 
+any other person or entity in this or any other proceeding.   
+4  On February 16, 2018, the Commission filed civil injunctive actions against three individuals who 
+carried out a fraudulent scheme to create and sell public shell companies (hereinafter, “the Shell 
+Operators”) and several gatekeepers who aided and abetted the scheme with respect to eight of those shell 
+companies.  See Litigation Release No. 24051 (Feb. 16, 2018); SEC v. Perlstein et al, No. 1:18cv1026 
+(E.D.N.Y.  Feb. 16, 2018); SEC v. Weinberg, et al., No. 1:18cv360 (D.D.C. Feb. 16, 2018); SEC v. Strum, 
+No. 1:18cv361 (D.D.C. Feb. 16, 2018). 
+5  Two of those firms were successors to Secure It Corp. and Olivia Inc.   
+ 
+ 3 
+5. In particular, WCPA failed to conduct engagement quality reviews (“EQRs”) 
+during at least 76 audits and interim reviews of certain of the Shell Issuers and WCPA 
+Clients 1-9.  See Auditing Standard (“AS”) 1220 (formerly AS No. 7).6   
+6. WCPA and Weinstein failed to exercise due care and professional skepticism 
+regarding the Shell Operators’ relationship with the Shell Issuers, see AS 1015 (formerly 
+Interim Auditing Standard (“AU”) § 230), and failed to obtain an understanding of the 
+Shell Issuers and their environment, see AS 2110 (formerly AS No. 12).  WCPA also failed 
+to implement adequate client-acceptance and continuance procedures.  See System of 
+Quality Control (“QC”) § 20.  During the course of their engagements with the Shell 
+Issuers, Weinstein and WCPA ignored red flags that should have alerted them that the Shell 
+Issuers were controlled by the Shell Operators.   
+7. Weinstein and WCPA also failed to implement procedures designed to identify 
+material related party transactions of the Shell Issuers.  See AU § 334.7   
+8. WCPA and Weinstein also failed to maintain independence from their audit 
+clients by serving as a trustee for three audit clients during their audits or interim reviews, 
+see AS 1005 (formerly AU § 220) and Rule 2-01(b) of Regulation S-X.  Finally, WCPA 
+failed to retain certain audit documentation.  See AS 1215 (formerly AS No. 3). 
+9. As detailed below, these failures constitute repeated instances of unreasonable 
+conduct, each resulting in a violation of applicable professional standards, that indicate a 
+lack of competence to practice before the Commission. 
+B. RESPONDENTS 
+10. Dov Weinstein & Co., CPA is a public accounting firm that is registered with 
+the PCAOB and located in Israel.  During the relevant period, WCPA had approximately 
+sixteen employees, including six accountants.  As of February 2019, WCPA had nine 
+public company clients with securities registered with the Commission.   
+11. Dov Weinstein, age 65, resides in Israel.  Weinstein is a CPA licensed in Israel 
+with the Israel Auditors’ Council.  During the relevant period, Weinstein was the sole 
+partner of WCPA. 
+                                                 
+6  As of December 31, 2016, the PCAOB reorganized its auditing standards using a topical structure 
+and a single, integrated numbering system.  See PCAOB Auditing Standards Reorganized and Pre-
+Reorganized Numbering (Jan. 2017).  The reorganization did not impose additional requirements on 
+auditors or change substantively the requirements of PCAOB standards.  Although the Respondents’ 
+conduct occurred both before and after the reorganization, for clarity, the reorganized standards are cited 
+herein, unless otherwise noted.  
+7  AU § 334 was superseded by AS 2410 (formerly AS No. 18), which became effective for audits of 
+fiscal years beginning on or after December 15, 2014.  Those audits in which Weinstein and WCPA 
+violated AU § 334 were for fiscal years beginning before December 15, 2014.   
+ 
+ 4 
+C. WEINSTEIN’S AND WCPA’S VIOLATIONS OF PROFESSIONAL 
+STANDARDS 
+12. Between approximately late 2011 or early 2012 and 2015, the Shell Operators 
+engaged WCPA to conduct approximately twenty-four audits and interim reviews of the 
+Shell Issuers’ financial statements that were included in registration statements and other 
+filings with the Commission.  
+13. In addition to the Shell Issuers, between approximately 2013 and 2017, WCPA 
+and Weinstein conducted approximately sixty-seven audits and interim reviews of WCPA 
+Clients 1-9. 
+14. In the course of those audits and interim reviews, Weinstein and WCPA failed 
+to comply with PCAOB standards. 
+15. The Commission’s Rules allow the Commission to censure or deny, 
+temporarily or permanently, the privilege of appearing or practicing before it in any way 
+certain professionals who violate “applicable professional standards.”  17 C.F.R. § 
+201.102(e).  The applicable professional standards include standards issued by the PCAOB. 
+16. Weinstein, as the engagement partner for all of the audits and reviews at issue, 
+was responsible for the audit engagements and their performance, for properly supervising 
+the work of the engagement team members, and for ensuring compliance with PCAOB 
+standards.   
+WCPA Failed to Conduct EQRs 
+17. PCAOB standards provide that for both audits and interim reviews, an 
+engagement quality reviewer should, among other things, “evaluate the significant 
+judgments made by the engagement team and the related conclusions reached in forming 
+the overall conclusion on the engagement.”  AS 1220.09 and .14, Engagement Quality 
+Review.  “Documentation of an engagement quality review should be included in the 
+engagement documentation.”  AS 1220.20.   
+18. Between approximately 2013 and 2017, WCPA violated AS 1220 for at least 
+76 audits and interim reviews that WCPA conducted of the issuers.  WCPA’s work papers 
+for those audits and reviews do not contain any documentation that WCPA considered the 
+procedures described in AS 1220, or any indication that EQRs were conducted with regard 
+to the 76 audits and reviews.  
+19. By failing to conduct numerous EQRs, WCPA violated PCAOB standards. 
+ 
+ 5 
+WCPA and/or Weinstein Failed to Exercise Due Professional Care and 
+Professional Skepticism, Obtain a Sufficient Understanding of the Shell 
+Issuers, and Implement Adequate Client Acceptance Procedures. 
+20. PCAOB standards require, among other things, that auditors “exercise 
+professional skepticism,” “consider the competency and sufficiency of the evidence,” 
+“neither assume[] that management is dishonest nor assume[] unquestioned honesty,” and 
+“obtain sufficient appropriate evidential matter to provide him or her with a reasonable 
+basis for forming an opinion.”  AS 1015.07 – .11, Due Professional Care in the 
+Performance of Work.  
+21. AS 2110.7 - .10, Identifying and Assessing Risks of Material Misstatement, 
+requires that the auditor “obtain an understanding of the company and its environment.”  
+This should include, among other things, obtaining an understanding of the company’s 
+organizational structure, management personnel, the sources of funding of the company’s 
+operations, and the company’s operating characteristics.  
+22. Beginning in approximately late 2011 or early 2012, Weinstein and his firm 
+were retained within a period of about twelve months to audit and review the financial 
+statements of the four Shell Issuers.  Thereafter, WCPA and Weinstein conducted annual 
+audits and quarterly interim reviews of the Shell Issuers’ financial statements. 
+23. In the course of the audits and reviews, Weinstein failed to obtain an 
+understanding of the Shell Issuers and ignored red flags that should have alerted him that 
+the purported directors and officers (“D&Os”) of the Shell Issuers did not act in those 
+capacities and that the shell companies that he was auditing were fraudulent and controlled 
+by the Shell Operators.  For example: 
+a. Weinstein was hired by Shell Operator A over a period of approximately 
+twelve months to perform audits for all four Shell Issuers.  Shell Operator A, 
+rather than the Shell Issuers’ purported D&Os, approached Weinstein to 
+conduct audits and interim reviews for the Shell Issuers. 
+b. Weinstein discussed and agreed on his fees for this work with Shell Operator 
+A, rather than with any of the purported D&Os of each issuer. 
+c. Weinstein never obtained documents regarding Shell Operator A’s role with 
+the Shell Issuers or Shell Operator A’s purported authority to act on behalf of 
+the Shell Issuers.  
+d. WCPA’s workpapers do not reflect any meetings or telephone calls between 
+WCPA and the Shell Issuers’ purported D&Os, other than a single, 
+handwritten note referring to a supposed call with one of the Shell Issuer’s 
+purported D&Os in 2013. 
+e. Shell Operator A sent emails directly to WCPA — at times without sending 
+copies to the purported D&Os— with instructions about the audits.   
+ 
+ 6 
+f. Weinstein and his staff typically copied Shell Operator A (and sometimes 
+another individual acting on behalf of the Shell Issuers, Shell Operator B) on 
+substantive emails concerning the audits.  However, Weinstein and WCPA 
+obtained no evidence that Shell Operators A or B were being compensated by 
+any of the Shell Issuers for their services. 
+g. There were telling similarities among the Shell Issuers: all of the firms had 
+been incorporated in Delaware between approximately August and November, 
+2011; purportedly had D&Os who resided in Israel; maintained principal 
+executive offices in the U.S; had few or no assets, and little, if any, business 
+activity; and none had made significant progress toward executing its 
+purported business plan. 
+24. By their failure to obtain sufficient evidence to understand the nature of the 
+Shell Issuers and their relationship with the Shell Operators, particularly in light of the red 
+flags discussed above, WCPA and Weinstein failed to exercise due professional care and 
+professional skepticism during their audits and interim reviews. 
+25. The PCAOB’s quality control standards require auditors to implement client 
+acceptance procedures, and provide that “policies and procedures should provide the firm 
+with reasonable assurance that the likelihood of association with a client whose 
+management lacks integrity is minimized.”  QC § 20.14, System of Quality Control for a 
+CPA Firm’s Accounting and Auditing Practice.  All of the firm’s personnel are responsible 
+for complying with the firm’s quality control policies and procedures.  QC § 20.22. 
+26. WCPA conducted its audits of the Shell Issuers using an audit program that 
+included an assessment of the business reputation and integrity of the client’s management.  
+WCPA represented in the work papers that it had completed this assessment during its 
+audits of the Shell Issuers, whose D&Os all supposedly resided in Israel.  For example, 
+work papers from Weinstein’s December 2013 audit of Olivia Inc. refer to the company’s 
+owners as being ethical, having integrity, and demonstrating a “positive attitude towards 
+the audit,” and state that “no circumstances have arisen to rouse suspicions.”   
+27. WCPA had an insufficient basis for those representations.  As detailed above, 
+WCPA disregarded various red flags concerning management’s identity and integrity.  In 
+doing so, WCPA failed to implement adequate client acceptance procedures, in violation of 
+QC § 20.  
+WCPA and Weinstein Failed to Properly Audit Related Party Transactions, 
+and Failed to Include Procedures Designed to Provide Reasonable Assurances 
+of Identifying Related Party Transactions 
+28. PCAOB standards include audit procedures that should be considered for 
+determining the existence of related parties and for identifying transactions with related 
+parties.  See AU § 334.07 and .08, Related Parties.  In defining “related parties,” AU § 334 
+cited the definition used under generally accepted accounting principles (“GAAP”) in 
+Accounting Statement Codification (“ASC”) 850, which includes principal owners, 
+ 
+ 7 
+management, and “other parties with which the enterprise may deal if one party controls or 
+can significantly influence the management or operating policies of the other to an extent 
+that one of the parties might be prevented from fully pursuing its own separate interests.”  
+ASC 850-10-20 (f).   
+29. AU § 334.04 stated that “the auditor should be aware of the possible existence 
+of material related party transactions that could affect the financial statements and of 
+common ownership or management control relationships for which [Financial Accounting 
+Standards Board] Statement No. 57 [now codified in ASC 850] requires disclosure even 
+though there are no transactions.”  Auditors are advised to “[c]onsider whether transactions 
+are occurring, but are not being given accounting recognition, such as receiving or 
+providing accounting, management or other services at no charge.”  AU § 334.08(f).   
+30. Weinstein knew that Shell Operator A and Shell Operator B were purporting to 
+act on behalf of at least three of the Shell Issuers.  Despite the time and effort that Shell 
+Operators A and B appeared to be investing on behalf of the companies, Weinstein and his 
+staff never asked them for evidence of how they were compensated, or asked the Shell 
+Issuers for invoices, agreements, or other details about their fee arrangements with the 
+Shell Operators.   
+31. The lack of compensation for services provided should have been a red flag to 
+Weinstein that Shell Operator A and Shell Operator B were related parties and had engaged 
+in transactions with the Shell Issuers that should have been disclosed.   
+32. Weinstein, therefore, failed to properly audit related party transactions and 
+perform the necessary auditing procedures with respect to related parties.  
+By Serving as a Trustee for Audit Clients, Weinstein and WCPA Lacked 
+Independence  
+33. PCAOB standards require “that the auditor be independent” and that “he must 
+be without bias with respect to the client since otherwise he would lack that impartiality 
+necessary for the dependability of his findings, however excellent his technical proficiency 
+may be.”  AS 1005.02, Independence.  “Public confidence would be impaired by evidence 
+that independence was actually lacking, and it might also be impaired by the existence of 
+circumstances which reasonable people might believe likely to influence independence.”  
+AS 1005.03.   
+34. PCAOB Rule 3520, Auditor Independence, provides that a “registered public 
+accounting firm and its associated persons must be independent of the firm’s audit client 
+throughout the audit and professional engagement period.”  Note 1 explains that under Rule 
+3520, an auditor’s independence obligation encompasses an obligation to satisfy the 
+“independence criteria set out in the rules and regulations of the Commission under the 
+federal securities laws.”   
+35. Rule 2-01(b) of Regulation S-X, in turn, sets forth the general standard of 
+independence, which recognizes that an auditor must be independent in fact and appearance 
+throughout the audit and professional engagement period, with appearance being measured 
+ 
+ 8 
+by reference to a reasonable investor with knowledge of all facts and circumstances.  Rule 
+2-01(c)(4)(viii) prohibits having custody of the assets of an audit client. 
+36. In or about the third quarter of 2013, WCPA provided trust services for Duane 
+Street, Olivia Corp., and Lollipop Corp. while also engaged as their auditor or while 
+performing interim reviews.   
+37. Specifically, WCPA, as trustee, (a) opened a bank account in Israel for each of 
+the three shell companies, (b) received the proceeds from their stock issuances into the 
+accounts, (c) operated and maintained control of those bank accounts, (d) managed and 
+distributed the proceeds according to the issuers’ written instructions, and (e) transferred 
+those proceeds to the companies’ respective bank accounts in the U.S.   
+38. Those trusts were established for the sole purpose of holding the proceeds from 
+the three issuers’ share issuances.  
+39. For providing these services, WCPA charged approximately $1,500 to each 
+issuer, in additional to its audit and review fees.   
+40. By taking custody of the issuers’ assets and acting as a trustee for trusts whose 
+assets were the proceeds from its clients’ share issuances, WCPA’s and Weinstein’s 
+independence was impaired, in violation of AS 1005. 
+WCPA Failed to Retain Audit Documentation  
+41. AS 1215.14 provides that “[t]he auditor must retain audit documentation for 
+seven years from the date the auditor grants permission to use the auditor’s report in 
+connection with the issuance of the company's financial statements.”   
+42. WCPA failed to retain any workpapers from their 2013 third quarter interim 
+review and 2015 audit of at least one of the issuers.  
+43. By failing to retain any documentation that this review and audit had been 
+performed, WCPA violated AS 1215.   
+D. FINDINGS 
+44.  Based on the foregoing, the Commission finds that Respondents engaged in 
+improper professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice.8 
+                                                 
+8  Section 4C(b) and Rule 102(e)(1)(iv) define “improper professional conduct” with respect to 
+persons licensed to practice as accountants.  Pursuant to these provisions, “improper professional conduct” 
+includes two types of negligent conduct: (1) a single instance of highly unreasonable conduct that results in 
+a violation of professional standards in circumstances where heightened scrutiny is warranted; or (2) 
+repeated instances of unreasonable conduct, each resulting in violations of professional standards, that 
+indicate a lack of competence. 
+ 
+ 9 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondents’ Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Weinstein and WCPA are denied the privilege of appearing or practicing 
+before the Commission as an accountant. 
+ 
+ B. After five years from the date of this order, WCPA may request that 
+the Commission consider its reinstatement by submitting an application (to the 
+attention of the  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 WCPA’s work in its practice before the 
+Commission will be reviewed either by the independent audit 
+committee of the public company for which it works or in some 
+other acceptable manner, as long as it practices before the 
+Commission in this capacity; and/or 
+ 
+  2.  an independent accountant.   
+ 
+  Such an application must satisfy the Commission that: 
+      
+           (a) WCPA is registered with the Public Company Accounting 
+Oversight Board (“Board”) in accordance with the Sarbanes-
+Oxley Act of 2002, and such registration continues to be 
+effective; 
+ 
+   (b) WCPA hired an independent CPA consultant (“consultant”), 
+who is not unacceptable to the staff of the Commission and 
+is affiliated with a public accounting firm registered with the 
+Board, that has conducted a review of WCPA’s quality 
+control system and submitted to the staff of the Commission 
+a report that describes the review conducted and procedures 
+performed, and represents that the review did not identify 
+any criticisms of or potential defects in the firm’s quality 
+control system that would indicate that any of WCPA’s 
+employees will not receive appropriate supervision.  WCPA 
+agrees to require the consultant, if and when retained, to 
+enter into an agreement that provides that for the period of 
+review and for a period of two years from completion of the 
+ 
+ 10 
+review, the consultant shall not enter into any employment, 
+consultant, attorney-client, auditing, or other professional 
+relationship with WCPA, 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 this Order shall not, without prior written 
+consent of the staff, enter into any employment, consultant, 
+attorney-client, auditing, or other professional relationship 
+with WCPA, or any of its present or former affiliates, 
+directors, officers, employees, or agents acting in their 
+capacity as such for the period of the review and for a period 
+of two years after the review; 
+ 
+   (c) WCPA has resolved all disciplinary issues with the Board, 
+and has complied with all terms and conditions of any 
+sanctions imposed by the Board (other than reinstatement by 
+the Commission); and 
+ 
+   (d) WCPA acknowledges its responsibility, as long as it appears 
+or practices before the Commission as an independent 
+accountant, to comply with all requirements of the 
+Commission and the Board, including, but not limited to, all 
+requirements relating to registration, inspections, concurring 
+partner reviews and quality control standards.   
+ 
+ C. The Commission will consider an application by WCPA to resume 
+appearing or practicing before the Commission provided that its CPA license is 
+current and it has resolved all other disciplinary issues with the Israel Auditors’ 
+Council.  However, if licensure is dependent 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 WCPA’s character, integrity, professional conduct, or 
+qualifications to appear or practice before the Commission as an accountant.  
+Whether an application demonstrates good cause will be considered on a facts and 
+circumstances basis with due regard for protecting the integrity of the Commission’s 
+processes.  
+ 
+ D. After five years from the date of this order, Weinstein may request 
+that the Commission consider his reinstatement by submitting an application (to the 
+attention of the Office of the Chief Accountant) to resume appearing or practicing 
+before the Commission as: 
+      
+ 
+ 11 
+       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 (other than as a member of an audit committee, 
+as that term is defined in Section 3(a)(58) of the Exchange Act).  
+Such an application must satisfy the Commission that Weinstein’s 
+work in his practice before the Commission as an accountant 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. 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 as a member of an audit committee, as that 
+term is defined in Section 3(a)(58) of the Exchange Act.  Such an 
+application will be considered on a facts and circumstances basis 
+with respect to such membership, and the applicant’s burden of 
+demonstrating good cause for reinstatement will be particularly high 
+given the role of the audit committee in financial and accounting 
+matters; and/or 
+ 
+  3. an independent accountant.   
+ 
+  Such an application must satisfy the Commission that: 
+      
+           (a) Weinstein, or the public accounting firm with which he is 
+associated, is registered with the Board in accordance with 
+the Sarbanes-Oxley Act of 2002, and such registration 
+continues to be effective; 
+ 
+   (b) Weinstein, or the registered public accounting firm with 
+which he is associated, has been inspected by the Board and 
+that inspection did not identify any criticisms of or potential 
+defects in the respondent’s or the firm’s quality control 
+system that would indicate that Weinstein will not receive 
+appropriate supervision; 
+ 
+   (c) Weinstein has resolved all disciplinary issues with the 
+Board, and has complied with all terms and conditions of 
+any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Weinstein acknowledges his responsibility, as long as he 
+appears or practices before the Commission as an 
+independent accountant, to comply with all requirements of 
+the Commission and the Board, including, but not limited to, 
+ 
+ 12 
+all requirements relating to registration, inspections, 
+concurring partner reviews, and quality control standards.   
+ 
+E. The Commission will consider an application by Weinstein to resume 
+appearing or practicing before the Commission provided that his CPA license is current and 
+he has resolved all other disciplinary issues with the Israel Auditors’ Council.  However, if 
+licensure is dependent 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 Weinstein’s 
+character, integrity, professional conduct, or qualifications to appear or practice before the 
+Commission as an accountant.  Whether an application demonstrates good cause will be 
+considered on a facts and circumstances basis with due regard for protecting the integrity of 
+the Commission’s processes.  
+ 
+ By the Commission. 
+ 
+ 
+ 
+     
+    
+Vanessa A. Countryman 
+Secretary 
+ 
+ 
+ 

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 87036 / September 20, 2019 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4081 / September 20, 2019 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19477 
+ 
+ 
+In the Matter of 
+ 
+THE BANCORP, INC.,  
+ 
+Respondent. 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER  
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) against The Bancorp, Inc. (“Bancorp” or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent 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, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over it and the subject matter of these proceedings, which are 
+admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings 
+Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings, and Imposing a 
+Cease-and-Desist Order (“Order”), as set forth below.   
+ 
+ 
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that 
+Summary 
+  
+1. This matter concerns Bancorp’s failures between at least April 2012 and September 
+2014 to properly classify certain loans and to take appropriate charges for individually impaired 
+loans, resulting in Bancorp materially understating its Allowance for Loan and Lease Losses 
+(“ALLL”) and its Provision for Loan and Lease Losses (“PLLL”) in its requisite periodic reports 
+filed with the Commission.  Bancorp failed to assign appropriate risk ratings to certain loans and to 
+identify certain large lending relationships as containing impaired or otherwise substandard loans, 
+repeatedly overlooking indicators of borrowers’ and guarantors’ financial distress.  Bancorp also 
+failed to devise or maintain related internal accounting controls, including for credit file 
+maintenance and for identifying and appropriately considering Troubled Debt Restructurings.  
+2. As a result of these failures, on September 28, 2015, Bancorp restated its financial 
+results and financial statements for certain prior years.  Pursuant to the restatement, the aggregate 
+adjustment to the PLLL for its fiscal years 2010 through 2013 was approximately $138.6 million.  
+Pursuant to the adjustments to the historical ALLL set forth in the restatement, Bancorp’s ALLL 
+for 2012 increased by 78.23% from the balance previously reported, and the ALLL for 2013 
+increased by 73.97%. 
+3. As a result of the conduct described in this Order, Bancorp violated Sections 13(a), 
+13(b)(2)(A), and 13(b)(2)(B) and Rules 13a-1 and 13a-13 of the Exchange Act. 
+ 
+Facts 
+ 
+A. Respondent 
+ 
+4. Bancorp is a Delaware corporation with its principal executive offices in 
+Wilmington, Delaware.  Its common stock is registered with the Commission pursuant to 
+Section 12(b) of the Exchange Act and trades on the NASDAQ Stock Market under the ticker 
+symbol TBBK.  Bancorp is the bank holding company for The Bancorp Bank (“Bancorp Bank”), a 
+regional bank headquartered in Wilmington, Delaware.  Bancorp Bank is Bancorp’s primary 
+wholly-owned subsidiary. 
+ 
+B. Accounting Guidance 
+5. Banking institutions carry loans on their balance sheets as assets and record on their 
+income statements any interest revenue on the loans.  According to Generally Accepted 
+Accounting Principles (“GAAP”), an individual loan is impaired when “based on current 
+                                                 
+1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding. 
+ 
+ 3 
+information and events, it is probable that a creditor will be unable to collect all amounts due 
+according to the contractual terms of the loan agreement.”  Accounting Standards Codification 
+(“ASC”) 310-10-35.  Furthermore, loan losses must be recognized for groups of loans with similar 
+risk characteristics and evaluated for impairment collectively when it is probable that the asset is 
+impaired as of the date of the financial statements and the amount of loss can be reasonably 
+estimated.  Id. 
+6. GAAP also requires that when a loan is modified—whether by restructure, 
+extension, renewal, or other modification—the transaction must be evaluated to determine if the 
+modification constitutes a Troubled Debt Restructuring (“TDR”).  Pursuant to ASC 310-40-15, a 
+loan is a TDR if there is a restructuring for a borrower in financial difficulty and the creditor grants 
+a concession to the borrower that it would not otherwise consider.  A loan restructured as a TDR is 
+an impaired loan.  ASC 310-40-35. 
+7. The ALLL is the current estimate of the aggregate probable loss inherent in a loan 
+portfolio and is reflected on the balance sheet as a reduction in loans.  The ALLL encompasses the 
+effects of two types of loan losses:  (1) loans identified and evaluated for impairment individually; 
+and (2) loans grouped by common risk characteristics and analyzed for impairment on an 
+aggregate basis.  ASC 310-10-35.  The PLLL reflects the income statement impact of impaired 
+loans for the period being reported.   
+C. Bancorp’s Failure to Identify Loan Impairments and Credit Deterioration 
+8. The component of the ALLL that is comprised of the effects of losses from loans 
+identified and evaluated for impairment individually is often referred to as the specific reserve.  In 
+turn, the component of the ALLL that is comprised of the effects of losses from loans grouped by 
+common risk characteristics and analyzed for impairment on an aggregate basis is often called the 
+general reserve.  
+9. Pursuant to Bancorp’s Credit Policy, Bancorp Bank was supposed to periodically 
+review loan relationships by loan type and assign risk ratings ranging from I to VIII for purposes of 
+computing the general reserve portion of the ALLL.  Each individual loan risk rating signifies a 
+level of credit quality.  Loans rated I (Excellent – No Risk) to V (Special Mention) were 
+considered to have passing ratings, and loans rated VI (Substandard) to VIII (Loss) were 
+considered to have adverse ratings.  Each loan-type pool was collectively evaluated for impairment 
+by assigning a weighted loss risk factor by risk rating.  The resulting aggregate estimated loss by 
+loan type and risk rating category was then used to calculate the general reserve portion of the 
+ALLL. 
+10. During the relevant time period, Bancorp engaged in a business model called 
+“relationship banking.”  Bancorp sought to develop long-standing banking relationships with 
+certain individuals and businesses within Bancorp Bank’s geographic region and provide them 
+with the attention of senior Bancorp Bank management.  Bancorp’s focus on long-standing 
+relationships with borrowers and guarantors holding multiple Bancorp Bank loans was intended to 
+encourage cross-selling, provide insight into borrowers’ risk, and increase customer loyalty.  
+ 
+ 4 
+Bancorp executives also believed that this model allowed Bancorp Bank to cross-collateralize 
+loans and take a holistic approach to loan management. 
+11. However, Bancorp made risk rating and impairment decisions that relied too 
+heavily on borrowers’ and guarantors’ reputations, their historic business and banking relationship 
+with Bancorp Bank, and their expected future prospects for more business, while overlooking 
+indicators of financial distress.  This was particularly the case with respect to certain large or high-
+profile lending relationships and with respect to borrowers and guarantors with long relationships 
+with Bancorp Bank.  As a result, Bancorp failed to identify loan impairments and credit 
+deterioration within individual loans and repeatedly failed to re-evaluate loans and downgrade risk 
+ratings when confronted with negative information.  This caused Bancorp to materially understate 
+its PLLL from 2010 through 2013 and its ALLL from 2010 through the third quarter of 2014. 
+12. For example, in 2012, Bancorp did not evaluate a $20 million loan relationship for 
+potential impairment after the criminal conviction of the guarantor, a long-time Bancorp Bank 
+customer.  Bancorp also failed to change the risk ratings for the loans in the relationship at that 
+time.  Instead, Bancorp focused on attempting to obtain an additional guarantee from the 
+guarantor’s brother.  However, the guarantee was not obtained until May 2013.  After the brother 
+failed to make promised loan payments the following year, Bancorp Bank increased the 
+relationship’s line of credit and used it to pay overdue balances on delinquent loans.  Despite these 
+developments, the loans in the relationship retained their passing loan ratings.  During the 
+restatement of its financial statements, Bancorp recorded a total of approximately $16.1 million in 
+impairment losses for loans in this relationship during the fourth quarter of 2012. 
+13. Similarly, for a lending relationship with another long-term Bancorp Bank 
+customer who was criminally convicted in early 2012, Bancorp failed to downgrade the loans in 
+the relationship, despite recognizing that the customer’s finances were suffering.  In fact, no 
+downgrades occurred for nearly a year and a half after the customer’s conviction.  Instead, Bancorp 
+Bank executives documented an expectation that the customer’s son would assume control of 
+certain faltering real estate and commercial ventures and improve their profitability.  During the 
+restatement of its financial statements, Bancorp recorded a total of approximately $12.5 million in 
+impairment losses for loans in this relationship during the fourth quarter of 2012. 
+14. Another example involved a real estate ownership group whose shares constituted 
+the primary collateral for a $9.8 million line of credit granted to a high-profile executive.  In the 
+third quarter of 2012, the ownership group ceased to operate.  Moreover, that summer, Bancorp 
+Bank became aware that an airplane that served as collateral in the amount of $6.1 million for 
+another loan in the relationship had been grounded.  Despite the cessation of the ownership group’s 
+operations, the airplane’s grounding, and the history of delinquency for loans in the relationship, 
+when Bancorp reviewed the loans in April 2013, it rated them as Class III (Acceptable).   
+15. On multiple occasions during the relevant time period, Bancorp Bank extended 
+additional credit to borrowers who had fallen behind on their loan payments.  This additional credit 
+was then used to bring existing loans current, in the expectation that the borrower’s or guarantor’s 
+financial situation would improve in the future and allow resumption of normal payments.  This 
+ 
+ 5 
+overly optimistic view resulted in Bancorp failing to downgrade risk ratings and failing to classify 
+certain loans as impaired.   
+16. For example, Bancorp Bank increased the available funds in the high-profile 
+executive’s line of credit numerous times in order for the executive to be able to make quarter-end 
+payments on his delinquent loans.  The increases resulted from Bancorp’s estimation of the 
+borrower’s potential future business opportunities based generally on his reputation and a business 
+license, rather than on his financial condition at the time of the increases.  At the time, Bancorp did 
+not adjust the risk ratings for the loans and thus did not classify the loans as impaired.  During the 
+restatement of its financial statements, Bancorp recognized an impairment loss on this line of credit 
+of approximately $8.7 million during the third quarter of 2012. 
+17. By failing to identify loan impairments and credit deterioration within individual 
+loans and by failing to re-evaluate loans, assign appropriate risk ratings, and classify certain loans 
+as impaired, and, as a result, failing correctly to state its ALLL and PLLL, Bancorp failed to make 
+and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected 
+the transactions and dispositions of its assets.   
+18. As a result, Bancorp failed to file with the Commission accurate periodic reports 
+required of issuers of securities registered pursuant to Section 12 of the Exchange Act.   
+D. Bancorp’s Incomplete Credit Files 
+19. Bancorp devised internal accounting controls for credit file maintenance; however, 
+for its fiscal years 2012, 2013, and 2014, it failed to maintain the controls.  The controls were 
+intended to provide reasonable assurance that Bancorp’s credit files contained relevant 
+information, including timely appraisals and relevant financial information regarding borrowers.  
+Nevertheless, the internal controls were not maintained, and Bancorp’s credit files were 
+incomplete.  This, combined with Bancorp’s reliance on relationships, led Bancorp Bank to 
+estimate impairment and assign risk ratings based on incomplete information.  The assignment of 
+overly optimistic risk ratings led Bancorp to record insufficient general reserves, and faulty 
+individual loan impairment decisions led Bancorp to book insufficient specific reserves. 
+20. Accurate appraisals were important for properly evaluating the real estate collateral 
+underlying many Bancorp Bank loans and therefore for fairly and accurately assigning risk ratings 
+and estimating impairment.  Nevertheless, Bancorp frequently relied upon outdated appraisals 
+when valuing real estate collateral in connection with impairment decisions and the assignment of 
+risk ratings.  In multiple instances, Bancorp relied upon pre-financial crisis real estate appraisals 
+long after the crisis had come and gone.   
+21. Bancorp failed on two occasions to include in the credit files contemporaneous 
+information concerning criminal cases involving borrowers or guarantors.  For example, although 
+Bancorp Bank was aware in December 2012 that a guarantor in a large lending relationship had 
+pleaded guilty to bank fraud, there was no mention of the criminal case in the paperwork for a 
+March 2013 maturity extension or in the paperwork for a line of credit increase in September 2013.   
+ 
+ 6 
+22. Bancorp also failed to record instances of delinquency within credit files.  Even 
+when additional credit was granted in order to allow delinquent borrowers to bring their loan 
+payments current, the delinquencies were often not documented in the requests for increases.  This 
+lack of documentation contributed to Bancorp’s failure to identify and account for impaired and 
+adversely classified loans. 
+23. Additionally, on multiple occasions, Bancorp did not obtain financial statements 
+required under the terms of loan agreements with borrowers.  For example, when it extended the 
+maturity of an entity’s $1.5 million line of credit, Bancorp failed to obtain timely financial 
+information required under the terms of the line of credit.  Instead, it relied upon outdated tax 
+returns and financial statements and projections that had not been reviewed and audited as 
+required. 
+24. In its annual Report on Form 10-K for its fiscal year 2014, Respondent disclosed a 
+material weakness in its internal control over financial reporting for its fiscal years 2012, 2013, and 
+2014.  The material weakness related to Bancorp’s “failure to maintain controls over credit file 
+maintenance, including the risk-rating of borrowers and the evaluation of collateral and industry-
+specific information that [Bancorp] believed to be relevant in determining the occurrence of a loss 
+event and measuring impairment under ASC 310.”   
+25. By failing to maintain internal accounting controls sufficient to provide reasonable 
+assurances that credit files would be properly maintained, Bancorp failed to maintain a system of 
+internal accounting controls sufficient to provide reasonable assurances that transactions were 
+recorded as necessary to permit preparation of financial statements in conformity with GAAP.   
+26. By failing to make and keep complete, accurate, and current credit files, Bancorp 
+failed to make and keep books, records, and accounts which, in reasonable detail, accurately and 
+fairly reflected the transactions and dispositions of Bancorp’s assets.   
+E. Bancorp’s Process for Identifying Troubled Debt Restructurings 
+27. For many years, Bancorp had no TDR identification process.  Rather than 
+reviewing loan modifications to identify TDRs as they occurred, Bancorp focused on responding to 
+questions by its independent public accountant regarding the modifications. 
+28. In September 2011, Bancorp implemented a TDR identification committee.  The 
+committee was tasked with evaluating loan modifications to identify TDRs in conformity with 
+GAAP.  However, the process by which the committee evaluated TDRs was deficient in several 
+respects.   
+29. The process as devised was not sufficient to provide reasonable assurances that  
+loan restructurings, extensions, renewals, and other modifications were evaluated for TDR status, 
+and the committee therefore reviewed only a limited pool of loan modifications.  Additionally, 
+Bancorp’s processes did not provide the TDR identification committee with information sufficient 
+to accurately identify TDRs.  The committee was presented only with summaries that often failed 
+ 
+ 7 
+to include important information about the loans being considered, including information 
+concerning the financial difficulties of borrowers or guarantors of modified loans. 
+30. In March 2012, Bancorp management reported to the Audit Committee of its Board 
+of Directors a significant deficiency in its internal control over financial reporting concerning its 
+newly-created TDR identification process.  The significant deficiency arose from Bancorp’s failure 
+to evaluate all renewed, extended, or modified loans.   
+31. Nevertheless, during its fiscal year 2012, Bancorp’s process for identifying and 
+evaluating TDRs was still not sufficient to provide reasonable assurances that TDRs would be 
+appropriately evaluated and identified.  The process did not ensure documentary support for TDR 
+determinations. 
+32. For example, in 2012 the TDR identification committee determined that the loans 
+in a $44 million loan relationship involving one long-term borrower were not TDRs, based on the 
+committee’s consideration of a summary that described the modification of the loans as merely 
+short-term, interest-only requests from a borrower who was not experiencing financial difficulties.  
+In fact, at the time the committee made that determination, the guarantor had been criminally 
+convicted and Bancorp had extended maturity and interest-only periods for the loans in order to 
+allow the guarantor time to determine which of the collateral properties to reposition or sell.  This 
+information was not included in the summary presented to the committee.  In the restatement of its 
+financial statements, Bancorp determined that the loans in the relationship were TDRs as of the 
+time of the committee meeting in 2012.    
+33. In March 2013, Bancorp management again reported to the Audit Committee a 
+significant deficiency in its internal control over financial reporting concerning TDR identification.  
+This significant deficiency pertained to a lack of documentary support for TDR determinations.   
+34. In October 2013, Bancorp management implemented a TDR Policy and a TDR 
+Worksheet for use in identifying, evaluating, and documenting TDRs.   
+ 
+35. By failing to provide reasonable assurances that loan modifications were being 
+correctly evaluated regarding TDR status, Bancorp failed to devise a system of internal accounting 
+controls sufficient to provide reasonable assurances that transactions were recorded as necessary to 
+permit preparation of financial statements in conformity with GAAP.   
+ 
+36. By failing to make correct and appropriate TDR determinations, identify certain 
+loans as impaired, and, as a result, correctly state its ALLL and PLLL, Bancorp failed to make and 
+keep books, records, and accounts which, in reasonable detail, accurately and fairly reflected the 
+transactions and dispositions of its assets.   
+ 
+37. As a result, Bancorp failed to file with the Commission accurate periodic reports 
+required of issuers of securities registered pursuant to Section 12 of the Exchange Act. 
+ 
+ 8 
+F. Bancorp’s Additional Loss Provisions and Restatement 
+38. In its earnings release for the first quarter of 2014, issued on April 24, 2014, 
+Bancorp reported that “[t]he quarter was significantly impacted by an additional loan loss 
+provision of $11.8 million principally related to newly identified adversely classified loans.”  In its 
+earnings release for the second quarter of 2014, issued on July 23, 2014, Bancorp reported its 
+“provision for loan losses amounted to $15.5 million reflecting the impact of certain loan 
+relationships in its commercial loan portfolios.” 
+39. On November 10, 2014, Respondent disclosed in its quarterly Report on Form 10-
+Q for the third quarter of 2014 that it would be discontinuing its commercial lending operations 
+and would “focus on its specialty finance lending.”   
+40. On April 1, 2015, Respondent announced that its previously issued financial 
+statements for its fiscal years 2012 and 2013, and for the first three quarters of 2014 should no 
+longer be relied upon and would be restated because “certain charges related to provisions for loan 
+losses should have been taken in earlier periods than the ones in which they were taken.”  
+41. On September 28, 2015, Bancorp filed its annual Report on Form 10-K for its fiscal 
+year 2014, which included restated financial results for its fiscal years 2010 through 2013 and 
+restated financial statements for its fiscal years 2012 and 2013, as well as for the first three quarters 
+of 2013 and 2014.  The restatement included an aggregate adjustment to the PLLL of 
+approximately $138.6 million in Bancorp’s commercial loan portfolio from 2010 to 2013.  That 
+total adjustment included an adjustment adding $90.5 million to the loan loss provision for 2012 and 
+an adjustment adding $28.9 million to the provision for 2013.  The adjustment for 2012 exceeded 
+the $24.4 million in income before taxes previously reported by Bancorp, resulting in an overall loss 
+for that fiscal year. 
+G. Violations 
+42. As a result of the conduct described above, Bancorp violated Section 13(a) of the 
+Exchange Act and Rules 13a-1 and 13a-13 thereunder, which require issuers of securities 
+registered pursuant to Section 12 of the Exchange Act to file with the Commission accurate 
+periodic reports, including annual Reports on Form 10-K and quarterly Reports on Form 10-Q.   
+43. As a result of the conduct described above, Bancorp also violated Section 
+13(b)(2)(A) of the Exchange Act, which requires an issuer of securities registered pursuant to 
+Section 12 of the Exchange Act to make and keep books, records, and accounts which, in 
+reasonable detail, accurately and fairly reflect the issuer’s transactions and dispositions of assets. 
+44. As a result of the conduct described above, Bancorp also violated Section 
+13(b)(2)(B) of the Exchange Act, which requires an issuer of securities registered pursuant to 
+Section 12 of the Exchange Act to devise and maintain a system of internal accounting controls 
+sufficient to provide reasonable assurances that:  transactions are executed in accordance with 
+management’s general or specific authorization; transactions are recorded as necessary to permit 
+preparation of financial statements in conformity with GAAP or any other criteria applicable to 
+ 
+ 9 
+such statements, and to maintain accountability for assets; access to assets is permitted only in 
+accordance with management’s general or specific authorization; and the recorded accountability 
+for assets is compared with the existing assets at reasonable intervals and appropriate action is 
+taken with respect to any differences. 
+IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent The Bancorp, Inc.’s Offer. 
+ Accordingly, it is hereby ORDERED that: 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 
+committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), and 
+13(b)(2)(B) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.   
+B. Respondent shall, within 10 days of the entry of this Order, pay a civil money 
+penalty in the amount of $1,400,000.00 to the Securities and Exchange Commission for transfer to 
+the general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If 
+timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.   
+Payment must be made in one of the following ways:   
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+Payments by check or money order must be accompanied by a cover letter identifying The 
+Bancorp, Inc. as a Respondent in these proceedings, and the file number of these proceedings; a 
+copy of the cover letter and check or money order must be sent to Carolyn M. Welshhans, 
+Associate Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549. 
+  C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+ 
+ 10 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting 
+the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the 
+Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed 
+an additional civil penalty and shall not be deemed to change the amount of the civil penalty 
+imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a 
+private damages action brought against Respondent by or on behalf of one or more investors based 
+on substantially the same facts as alleged in the Order instituted by the Commission in this 
+proceeding. 
+ By the Commission. 
+ 
+ 
+       Vanessa A. Countryman 
+       Secretary 

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 87037 / September 20, 2019 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4082 / September 20, 2019 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19478 
+ 
+ 
+In the Matter of 
+ 
+JAMES DAVID HILTY, 
+ 
+Respondent. 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER  
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) against James David Hilty (“Hilty” or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent 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, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over him and the subject matter of these proceedings, which are 
+admitted, and except as provided herein in Section V, Respondent consents to the entry of this 
+Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities 
+Exchange Act of 1934, Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as set 
+forth below.   
+ 
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that 
+SUMMARY 
+1. This matter concerns failures between April 2012 and September 2014 of The 
+Bancorp, Inc. (“Bancorp”) to properly classify certain loans and to record appropriate charges for 
+certain individually impaired loans, resulting in Bancorp materially understating its Allowance for 
+Loan and Lease Losses (“ALLL”) and its Provision for Loan and Lease Losses (“PLLL”) in its 
+requisite periodic reports filed with the Commission.  Bancorp repeatedly overlooked indicators of 
+borrowers’ and guarantors’ financial distress as it failed to assign appropriate risk ratings to certain 
+loans and to identify certain large lending relationships as containing impaired or otherwise 
+substandard loans.   
+2. As a result of these failures, on September 28, 2015, Bancorp restated its financial 
+results and financial statements for certain prior fiscal years.  Pursuant to the restatement, the 
+aggregate adjustment to the PLLL for the fiscal years 2010 through 2013 was approximately 
+$138.6 million.  Pursuant to the adjustments to the historical ALLL set forth in the restatement, 
+Bancorp’s ALLL for 2012 increased by 78.23% from the balance previously reported, and the 
+ALLL for 2013 increased by 73.97%. 
+3. Hilty was Bancorp’s Chief Risk Officer from February 2004 until September 2015.  
+In that capacity, he led Bancorp’s Loan Review function, which was tasked with assigning risk 
+ratings to loans, including identifying impaired and otherwise substandard loans.  He reviewed the 
+risk ratings and impairment decisions made by his subordinates and used the ratings and decisions 
+when he estimated Bancorp’s ALLL and its PLLL.  As a result of his oversight of and role in Loan 
+Review, Hilty knew or should have known that risk ratings for certain loans had not been 
+reevaluated, downgraded, or impaired in spite of indicators of financial distress.  Accordingly, Hilty 
+knew or should have known that, on multiple occasions, Bancorp’s risk ratings and impairment 
+decisions were not fair and accurate.   
+4. As a result of the conduct described in this Order, Hilty caused Bancorp’s violations 
+of Sections 13(a) and 13(b)(2)(A) and Rules 13a-1 and 13a-13 of the Exchange Act.  Hilty also 
+violated Exchange Act Rule 13b2-1. 
+FACTS 
+ 
+A. Respondent 
+ 
+5. James David Hilty was Bancorp’s Chief Risk Officer from February 2004 to 
+September 2015.  As Chief Risk Officer, he was responsible for, among other things, the Loan 
+                                                 
+1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding. 
+ 
+ 3 
+Review function and estimating the ALLL and PLLL on a quarterly basis.  He is currently 
+Bancorp’s Director of Consumer Lending, Senior Credit Allowance Officer.  Hilty, age 56, is a 
+resident of Wilmington, Delaware. 
+ 
+B. Relevant Entity 
+6. Bancorp is a Delaware corporation with its principal executive offices in 
+Wilmington, Delaware.  Its common stock is registered with the Commission pursuant to 
+Section 12(b) of the Exchange Act and trades on the NASDAQ Stock Market under the ticker 
+symbol TBBK.  Bancorp is the bank holding company for The Bancorp Bank (“Bancorp Bank”), a 
+regional bank headquartered in Wilmington, Delaware.  Bancorp Bank is Bancorp’s primary 
+wholly-owned subsidiary. 
+C. Accounting Guidance 
+7. Banking institutions carry loans on their balance sheets as assets and record on their 
+income statements any interest revenue on the loans.  According to Generally Accepted 
+Accounting Principles (“GAAP”), an individual loan is impaired when “based on current 
+information and events, it is probable that a creditor will be unable to collect all amounts due 
+according to the contractual terms of the loan agreement.”  Accounting Standards Codification 
+(“ASC”) 310-10-35.  Furthermore, loan losses must be recognized for impairment of large groups 
+of smaller balance loans and loans with similar risk characteristics when it is probable that the asset 
+is impaired as of the date of the financial statements and the amount of loss can be reasonably 
+estimated.  Id. 
+8. The ALLL is the current estimate of the aggregate probable loss inherent in a loan 
+portfolio and is reflected on the balance sheet as a reduction to the loan balance.  The ALLL 
+encompasses the effects of two types of loan losses:  (1) loans identified and evaluated for 
+impairment individually; and (2) loans grouped by common risk characteristics and analyzed for 
+impairment on an aggregate basis.  ASC 310-10-35.  The PLLL reflects the income statement 
+impact of impaired loans for the period being reported.   
+D. Bancorp’s Restatement 
+ 
+9. On September 28, 2015, Bancorp filed its annual Report on Form 10-K for its fiscal 
+year 2014, which included restated financial data for its fiscal years 2010 through 2013 and 
+restated financial statements for its fiscal years 2012 and 2013, as well as for the first three quarters 
+of 2013 and 2014.  The restatement included an aggregate adjustment to the PLLL of 
+approximately $138.6 million in Bancorp’s commercial loan portfolio from 2010 to 2013.  That 
+total adjustment included an adjustment adding $90.5 million to the loan loss provision for 2012 
+and an adjustment adding $28.9 million to the provision for 2013.  The adjustment for 2012 
+exceeded the $24.4 million in income before taxes previously reported by Bancorp, resulting in an 
+overall loss for that fiscal year.   
+ 
+ 
+ 4 
+E. Bancorp’s Business Model 
+ 
+10. During the relevant time period, Bancorp engaged in a business model called 
+“relationship banking.”  Bancorp sought to develop long-standing banking relationships with 
+certain individuals and businesses within Bancorp Bank’s geographic region and provide them 
+with the attention of senior Bancorp Bank management.  Bancorp’s focus on long-standing 
+relationships with borrowers and guarantors holding multiple Bancorp Bank loans was intended to 
+encourage cross-selling, provide insight into borrowers’ risk, and increase customer loyalty.  
+Bancorp executives also believed that this model allowed Bancorp Bank to cross-collateralize 
+loans and take a holistic approach to loan management. 
+11. However, Bancorp made risk rating and impairment decisions that relied too 
+heavily on borrowers’ and guarantors’ reputations, their historic business and banking relationship 
+with Bancorp Bank, and their expected future prospects for more business, while overlooking 
+indicators of financial distress.  This was particularly the case with respect to certain large or high-
+profile lending relationships and with respect to borrowers and guarantors with long relationships 
+with Bancorp Bank.  As a result, Bancorp failed to identify loan impairments and credit 
+deterioration within individual loans and repeatedly failed to re-evaluate loans and downgrade risk 
+ratings when confronted with negative information.  This caused Bancorp to materially understate 
+its PLLL from 2010 through 2013 and its ALLL from 2010 through the third quarter of 2014. 
+F. Hilty’s Oversight of and Role in Bancorp’s Loan Review Function 
+12. The component of the ALLL that is comprised of the effects of losses from loans 
+identified and evaluated for impairment individually is often referred to as the specific reserve.  In 
+turn, the component of the ALLL that is comprised of the effects of losses from loans grouped by 
+common risk characteristics and analyzed for impairment on an aggregate basis is often called the 
+general reserve.  
+13. Pursuant to Bancorp’s Credit Policy, Bancorp Bank was to periodically review loan 
+relationships by loan type and assign risk ratings ranging from I to VIII for purposes of computing 
+the general reserve portion of the ALLL.  Each individual loan risk rating signifies a level of credit 
+quality.  Loans rated I (Excellent – No Risk) to V (Special Mention) were considered to have 
+passing ratings, and loans rated VI (Substandard) to VIII (Loss) were considered to have adverse 
+ratings.  Each loan-type pool was collectively evaluated for impairment by assigning a weighted 
+loss risk factor by risk rating.  The resulting aggregate estimated loss by loan type and risk rating 
+category was then used to calculate the general reserve portion of the ALLL.  
+14. Hilty oversaw Bancorp’s Loan Review function.  Loan Review was responsible for 
+periodically reviewing and assigning risk ratings to loans and identifying potentially impaired and 
+otherwise substandard loans.  Hilty reviewed the decisions made by the Loan Review staff.  
+Bancorp’s Credit Policy contemplated review of assigned risk ratings in the instance of a 
+“deteriorating or negative situation.”  As a result of his position, Hilty knew or should have known 
+about indicators of financial distress within certain large and high-profile loan relationships.  
+Nevertheless, Hilty approved risk ratings for loans within those relationships that he knew or 
+ 
+ 5 
+should have known did not take such information into account.  He also failed on multiple 
+occasions to instruct the Loan Review staff to re-evaluate loans that he knew or should have 
+known were of deteriorating credit quality.   
+15. As a result of his position, Hilty also knew or should have known that, on multiple 
+occasions during the relevant time period, Bancorp Bank extended additional credit to borrowers 
+who had fallen behind on their loan payments.  This additional credit was used to bring existing 
+loans current in the expectation that the borrower’s or guarantor’s financial situation would 
+improve in the future and allow resumption of normal payments.  Hilty knew or should have 
+known that, on multiple occasions, Loan Review failed to acknowledge that certain borrowers or 
+guarantors were in distress at the time they received extensions of credit from Bancorp Bank and 
+that Loan Review failed to review or downgrade risk ratings assigned to the underlying loans.   
+16. For example, Bancorp Bank increased the available funds in a high-profile 
+executive’s $9.8 million line of credit numerous times in order for the executive to be able to make 
+quarter-end payments on his delinquent loans.  The increases resulted from Bancorp’s estimation 
+of the borrower’s potential future business opportunities based generally on his reputation and a 
+business license, rather than on his financial condition at the time of the increases.  At the time, 
+Loan Review did not adjust the risk ratings for the loans and thus did not consider whether the 
+loans were required to be impaired.  During the restatement of its financial statements, Bancorp 
+recognized an impairment loss on this line of credit of approximately $8.7 million during the third 
+quarter of 2012. 
+17. In another example, in 2012, Bancorp’s Loan Review function did not evaluate a 
+$20 million loan relationship for potential impairment after the criminal conviction of the 
+guarantor, a long-time Bancorp Bank customer.  Loan Review also did not change the risk ratings 
+for the loans in this relationship at that time.  Instead, Bancorp focused on attempting to obtain an 
+additional guarantee from the guarantor’s brother.  However, the guarantee was not obtained until 
+May 2013.  After the brother failed to make promised loan payments the following year, Bancorp 
+Bank increased the relationship’s line of credit and the increase was used to pay overdue balances 
+on delinquent loans.  Despite these developments, the loans in the relationship retained their 
+passing risk ratings.  During the restatement of its financial statements, Bancorp recognized a total 
+of approximately $16.1 million in impairment losses for loans in the relationship during the fourth 
+quarter of 2012. 
+18. In sum, as a result of his supervision of and role in Loan Review, Hilty knew or 
+should have known that specific Bancorp risk ratings and impairment decisions did not take into 
+account important information, including indicators of financial distress, and were not fair and 
+accurate.  Nevertheless, Hilty subsequently used those risk ratings and impairment decisions to 
+estimate Bancorp’s specific and general reserves, and, ultimately, to estimate Bancorp’s ALLL and 
+PLLL on a quarterly and annual basis.   
+19. During this time, as described above, Bancorp failed to make and keep books, 
+records, and accounts, which in reasonable detail, accurately and fairly reflected its transactions and 
+the disposition of its assets.  By his acts and omissions described above, including his supervision of 
+ 
+ 6 
+and role in Loan Review and his estimation of the ALLL and PLLL using risk ratings and 
+impairment decisions that he knew or should have known were not fair and accurate, Hilty 
+contributed to Bancorp’s failure, and Hilty knew or should have known that his acts or omissions 
+would so contribute.   
+20. By his acts and omissions described above, including his supervision of and role in 
+Loan Review and his estimation of the ALLL and PLLL using risk ratings and impairment 
+decisions that he knew or should have known were not fair and accurate, Hilty, directly or 
+indirectly, falsified or caused to be falsified, Bancorp’s books, records, and accounts.  
+21. The annual and quarterly ALLL and PLLL estimations performed by Hilty were 
+used as specific line items in Bancorp’s financial statements included in its quarterly and annual 
+reports.   
+22. Accordingly, during this time, Bancorp made material misstatements regarding its 
+ALLL and PLLL in its requisite quarterly and annual reports.  Bancorp thereby failed to file with 
+the Commission requisite quarterly and annual reports that were accurate in all material respects.  
+By his acts and omissions described above, including his estimation of the ALLL and PLLL using 
+risk ratings and impairment decisions that he knew or should have known were not fair and 
+accurate, Hilty contributed to Bancorp’s failure, and Hilty knew or should have known that his acts 
+or omissions would so contribute.   
+ 
+G. Violations 
+23. As a result of the conduct described above, Respondent caused Bancorp’s violation 
+of Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder, which require 
+issuers of securities registered pursuant to Section 12 of the Exchange Act to file with the 
+Commission accurate periodic reports, including annual Reports on Form 10-K and quarterly 
+Reports on Form 10-Q. 
+24. As a result of the conduct described above, Respondent caused Bancorp’s violation 
+of Section 13(b)(2)(A) of the Exchange Act, which requires an issuer of securities registered 
+pursuant to Section 12 of the Exchange Act to make and keep books, records, and accounts which, 
+in reasonable detail, accurately and fairly reflect the issuer’s transactions and disposition of assets. 
+25. As a result of the conduct described above, Respondent violated Exchange Act 
+Rule 13b2-1 by, directly or indirectly, falsifying or causing to be falsified books, records, and 
+accounts required to be maintained by Bancorp. 
+ 
+ 
+ 7 
+ IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent James David Hilty’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 
+committing or causing any violations and any future violations of Sections 13(a) and 13(b)(2)(A) of 
+the Exchange Act and Rules 13a-1, 13a-13, and 13b2-1 thereunder. 
+B. Respondent shall pay a civil money penalty in the amount of $50,000 to the 
+Securities and Exchange Commission for transfer to the general fund of the United States Treasury, 
+subject to Exchange Act Section 21F(g)(3).  Payment shall be made in the following installments:  
+$20,000 to be paid within 10 days of the entry of this order, $10,000 to be paid within 120 days of 
+the entry of this order, $10,000 to be paid within 240 days of the entry of this order, and $10,000 to 
+be paid within 350 days of the entry of this order.  Payments shall be applied first to post-order 
+interest, which accrues pursuant to 31 U.S.C. § 3717.  Prior to making the final payment set forth 
+herein, Respondent shall contact the staff of the Commission for the amount due.  If Respondent 
+fails to make any payment by the date agreed and/or in the amount agreed according to the 
+schedule set forth above, all outstanding payments under this Order, including post-order interest, 
+minus any payments made, shall become due and payable immediately at the discretion of the staff 
+of the Commission without further application to the Commission.  
+ 
+Payment must be made in one of the following ways:   
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+Payments by check or money order must be accompanied by a cover letter identifying 
+James David Hilty as a Respondent in these proceedings, and the file number of these proceedings; 
+a copy of the cover letter and check or money order must be sent to Carolyn M. Welshhans, 
+ 
+ 8 
+Associate Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549.  
+ C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, he shall not argue that he is entitled to, nor shall he benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondent agrees that he shall, within 30 days after entry of a final order granting 
+the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the 
+Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed 
+an additional civil penalty and shall not be deemed to change the amount of the civil penalty 
+imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a 
+private damages action brought against Respondent by or on behalf of one or more investors based 
+on substantially the same facts as alleged in the Order instituted by the Commission in this 
+proceeding. 
+V. 
+ 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in 
+Section 523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and 
+admitted by Respondent, and further, any debt for disgorgement, prejudgment interest, civil 
+penalty or other amounts due by Respondent under this Order or any other judgment, order, 
+consent order, decree or settlement agreement entered in connection with this proceeding, is a debt 
+for the violation by Respondent of the federal securities laws or any regulation or order issued 
+under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. 
+§ 523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+       Vanessa A. Countryman 
+       Secretary 

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+ 1 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 87157 / September 30, 2019 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4097 / September 30, 2019 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19564 
+ 
+ 
+In the Matter of 
+ 
+SCHULMAN LOBEL ZAND 
+KATZEN WILLIAMS & 
+BLACKMAN, LLP A/K/A 
+SCHULMAN LOBEL LLP, 
+ 
+Respondent. 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE 
+AND NOTICE OF HEARING 
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
+instituted pursuant to Sections 4C1 and 21C of the Securities Exchange Act of 1934 (“Exchange 
+Act”) and Rules 102(e)(1)(ii) and 102(e)(1)(iii) of the Commission’s Rules of Practice2 against 
+                                                
+1  Section 4C provides, in relevant part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . (1) not to possess the requisite qualifications 
+to represent others; (2) to be lacking in character or integrity, or to have engaged 
+in unethical or improper professional conduct; or (3) to have willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or 
+the rules and regulations issued thereunder. 
+ 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have 
+engaged in unethical or improper professional conduct. 
+ 2 
+Schulman Lobel Zand Katzen Williams & Blackman, LLP a/k/a Schulman Lobel LLP 
+(“Respondent” or “SL”). 
+ 
+II. 
+ 
+After an investigation, the Division of Enforcement alleges that: 
+ 
+SUMMARY 
+1. This matter concerns violations of the federal securities laws and improper 
+professional conduct by SL in connection with the following audits and reviews of the financial 
+statements and interim financial information of Quadrant 4 System Corp. (“QFOR”):   
+a. the audit of QFOR’s financial statements for the year ended December 31, 2013 
+(the “2013 Audit”), which were included in a Form 10-K filed with the 
+Commission on August 21, 2015 (the “2014 Form 10-K”);  
+b. the audit of QFOR’s financial statements for the year ended December 31, 2014 
+(the “2014 Audit”), which were also included in the 2014 Form 10-K;  
+c. the review of QFOR’s interim financial information for the quarter ended June 30, 
+2016 (the “2Q2016 Review”), which was included in a Form 10-Q filed on August 
+15, 2016 (the “2Q2016 Form 10-Q”); and  
+d. the audit of QFOR’s amended financial statements for the year ended December 31, 
+2015 (the “2015 Form 10-K/A Audit”), which were included in a Form 10-K/A 
+filed on September 22, 2016 (the “2015 Form 10-K/A”).   
+2. SL failed to comply with the standards of the Public Company Accounting 
+Oversight Board (“PCAOB”) when conducting the 2013 Audit, 2014 Audit, 2Q2016 Review, and 
+2015 Form 10-K/A Audit.  SL repeatedly engaged in improper professional conduct that resulted 
+in violations of professional standards and demonstrated a lack of competence to practice before 
+the Commission.  As detailed in the Facts Section below, SL’s departures from professional 
+standards included the failure to:  (1) identify and properly audit related party transactions; (2) 
+obtain sufficient appropriate audit evidence; (3) conduct appropriate procedures to obtain 
+reasonable assurance that the financial statements were free of material misstatements caused by 
+fraud; (4) conduct appropriate procedures upon the subsequent discovery of facts existing at the 
+date of a previous audit report; (5) conduct appropriate procedures in connection with a review of 
+interim financial information; (6) properly plan the audit and assess and respond to risks of 
+                                                                                                                                                       
+ Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . 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 any provision of 
+the Federal securities laws or the rules and regulations thereunder. 
+ 
+ 3 
+material misstatement; (7) conduct proper engagement quality reviews; (8) exercise due 
+professional care and professional skepticism; and (9) maintain an adequate system of quality 
+control, including policies and procedures regarding engagement acceptance and continuance as 
+well as supervision, review, and approval.  Additionally, SL willfully violated Section 10A(a)(2) of 
+the Exchange Act when it conducted the 2013 and 2015 Form 10-K/A Audits without including 
+procedures that were adequately designed to identify related party transactions.  Finally, SL 
+willfully violated Rule 2-02(b)(1) of Regulation S-X when it stated that the 2013, 2014, and 2015 
+Form 10-K/A Audits had been conducted in accordance with PCAOB standards, when the audits 
+had not been.   
+RESPONDENT 
+3. Schulman Lobel Zand Katzen Williams & Blackman, LLP a/k/a Schulman 
+Lobel LLP (“SL”) is a PCAOB-registered audit firm based in Princeton, New Jersey.  SL 
+served as QFOR’s auditor from April 2015 until it resigned in October 2016.  SL completed 
+audits of QFOR’s financial statements for the years ended 2013, 2014, and 2015 and reviews of 
+QFOR’s interim financial information for each quarter of 2015 and the first two quarters of 2016.  
+SL also completed an audit of QFOR’s amended financial statements contained in the 2015 Form 
+10-K/A.   
+AUDITED ENTITY 
+4. Quadrant 4 System Corp. (CIK No. 878802) was an Illinois corporation 
+headquartered in Schaumburg, Illinois, that provided software products and IT consulting and 
+software development services.  QFOR did not have any class of securities registered with the 
+Commission, but was a reporting company pursuant to Section 15(d) of the Exchange Act.  
+QFOR’s common stock was quoted on OTC Link (formerly “Pink Sheets”) operated by OTC 
+Markets Group, Inc. under the symbol “QFOR.”  On June 29, 2017, QFOR filed for bankruptcy, 
+and its remaining assets are now under the control of a liquidating trustee.  All equity interests in 
+QFOR, including its common stock, were extinguished on September 13, 2018. 
+ 
+OTHER RELEVANT INDIVIDUALS3 
+ 
+5. Marla P. Manowitz, CPA, age 67, is a resident of Westbury, New York, and a 
+CPA licensed in the State of New York.  She is employed by SL as a Principal.  She served as the 
+engagement principal on the audit of QFOR’s amended financial statements contained in the 2015 
+Form 10-K/A.  She served as a co-engagement principal on the audits of QFOR’s 2013, 2014, and 
+2015 financial statements and reviews of QFOR’s interim financial information for each quarter of 
+2015 and the first two quarters of 2016.  
+                                                
+3  On September 30, 2019, the Commission instituted an Order Instituting Public 
+Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the 
+Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, 
+Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order against Marla 
+P. Manowitz, CPA, Thomas R. Vreeland, CPA, and Kenneth J. Gralak, CPA, concerning their 
+conduct in audit and review engagements for QFOR (Exchange Act Re. No. 34-87159). 
+ 4 
+6. Thomas R. Vreeland, CPA, age 57, is a resident of Lambertville, New Jersey, and 
+a CPA licensed in the State of New York.  During the relevant time frame, he was employed by SL 
+as a Principal.  Vreeland served as a co-engagement principal on the audits of QFOR’s 2013, 2014, 
+and 2015 financial statements and reviews of QFOR’s interim financial information for each 
+quarter of 2015 and the first two quarters of 2016. 
+7. Kenneth J. Gralak, CPA, age 69, is a resident of Stormville, New York, and a 
+CPA licensed in the State of New York.  He is employed by SL as a Principal and Director of 
+Quality Control.  Gralak served as the engagement quality reviewer (“EQR”) on the review of 
+QFOR’s interim financial information for the second quarter of 2016 and the audit of QFOR’s 
+amended financial statements contained in the 2015 Form 10-K/A. 
+FACTS 
+Background of QFOR’s Fraud 
+8. Between at least June 2012 and November 2016, Nandu Thondavadi 
+(“Thondavadi”) and Dhru Desai (“Desai”) perpetrated a fraudulent scheme through QFOR, a 
+public company.  Thondavadi, as CEO, and Desai, as CFO, used several fraudulent means to 
+overstate QFOR’s revenue, overstate its assets, understate its liabilities, and conceal their 
+misappropriation of at least $4.1 million.  Among other things, they caused QFOR to enter into 
+undisclosed related party transactions, misstated the terms of various acquisitions, and concealed 
+liabilities through a variety of means.  Between March 2013 and November 2016, Thondavadi and 
+Desai caused QFOR to file false and misleading Forms 10-Q, 10-K, and 8-K, which included 
+numerous material misstatements and omissions regarding QFOR’s revenue, acquisitions, assets, 
+liabilities, and related party transactions and Thondavadi’s and Desai’s misappropriation and stock 
+ownership. 
+SL’s Engagements for QFOR 
+9. On April 2, 2015, QFOR’s previous auditor resigned after discovering that QFOR 
+had issued fraudulent invoices and that unknown individuals affiliated with QFOR had returned 
+false audit confirmations to them.  SL was engaged to perform the 2014 Audit the following day.  
+In June 2015, after being informed that QFOR’s previous auditor would not reissue its 2013 audit 
+report due to an inability to rely on management’s representations, SL was engaged to conduct the 
+2013 Audit. 
+10. SL’s engagement acceptance and planning workpapers for the 2013 and 2014 
+Audits noted that QFOR had internal control deficiencies and characterized the audits as “high-
+risk.”  Manowitz and Vreeland served as co-engagement principals, sharing responsibility for the 
+engagements and the issuance of the firm’s report.  SL completed the 2013 and 2014 Audits in 
+August 2015.  Manowitz and Vreeland consented to the issuance of SL’s audit report that 
+contained an unqualified opinion, which was dated August 21, 2015, and incorporated in QFOR’s 
+2014 Form 10-K filed the same day. 
+11. SL performed the 2Q2016 Review with Manowitz and Vreeland again serving as 
+co-engagement principals, and Gralak serving as the EQR.  Manowitz and Vreeland consented to, 
+ 5 
+and Gralak provided concurring approval of issuance of, the release of QFOR’s 2Q2016 Form 10-
+Q, which was filed on August 15, 2016. 
+12. SL audited QFOR’s financial statements for the year ended December 31, 2015 (the 
+“2015 Audit”).  In late August or early September 2016, QFOR told SL that QFOR intended to file 
+an amended Form 10-K for the year ended December 31, 2015, that would disclose, among other 
+things, new information about certain related party transactions.  On September 6, 2016, SL was 
+engaged to audit the amended financial statements in the 2015 Form 10-K/A, which included 
+footnote disclosures regarding certain related party transactions.  Manowitz served as the 
+engagement principal for the 2015 Form 10-K/A Audit, and Gralak served as the EQR.  Manowitz 
+and Gralak consented to the issuance of SL’s audit report that contained an unqualified opinion, 
+which was dual-dated as of September 22, 2016, as to Notes 11 and 14 (which included the new 
+disclosures regarding related party transactions) and March 28, 2016, as to the remainder of the 
+financial statements, and was incorporated in QFOR’s 2015 Form 10-K/A filed on September 22, 
+2016.   
+13. SL resigned as QFOR’s auditor on October 21, 2016, citing concerns about the 
+firm’s ability to rely on management’s representations.  Thondavadi and Desai were arrested on 
+federal charges including wire fraud and certifying false financial reports on November 30, 2016, 
+and resigned from QFOR shortly thereafter.  After the arrests, QFOR filed a Form 8-K in 
+December 2016 announcing that the Board of Directors had concluded that QFOR’s financial 
+statements for the previous three years did not fairly present the financial condition of the 
+company, required restatement, and should no longer be relied upon.  No restatement occurred, and 
+QFOR has since filed for bankruptcy and been liquidated.  On June 29, 2017, the Commission filed 
+a civil injunctive action against QFOR, Thondavadi, and Desai alleging multiple violations of the 
+securities laws. 
+SL Failed to Perform Procedures to Identify and Comply with Relevant Audit Standards in 
+Connection with Related Party Transactions 
+14. Section 10A(a)(2) of the Exchange Act requires that the audit of the financial 
+statements of an issuer by a registered public accounting firm shall include procedures designed to 
+identify related party transactions that are material to the financial statements or otherwise require 
+disclosure therein. 
+15. PCAOB Standard AU Section 334, Related Parties (“AU § 334”),4 which applies to 
+the 2013 and 2014 Audits, provides guidance on procedures to consider in identifying related party 
+relationships and transactions and to satisfy the auditor concerning the required disclosure of 
+related party transactions.  AU § 334.07 provides that the auditor should place “emphasis on 
+testing material transactions with parties he knows are related to the reporting entity,” and also 
+provides for specific audit procedures that may be included to determine the existence of related 
+party relationships that are not clearly evident.   
+                                                
+4  References to PCAOB standards refer to the standards in effect at the time of the relevant 
+conduct. 
+ 6 
+16. AU § 334.09 requires an auditor to test related party transactions by “obtaining and 
+evaluating sufficient appropriate evidential matter” which “should extend beyond inquiry of 
+management.”  The standard also makes clear that, when necessary to fully understand a particular 
+transaction, the auditor should consider “inspect[ing] evidence in possession of the other party or 
+parties to the transaction” and “confirm[ing] or discuss[ing] significant information with 
+intermediaries, such as banks, guarantors, agents, or attorneys to obtain a better understanding.”  
+AU § 334.10.  Additionally, the auditor should consider procedures to “obtain information about 
+the financial capability of the other party or parties to the transaction” when there are “material 
+uncollected balances, guarantees, and other obligations.”  Id. 
+17. Finally, AU § 334.11 requires that, for each material related party transaction, the 
+auditor should consider whether the auditor has obtained sufficient appropriate evidential matter to 
+understand the relationship of the parties and the effects of the transaction on the financial 
+statements.  The auditor should evaluate all of the available information and be satisfied on the 
+basis of the auditor’s professional judgment that the transaction is adequately disclosed in the 
+financial statements. 
+18. PCAOB Auditing Standard No. 18, Related Parties (“AS No. 18”), which applies 
+to the 2015 Form 10-K/A Audit, sets forth procedures the auditor should perform to “obtain 
+sufficient appropriate audit evidence to determine whether related parties and relationships and 
+transactions with related parties have been properly identified, accounted for, and disclosed in the 
+financial statements.”  AS No. 18.2.  Among other things, the standard requires the auditor to 
+“identify[] and assess[] the risks of material misstatement associated with related parties,” AS No. 
+18.10; perform various procedures for each related party transaction required to be disclosed or 
+determined to be a significant risk, including evaluating the terms of the transaction and the 
+circumstances under which it was authorized, AS No. 18.12; “evaluate whether the company has 
+properly identified” its related parties and transactions with related parties, AS No. 18.14; and 
+“evaluate whether related party transactions have been properly accounted for and disclosed in the 
+financial statements,” AS No. 18.17.  
+19. AS No. 18 provides that, when evaluating whether the company has properly 
+identified related parties and related party transactions, the auditor’s responsibility requires “more 
+than assessing the process used by the company,” and “requires the auditor to perform procedures 
+to test the accuracy and completeness” of the company’s identification of related parties and 
+related party transactions.  AS No. 18.14.  The standard provides that, if the auditor identifies 
+information that indicates that previously undisclosed related parties might exist, “the auditor 
+should perform the procedures necessary to determine whether previously undisclosed 
+relationships or transactions with related parties, in fact, exist,” and these procedures “should 
+extend beyond inquiry of management.”  AS No. 18.15.  Furthermore, the standard outlines a 
+number of procedures the auditor should perform if the auditor determines that a previously 
+undisclosed related party or related party transaction does exist, including, among other things, 
+evaluating why it was previously undisclosed and how this bears on the auditor’s ability to rely on 
+management’s representations relating to other aspects of the financial statements and evaluating 
+the implications for the audit if the nondisclosure indicates that fraud or an illegal act may have 
+occurred.  AS No. 18.16. 
+ 7 
+20. Finally, AS No. 18 provides that, if the financial statements state that related party 
+transactions were conducted on an arm’s-length basis, the auditor should determine “whether 
+evidence supports or contradicts management’s assertion,” and express a qualified or adverse 
+opinion if the auditor “is unable to obtain sufficient appropriate audit evidence to substantiate 
+management’s assertion.”  AS No. 18.18. 
+21. SL did not perform sufficient procedures designed to identify related party 
+transactions in connection with the 2013 and 2015 Form 10-K/A Audits.  QFOR was involved in 
+transactions with certain significant shareholders, purported vendors, and customers that should 
+have been disclosed as related party transactions.  These related party entities included, among 
+others:  Global Technology Ventures Corp. (“Global Technology”); Congruent Ventures LLC and 
+Congruent Ventures Ltd. (collectively, “Congruent”); Stonegate Holdings, Inc. (“Stonegate”); Core 
+Information Technology Solutions, Inc. (“CITS”); and Surrex Solutions Corp. (“Surrex”).  In its 
+2015 Form 10-K/A, QFOR made disclosures regarding related party transactions with CITS, 
+Surrex, and a vendor owned by Stonegate.  However, the 2015 Form 10-K/A disclosures were 
+incomplete and materially misleading, and QFOR did not disclose other material related party 
+transactions with Stonegate, Global Technology, or Congruent in its 2014 Form 10-K or 2015 
+Form 10-K/A.  
+22. Prior to the 2013 Audit, SL, in workpapers prepared and/or reviewed by Manowitz 
+and Vreeland, identified Stonegate and an affiliated entity as related parties of QFOR.  The 
+engagement team also prepared and/or reviewed workpapers indicating that Stonegate and an 
+affiliated entity collectively owned 14.8% of QFOR’s common stock as of year-end 2013 and 13% 
+of QFOR’s common stock as of year-end 2014.  The engagement team was aware that QFOR had 
+entered into two material transactions with Stonegate during 2013:  the conversion of a $1.1 
+million debt to equity and the purported assignment of a legal judgment to Stonegate in exchange 
+for approximately 1.8 million shares of QFOR common stock.  These transactions were not 
+disclosed as related party transactions in the 2014 Form 10-K.  SL failed to identify these 
+transactions as related party transactions and failed to conduct procedures to evaluate whether they 
+were adequately disclosed.   
+23. SL’s 2013 Audit workpapers also contained documents indicating that the judgment 
+that QFOR purportedly assigned to Stonegate was jointly owed by QFOR, Thondavadi, and Desai.  
+SL failed to identify this as a related party transaction, failed to identify this as a significant 
+unusual transaction, failed to obtain sufficient appropriate audit evidence to substantiate the 
+transaction and understand its business rationale, failed to consider whether Stonegate had the 
+capability to satisfy the judgment, and failed to evaluate whether the transaction was adequately 
+disclosed. 
+24. The 2015 Form 10-K/A disclosed that QFOR’s transactions with CITS, Surrex, and 
+a significant vendor were related party transactions.  Among other things, the 2015 Form 10-K/A 
+stated that the vendor was owned by Stonegate, that Thondavadi and Desai had guaranteed certain 
+obligations of CITS, and that Thondavadi held signatory authority on CITS and Surrex bank 
+accounts.  The 2015 Form 10-K/A also stated that Thondavadi and Desai had provided 
+management and consulting services to an affiliate of CITS and received compensation for those 
+services, which was paid to Global Technology and Congruent.  Global Technology and 
+Congruent were described as inactive entities owned by Thondavadi and Desai, respectively.  The 
+ 8 
+related party relationships disclosed in the 2015 Form 10-K/A were all described as being 
+structured on an arm’s-length basis.    
+25. SL failed to obtain sufficient appropriate audit evidence to support the disclosures 
+contained in the 2015 Form 10-K/A regarding the relationship between QFOR and Surrex and 
+CITS.  The engagement team did not obtain any documentary evidence regarding Thondavadi’s 
+signatory authority over Surrex and CITS bank accounts or the nature and terms of the consulting 
+services Thondavadi and Desai provided to the affiliate of CITS.  The engagement team requested 
+copies of Thondavadi’s and Desai’s consulting agreements and tax records regarding their 
+compensation for the purported consulting services, but Thondavadi told the engagement team that 
+QFOR did not have any such records.  The engagement team relied solely upon management 
+representations regarding the nature of the services Thondavadi and Desai performed and the 
+amounts of the payments they received in lieu of obtaining any documentary evidence.   
+26. SL also failed to evaluate QFOR’s assertions that its relationships with the vendor, 
+CITS, and Surrex were structured on an arm’s-length basis.  SL’s workpapers for the 2015 Form 
+10-K/A Audit do not contain any documentation regarding the terms of the transactions.  Despite 
+failing to obtain sufficient appropriate audit evidence to substantiate these assertions, SL issued an 
+unqualified opinion on the 2015 Form 10-K/A.   
+27. Despite newly learning of previously undisclosed related party transactions, SL 
+failed to evaluate whether QFOR had properly identified and disclosed its related parties and 
+relationships and transactions with related parties, as required by AS Nos. 18.14-16.  In addition to 
+the transactions that were disclosed in the 2015 Form 10-K/A, the engagement team learned of 
+other undisclosed related party transactions during the course of the 2015 Form 10-K/A Audit, 
+including a loan from Global Technology to QFOR that was issued and converted to QFOR 
+common stock during 2013.  SL’s 2015 Form 10-K/A workpapers included a copy of the 2013 
+promissory note issued to Global Technology, which included a note added by Manowitz reading:  
+“Entity owned by Nandu – related party not disclosed prior.”  The engagement team did not 
+perform any procedures to evaluate why this past related party transaction was not previously 
+disclosed or whether it should be disclosed either in the 2015 Form 10-K/A or through an 
+amendment of prior filings.  Additionally, after being notified once more that Stonegate was a 
+related party of QFOR, the engagement team did not evaluate whether past transactions with 
+Stonegate should be disclosed as related party transactions. 
+28. During the 2015 Form 10-K/A Audit, SL also failed to undertake any procedures, 
+beyond inquiry of management or its agents, to identify whether other previously undisclosed 
+relationships or transactions with related parties existed, as required by AS No. 18.15.  SL’s 
+workpapers for prior periods contained a number of other documents evidencing past related party 
+transactions between QFOR and Global Technology and Congruent, including documents 
+regarding the conversion of the 2013 Global Technology debt to equity, a 2015 promissory note 
+issued to Global Technology, and general ledgers listing transactions with Global Technology and 
+Congruent in 2014 and 2015.  The engagement team failed to perform any procedures to determine 
+whether QFOR had previously entered into transactions with Global Technology or Congruent.   
+ 9 
+SL Failed to Obtain Sufficient Appropriate Audit Evidence 
+29. PCAOB Auditing Standard No. 15, Audit Evidence (“AS No. 15”), requires the 
+auditor to “plan and perform audit procedures to obtain sufficient appropriate audit evidence to 
+provide a reasonable basis for his or her opinion.”  AS No. 15.04.  To be appropriate, audit 
+evidence must be both relevant and reliable in providing support for the conclusions on which the 
+auditor’s opinion is based.  See AS No. 15.6.  The reliability of evidence depends on its nature and 
+source, and the circumstances under which it is obtained.  Evidence obtained directly by the 
+auditor and from a knowledgeable independent third party is more reliable than evidence obtained 
+directly from the company.  See AS No. 15.8. 
+30. PCAOB Standard AU Section 330, The Confirmation Process (“AU § 330”), 
+provides guidance about the audit confirmation process, including the relationship of confirmation 
+procedures to the assessment of audit risk and the performance of alternative procedures when 
+responses to confirmation requests are not received.  AU § 330.28 requires an auditor to maintain 
+control over confirmation requests and responses, which means establishing direct communication 
+between the intended recipient and the auditor to minimize the possibility that the results will be 
+biased because of interception and alteration.  When an auditor does not receive a response to 
+certain confirmations, AU § 330.31 provides that the auditor should apply alternative procedures to 
+obtain the evidence necessary to reduce audit risk to an acceptably low level.   
+31. Further, PCAOB Standard AU Section 333, Management Representations (“AU § 
+333”), states that management representations “are not a substitute for the application of those 
+auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial 
+statements under audit,” AU § 333.02, and requires conflicts between management 
+representations and other audit evidence to be investigated, AU § 333.04.   
+32. PCAOB Standard AU Section 337, Inquiry of a Client’s Lawyer Concerning 
+Litigation, Claims, and Assessments (“AU § 337”), provides guidance on procedures an auditor 
+should consider for identifying and evaluating the accounting and reporting for litigation, claims, 
+and assessments.  For all material litigation, claims, and assessments, AU § 337.06 requires an 
+auditor to “request the client’s management to send a letter of inquiry to those lawyers with 
+whom management consulted concerning” such matters.  
+33. In connection with the 2013 and 2014 Audits, SL failed to obtain sufficient 
+appropriate audit evidence to support SL’s unqualified opinion included in the 2014 Form 10-K, 
+particularly regarding QFOR’s reported liabilities.  Much of the deficient testing fell within audit 
+areas that SL determined were high-risk areas and identified in its planning workpapers as 
+requiring “extended procedures.”   
+34. SL failed to obtain sufficient appropriate audit evidence regarding a $1.1 million 
+debt to a hedge fund (“Lender A”) that was purportedly converted to equity in 2013.  The 
+engagement team obtained extensive documentation of the convertible debenture giving rise to the 
+liability.  However, the engagement team’s testing of the purported equity conversion, which 
+occurred only weeks later and did not satisfy the terms of the convertible debenture, was 
+inadequate.  For example, the engagement team did not obtain any documentation signed by 
+Lender A consenting to or otherwise substantiating the conversion or confirming the liability had 
+ 10 
+been extinguished as of year-end 2013.  In reality, Lender A had not consented to convert its debt 
+to equity in 2013, and a liability of least $885,045 was still owed to Lender A as of December 31, 
+2013. 
+35. SL also failed to obtain sufficient appropriate audit evidence regarding a debt to an 
+entity (“Lender B”).  In documents provided by QFOR management to the engagement team, SL 
+learned that, during 2013, QFOR had made approximately $700,000 in payments on the debt and 
+converted $2 million to equity, leaving a liability of approximately $3.1 million as of year-end 
+2013.  In reality, QFOR did not make any payments to Lender B during 2013, and the purported 
+loan payments were actually misappropriated by Thondavadi and Desai.  The engagement team did 
+not obtain any documentation signed by Lender B authorizing the purported debt conversion or 
+substantiating the balance due at year-end 2013.  The engagement team also did not conduct any 
+testing of the purported debt payments to Lender B in 2013.  For example, had the engagement 
+team traced these payments to underlying transaction support from QFOR’s bank, it would have 
+discovered that Lender B was not the true recipient of the funds.   
+36. SL failed to adhere to the procedures set forth in AU § 330 in connection with the 
+testing of the Lender A and Lender B liabilities, as well as a material liability owed to an 
+individual.  After receiving no response to initial debt confirmations sent to Lender A, Lender B, 
+and the individual, the engagement team failed to either follow up with a second request or apply 
+alternate procedures to reduce the audit risk to an acceptably low level, as required under AU §§ 
+330.30-31.   
+37. The 2014 Form 10-K contained material misrepresentations and omissions 
+regarding the resolution of a breach of contract suit filed by a New York-based lender (“Plaintiff 
+A”).  The 2014 Form 10-K reported a $692,000 expense for “litigation settlement” in 2013, and the 
+notes to the financial statements included a disclosure that the lawsuit was settled for 1,870,270 
+shares of QFOR stock valued at $692,000.  QFOR told SL that, rather than issuing the stock to 
+Plaintiff A, QFOR had assigned the obligation it owed Plaintiff A to Stonegate in exchange for 
+1,870,270 shares of QFOR common stock.  Though QFOR did issue the stock to Stonegate, 
+Stonegate never made any payments toward the settlement, and Plaintiff A did not consent to the 
+assignment of the liability owed to it.  Instead, QFOR, Thondavadi, Desai, and a third individual 
+entered into a settlement agreement with Plaintiff A in December 2013.  Between December 2013 
+and March 2014, QFOR paid approximately $1.8 million pursuant to the settlement agreement, 
+largely through a series of wire transfers to Plaintiff A’s lawyers (“Law Firm A”).  QFOR falsely 
+recorded many of these wire transfers as payments related to acquisitions completed earlier in 
+2013.  As of year-end 2013, the outstanding liability on the settlement agreement was $1.25 
+million, which was not reported on QFOR’s balance sheet in the 2014 Form 10-K.   
+38. SL failed to obtain sufficient appropriate audit evidence regarding the liability owed 
+to Plaintiff A.  The engagement team failed to obtain a copy of the legal judgment, a settlement 
+agreement or other documentation signed by Plaintiff A, or any other evidence of the size of the 
+liability owed to Plaintiff A.  It also failed to obtain any evidence that Plaintiff A consented to the 
+purported assignment to Stonegate, that Stonegate had performed under the purported assignment, 
+or that the liability owed to Plaintiff A had been extinguished.  The engagement team also failed to 
+identify the law firm that represented QFOR in the Plaintiff A litigation and did not request that 
+QFOR management send a letter of inquiry to that law firm. 
+ 11 
+39. SL failed to obtain sufficient appropriate audit evidence in other areas.  While 
+performing journal entry testing for the 2014 Audit, the engagement team examined a journal entry 
+for a $445,000 payment to Law Firm A.  It did not obtain any evidence, aside from a representation 
+by management, regarding the purpose of this transaction. 
+40. Additionally, while testing earnouts associated with acquisitions that took place in 
+2013, the engagement team examined various wire transfers that were recorded as earnouts but 
+actually sent to Law Firm A in payment of the Plaintiff A settlement.  Based on the supporting 
+schedules included in the workpapers:  (1) two of the entities that received earnout payments had 
+not met the revenue targets entitling them to earnout payments; and (2) the earnout payments were 
+made piecemeal throughout the quarters, rather than in lump sum at the end of each quarter.  Both 
+of these factors should have prompted the engagement team to further scrutinize the relevant 
+payments, but it failed to obtain sufficient appropriate audit evidence to support the recorded 
+earnout payments.  Many of the recorded earnout payments were made by wire transfer, and the 
+engagement team tested them by tracing them to the bank statements.  However, the bank 
+statements did not provide any information regarding the counterparty to wire transfers.  Rather 
+than obtaining wire details, the engagement team relied solely on bank statement entries reading 
+“Outgoing Wire Transfer” as evidence that the earnout payments were made.  
+41. SL failed to obtain sufficient appropriate audit evidence regarding payroll tax 
+liabilities assumed in connection with an acquisition that took place in 2013.  The engagement 
+team failed to obtain sufficient evidence to support the original accrual recorded for assumed 
+payroll tax liabilities, which was not consistent with the amount of assumed liabilities stated in the 
+purported asset purchase agreement.  The engagement team obtained schedules from QFOR listing 
+purported payments on the tax liabilities, but did not trace them to any transaction support.  After 
+noting a material remaining balance for the accrual as of year-end 2014, the engagement team 
+relied solely on management’s representation that this balance represented accounts payable 
+incorrectly included in the tax payable, without performing any procedures to test that assertion.  
+The engagement team also did not obtain documentation from the taxing authorities confirming 
+that the liabilities had been extinguished.  In reality, as of year-end 2014, more than $500,000 in 
+payroll tax liability remained outstanding and was not reported as a liability in the 2014 Form 10-
+K. 
+42. As discussed in paragraphs 24 to 28, SL failed to obtain sufficient appropriate audit 
+evidence regarding the related party transaction disclosures contained in the 2015 Form 10-K/A.  
+SL also inappropriately relied upon management’s representations, despite the engagement team’s 
+awareness that those representations conflicted with prior representations made by management 
+regarding their receipt of compensation.   
+SL Failed to Conduct Appropriate Procedures to Obtain Reasonable Assurance that the 
+Financial Statements were Free of Material Misstatements Caused by Fraud 
+43. PCAOB Standard AU Section 316, Consideration of Fraud in a Financial 
+Statement Audit (AU § 316), requires an auditor to perform procedures to address the risk of 
+fraud in a financial statement audit, including those fraud risks specifically arising from 
+management override of internal controls.  The standard requires an auditor to examine journal 
+entries “for evidence of possible material misstatement due to fraud.”  AU § 316.58.  The auditor 
+ 12 
+should use professional judgment in determining the nature and extent of journal entry testing, 
+but “the auditor’s procedures should include selecting from the general ledger journal entries to 
+be tested and examining support for those items.”  AU § 316.61.   
+44. Additionally, AU § 316, as in effect during the 2013 and 2014 Audits, requires an 
+auditor to evaluate significant transactions that are outside the normal course of business for the 
+entity, or that otherwise appear to be unusual.  The auditor should gain an understanding of the 
+business purpose of each such transaction and consider whether the rationale for the transaction 
+suggests that it may have been entered into for fraudulent purposes.  AU § 316.66.  When 
+evaluating the business rationale for the transaction, an auditor should consider whether the 
+transaction involves previously unidentified related parties or parties that do not have the ability to 
+support the transaction without assistance from the entity under audit.  AU § 316.67. 
+45. During the 2013 and 2014 Audits, SL failed to perform appropriate procedures to 
+obtain reasonable assurance that the financial statements were free of material misstatements 
+caused by fraud.  It failed to appropriately perform journal entry testing, and failed to evaluate 
+significant unusual transactions, including a transaction with Stonegate, an undisclosed related 
+party. 
+46. Pursuant to PCAOB Auditing Standard No. 12, Identifying and Assessing Risks of 
+Material Misstatement (“AS No. 12”), the auditor is required to identify the risk of management 
+override of controls as a fraud risk.  AS No. 12.69.  SL, through Manowitz and Vreeland, identified 
+management override of controls as a significant risk while planning the 2013 and 2014 Audits, yet 
+it failed to properly perform journal entry testing, one of the required procedures to address this 
+risk.  As discussed in paragraph 39, the engagement team examined a journal entry for a $445,000 
+payment to Law Firm A while performing journal entry testing for the 2014 Audit.  The only 
+procedure the engagement team performed to test this journal entry was to ask Thondavadi about 
+the purpose of the payment.  Thondavadi told the engagement team that it related to an acquisition 
+that took place in 2013, and the engagement team relied on this representation without performing 
+any procedures to verify it.  The engagement team did not obtain any additional evidence of the 
+purpose of the payment, nor did it tie the payment to other workpapers in SL’s possession testing 
+acquisition-related payments.  
+47. SL also failed to identify the assignment of the Plaintiff A judgment to Stonegate, 
+an entity the engagement team had identified in planning workpapers as a related party, as a 
+significant unusual transaction, and evaluate whether it may have been entered into to engage in 
+fraudulent financial reporting.  The transaction was outside the normal course of business for 
+QFOR, material, and completed near year-end 2013.  The engagement team failed to obtain an 
+understanding of the substance of the transaction, particularly whether the purported assignment 
+effectively satisfied the liability owed to Plaintiff A.  The engagement team also failed to identify 
+it as a transaction with a related party. 
+48. SL also failed to identify purported settlements of earnout obligations that took 
+place in December 2013 as significant unusual transactions and evaluate whether they may have 
+been entered into to engage in fraudulent financial reporting or conceal misappropriation.  The 
+earnout settlements were outside the normal course of business for QFOR, material, and 
+completed as of December 31, 2013.  They had the effect of materially increasing QFOR’s 2013 
+ 13 
+net income while also reducing its liabilities.  The engagement team failed to obtain a full 
+understanding of the transactions, including the business rationale for QFOR making substantial 
+payments to settle contingent obligations to two entities even though the acquired business units 
+had never met the revenue targets entitling them to earnout payments. 
+SL Failed to Conduct Appropriate Procedures upon the Subsequent Discovery of Facts 
+Existing at the Date of a Previous Audit Report 
+49. PCAOB Standard AU Section 561, Subsequent Discovery of Facts Existing at the 
+Date of the Auditor’s Report (“AU § 561”), sets forth procedures the auditor should follow when 
+the auditor becomes aware that facts may have existed at the date of a prior audit report that might 
+have affected the report if the auditor had been aware of such facts.  AU § 561.04 requires that, 
+when an auditor becomes aware of information that relates to financial statements upon which the 
+auditor previously issued a report, and which the auditor would have investigated if the auditor had 
+been aware of it during the audit, the auditor should, “as soon as practicable, undertake to 
+determine whether the information is reliable and whether the facts existed at the date of his 
+report.”  Upon determining that the information is reliable and existed at the date of the auditor’s 
+report, the auditor is required to undertake certain procedures, including evaluating whether the 
+information would have affected the audit report if it had been known but not reflected in the 
+financial statements, evaluating whether there are persons likely to rely on the financial statements, 
+and advising the client to make appropriate disclosure of the newly discovered facts and their 
+impact on the financial statements.  AU §§ 561.05-.06. 
+50. During the 2Q2016 Review, SL failed to conduct appropriate procedures after 
+being provided with additional information relating to the assignment of the Plaintiff A liability 
+that was previously disclosed in the 2014 Form 10-K.  During the planning for the review, QFOR 
+informed the engagement team that it had cancelled the approximately 1.8 million shares 
+previously issued to Stonegate because Stonegate had not performed on the assignment.  QFOR 
+provided the engagement team with a memorandum containing extensive new material information 
+that was inconsistent with the disclosures contained in the 2014 Form 10-K related to the 
+resolution of the Plaintiff A lawsuit.  Among other things, the memorandum stated that Plaintiff A 
+received a judgment that included reimbursement of legal fees and that QFOR actually ended up 
+paying the judgment and legal fees rather than satisfying the balances due through the issuance of 
+stock.  The memorandum did not specify the amount of the legal fees or provide any information 
+on when or how QFOR paid the judgment and legal fees.  The engagement team did not perform 
+any procedures to evaluate the value of the underlying liability to Plaintiff A; to determine 
+whether, when, or how the liability to Plaintiff A had been extinguished; or to evaluate or assess 
+the impact of the newly discovered facts on prior period financial statements and disclosures.   
+51. SL also failed to conduct appropriate procedures after learning that a 2013 loan 
+from Global Technology to QFOR was a related party transaction during the 2015 Form 10-K/A 
+Audit.  Despite noting that the loan was a previously undisclosed related party transaction in a 
+workpaper, the engagement team did not perform any procedures to consider whether this 
+information would have affected SL’s report on the 2013 financial statements or whether the 
+information should be disclosed.   
+ 14 
+SL Failed to Conduct Appropriate Procedures in Connection with a Review of Interim 
+Financial Information 
+52. PCAOB Standard AU Section 722, Interim Financial Information (“AU § 722”), 
+provides that, if “the accountant becomes aware of information that leads him or her to believe that 
+the interim financial information may not be in conformity with generally accepted accounting 
+principles in all material respects, the accountant should make additional inquiries or perform other 
+procedures that the accountant considers appropriate to provide a basis for communicating whether 
+he or she is aware of any material modifications that should be made to the interim financial 
+information.”  AU § 722.22.  Additionally, “if information comes to the accountant’s attention that 
+leads him or her to question whether the interim financial information departs from generally 
+accepted accounting principles with respect to litigation, claims, or assessments,” it may be 
+appropriate to make an inquiry of the company’s legal counsel.  AU § 722.20.  
+53. SL failed to conduct appropriate procedures after being provided with additional 
+information regarding the assignment of the Plaintiff A liability to Stonegate during the 2Q2016 
+Review.  After learning that Stonegate had not satisfied the Plaintiff A liability and being informed 
+that QFOR had paid it at some unspecified time, the engagement team had sufficient information 
+to question whether the interim financial information was in conformity with generally accepted 
+accounting principles (“GAAP”) in all material respects.  The engagement team failed to make 
+additional inquiries or perform procedures to determine whether, when, and how the liability to 
+Plaintiff A had been extinguished, and thus did not have a sufficient basis to communicate whether 
+it was aware of any material modifications that should be made to the interim financial 
+information. 
+SL Failed to Properly Plan the Audit and Assess and Respond to Risks of Material 
+Misstatement 
+54. PCAOB Auditing Standard No. 9, Audit Planning (“AS No. 9”), requires the 
+auditor to properly plan the audit.  The standard provides that planning is “a continual and iterative 
+process,” AS No. 9.5, and requires the auditor to modify the audit strategy and plan as necessary if 
+circumstances change significantly during the course of the audit, including due to the discovery of 
+a previously unidentified risk of material misstatement, AS No. 9.15.   
+55. PCAOB Auditing Standard No. 12, Identifying and Assessing Risks of Material 
+Misstatement (“AS No. 12”), requires the auditor to “perform risk assessment procedures that are 
+sufficient to provide a reasonable basis for identifying and assessing the risks of material 
+misstatement, whether due to error or fraud.”  AS No. 12.4.  The standard provides that risk 
+assessment should continue throughout the audit, and that the auditor should “revise the risk 
+assessment and modify planned audit procedures or perform additional procedures in response to 
+the revised risk assessments” when the auditor obtains evidence “that contradicts the audit 
+evidence on which the auditor originally based his or her risk assessment.”  AS No. 12.74. 
+56. PCAOB Auditing Standard No. 13, The Auditor’s Responses to the Risks of 
+Material Misstatement (“AS No. 13”), requires the auditor when responding to the assessed risks 
+of material misstatement, particularly fraud risks, to apply professional skepticism in gathering and 
+evaluating audit evidence.  Examples include:  (a) modifying the planned audit procedures to 
+ 15 
+obtain more reliable evidence regarding relevant assertions, and (b) obtaining sufficient appropriate 
+evidence to corroborate management’s explanations or representations concerning important 
+matters.  AS No. 13.7. 
+57. SL failed to properly plan the 2015 Form 10-K/A Audit or perform sufficient risk 
+assessment procedures.  The engagement team should have recognized that the newly disclosed 
+related party transactions constituted a significant change in circumstances from the 2015 Audit 
+and revealed previously unidentified risks of material misstatement.  Additionally, the engagement 
+team was aware that the three newly disclosed related parties were QFOR’s most significant 
+vendor and QFOR’s second and third largest customers.  The engagement team was also aware 
+that some of the information provided by management during the 2015 Form 10-K/A Audit, 
+particularly regarding management’s receipt of compensation for consulting services to an affiliate 
+of CITS, was inconsistent with prior management representations.  Despite the inconsistencies in 
+management’s representations and the significance of the newly disclosed related parties to 
+QFOR’s business, the engagement team did not engage in any new risk assessment or planning 
+activities in connection with the 2015 Form 10-K/A Audit. 
+SL Failed to Conduct Proper Engagement Quality Reviews 
+58. PCAOB Audit Standard 7, Engagement Quality Review (“AS No. 7”), requires an 
+EQR conducting a review of an engagement to “evaluate the significant judgments made by the 
+engagement team and the related conclusions reached in forming the overall conclusion on the 
+engagement and in preparing the engagement report.”  AS No. 7.2.  For engagement quality 
+reviews of both audits and reviews of interim financial information, the EQR should “evaluate” 
+significant judgments as to planning, including consideration of “risks identified in connection 
+with the firm’s client acceptance and retention process” and the company’s “recent significant 
+activities.”  AS Nos. 7.9-10 (audits), 7.14-15 (reviews).  Additionally, the EQR should “evaluate 
+whether the engagement documentation” reviewed in connection with required procedures 
+“[s]upports the conclusions reached by the engagement team with respect to the matters reviewed.”  
+AS Nos. 7.11 (audits), 7.16 (reviews).   
+59. If the EQR becomes aware of a significant engagement deficiency, including that 
+the engagement team reached an inappropriate overall conclusion on the subject matter of the 
+engagement, he or she cannot provide concurring approval of issuance.  AS Nos. 7.12 (audits), 
+7.17 (reviews).  For an audit, a significant engagement deficiency includes the failure to obtain 
+sufficient appropriate evidence in accordance with PCAOB standards.  AS No. 7.12.  For a review 
+of interim financial information, a significant engagement deficiency includes a failure to perform 
+interim review procedures necessary in the circumstances of the engagement.  AS No. 7.17.   
+60. SL, through Gralak, failed to perform an adequate engagement quality review in 
+connection with the 2Q2016 Review.  The cancellation of the shares issued to Stonegate in 
+connection with the Plaintiff A lawsuit was identified as a recent significant activity, and Gralak 
+reviewed the workpapers related to that transaction.  However, he failed to recognize that the 
+workpapers did not support the conclusions reached by the engagement team regarding that 
+transaction or that the engagement team had failed to perform necessary procedures after receiving 
+information that should have led them to believe that the interim financial information may not 
+have been presented in conformity with GAAP. 
+ 16 
+61. SL, through Gralak, also failed to perform an adequate engagement quality review 
+in connection with the 2015 Form 10-K/A Audit.  First, the engagement team did not perform any 
+planning or risk assessment specific to the 2015 Form 10-K/A Audit, and Gralak did not review 
+any of the planning or risk assessment documentation associated with the 2015 Audit.  Therefore, 
+Gralak failed to evaluate the significant judgments related to engagement planning or the 
+engagement team’s assessment of, and audit responses to, significant risks, as required by AS No. 
+7.10.   
+62. Additionally, Gralak provided concurring approval of the issuance of the audit 
+report on the 2015 Form 10-K/A Audit despite the fact that, based on the workpapers he reviewed, 
+he should have been aware that a significant engagement deficiency existed—namely, the failure 
+to obtain sufficient appropriate audit evidence supporting the accuracy and completeness of the 
+company’s disclosures regarding related party transactions.  Gralak reviewed nearly all of the 
+workpapers related to the testing of the new disclosures regarding related party transactions, 
+including the copy of the 2013 promissory note to Global Technology.  However, Gralak failed to 
+recognize that the workpapers did not support the audit team’s conclusions that QFOR’s related 
+party transactions were adequately tested and disclosed.   
+SL Failed to Exercise Due Professional Care and Professional Skepticism 
+63. PCAOB Standard AU Section 230, Due Professional Care in the Performance of 
+Work (“AU § 230”), requires an auditor to exercise due professional care throughout the audit.  
+Under this standard, an auditor “should possess ‘the degree of skill commonly possessed’ by other 
+auditors and should exercise it with ‘reasonable care and diligence.’”  AU § 230.05.  Due 
+professional care also requires that the auditor exercise professional skepticism, which is “an 
+attitude that includes a questioning mind and a critical assessment of audit evidence.”  AU 
+§ 230.07.  An auditor is required to “consider the competency and sufficiency of the evidence,” 
+AU § 230.08, and “should not be satisfied with less than persuasive evidence because of a belief 
+that management is honest,” AU § 230.09. 
+64. SL failed to exercise due professional care and professional skepticism in 
+connection with the numerous audit failures described above during the 2013 Audit, 2014 Audit, 
+2Q2016 Review, and 2015 Form 10-K/A Audit.  
+65. SL, through Vreeland, also failed to exercise due professional care while 
+performing the search for unrecorded liabilities during the 2013 Audit.  Nine out of twenty-six 
+payments that fell within the testing parameters were erroneously excluded from testing.  The 
+excluded payments included three of the Plaintiff A settlement payments (including a $445,000 
+payment to Law Firm A), as well as a settlement payment for another undisclosed lawsuit.   
+SL’s Policies and Procedures were Deficient 
+66. PCAOB Standard QC Section 20, System of Quality Control for a CPA Firm’s 
+Accounting and Auditing Practice (“QC § 20”), requires a CPA firm to have a system of quality 
+control for its auditing practice.  The standard requires the firm to adopt policies and procedures 
+that provide the firm with reasonable assurance that “the likelihood of association with a client 
+whose management lacks integrity is minimized,” QC § 20.14; “the firm . . . appropriately 
+ 17 
+considers the risks associated with providing professional services in the particular circumstances,” 
+QC § 20.15; and “the work performed by engagement personnel meets applicable professional 
+standards, regulatory requirements, and the firm’s standards of quality,” QC § 20.17.  Firm policies 
+and procedures should also provide reasonable assurance that the policies and procedures 
+established for the elements of quality control described in the standard are “suitably designed and 
+are being effectively applied.”  QC § 20.20; see also AU § 161.  SL failed to adhere to QC § 20 in 
+several respects.   
+67. In 2014, SL hired Gralak as Director of Quality Control in response to a peer 
+review that found that SL’s system of quality control was not suitably designed or sufficiently 
+complied with to provide the firm with reasonable assurance of performing and/or reporting in 
+conformity with applicable professional standards in all material respects.  Gralak, along with SL’s 
+Managing Partner, was responsible for administering and monitoring SL’s system of quality 
+control.  However, Gralak had limited experience conducting public company audits, and SL’s 
+Managing Partner had no public company audit experience.  Gralak and SL’s Managing Partner 
+lacked the experience and expertise necessary to provide reasonable assurance that SL complied 
+with the requirements of QC § 20. 
+68. SL’s policies and procedures regarding engagement acceptance and continuance 
+were deficient because they placed the ultimate authority for decisions on engagement acceptance 
+and resignation, as well as engagement staffing, with SL’s Managing Partner, who lacked the 
+experience and expertise necessary to make those decisions.   
+69. SL failed to adopt and implement adequate policies and procedures regarding audit 
+planning and risk assessment.  Specifically, SL’s quality control document lacked policies and 
+procedures addressing the need to engage in planning and risk assessment procedures throughout 
+the course of an engagement or to modify engagement strategy to respond to changes in risk 
+assessment and previously unidentified risks of material misstatement.   
+70. SL failed to adopt and implement adequate policies and procedures governing 
+supervision, review, and approval.  SL’s quality control document did not provide guidance on 
+supervision and review that addressed engagements staffed by two co-equal principals, as was the 
+case with most of the QFOR engagements.  This contributed to a lack of clear lines of 
+responsibility for the overall conduct of the engagements and an overly deferential review by the 
+co-engagement principals of each other’s work.   
+71. SL also failed to adequately monitor the design and application of its system of 
+quality control.  Gralak, in the exercise of his monitoring functions as Director of Quality Control, 
+reviewed the workpaper binder at the conclusion of each attest engagement to provide reasonable 
+assurance that it included all workpapers required by the firm’s quality control document.  He 
+knew or should have known that the engagement team had not performed the engagement 
+acceptance and continuance, planning, and risk assessment procedures required by the firm’s 
+quality control document in connection with the 2015 Form 10-K/A Audit, yet he took no action. 
+72. Additionally, in the exercise of his monitoring functions as Director of Quality 
+Control, for every audit engagement, Gralak reviewed and maintained copies of workpapers that, 
+pursuant to the firm’s quality control document, the engagement partner or engagement principal 
+ 18 
+was required to sign to document his or her approval of the release of an audit report.  These 
+workpapers were incomplete for each of the QFOR audit engagements.  Gralak knew or should 
+have known that the engagement team had not documented the engagement principal’s approval of 
+the release of the audit report for any of the QFOR audits, as required by the firm’s quality control 
+document, yet he took no action. 
+VIOLATIONS 
+73. Section 10A(a)(2) of the Exchange Act requires each audit to include procedures 
+designed to identify related party transactions that are material to the financial statements or 
+otherwise require disclosure therein.  No showing of scienter is necessary to establish a violation of 
+Section 10A of the Exchange Act.  As a result of the conduct described above, SL willfully 
+violated Section 10A(a)(2) of the Exchange Act.   
+74. Rule 2-02(b)(1) of Regulation S-X requires an accountant’s report to state “whether 
+the audit was made in accordance with generally accepted auditing standards” (“GAAS”).  
+“[R]eferences in Commission rules and staff guidance and in the federal securities laws to GAAS 
+or to specific standards under GAAS, as they relate to issuers, should be understood to mean the 
+standards of the PCAOB plus any applicable rules of the Commission.”  See SEC Release No. 34-
+49708 (May 14, 2004).  No showing of scienter is necessary to establish a violation of Rule 2-
+02(b)(1) of Regulation S-X.  As a result of the conduct described above, SL willfully violated 
+Regulation S-X Rule 2-02(b)(1) when SL issued audit reports stating that it had conducted its 
+audits in accordance with PCAOB standards when it had not.   
+75. Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s 
+Rules of Practice provide, in part, that the Commission may deny, temporarily or permanently, the 
+privilege of appearing or practicing before the Commission to any person who is found by the 
+Commission “[t]o have willfully violated, or willfully aided and abetted the violation of, any 
+provision of the Federal securities laws or the rules and regulations thereunder.”  Through the 
+conduct described above, SL willfully violated the federal securities laws and rules and regulations 
+thereunder within the meaning of Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of 
+the Commission’s Rules of Practice. 
+76. Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s 
+Rules of Practice provide, in part, that the Commission may deny, temporarily or permanently, the 
+privilege of appearing or practicing before the Commission to any person who is found by the 
+Commission to have engaged in improper professional conduct.  With respect to persons licensed 
+to practice as accountants, “improper professional conduct” includes “intentional or knowing 
+conduct, including reckless conduct that results in a violation of applicable professional standards.”  
+Rule 102(e)(1)(iv)(A).  In addition, “improper professional conduct” includes either of the 
+following two types of negligent conduct:  (1) a single instance of highly unreasonable conduct 
+that results in a violation of applicable professional standards in circumstances in which an 
+accountant knows, or should know, that heightened scrutiny is warranted; or (2) repeated instances 
+of unreasonable conduct, each resulting in a violation of applicable professional standards, that 
+indicate a lack of competence to practice before the Commission.  Rule 102(e)(1)(iv)(B).  Through 
+the conduct described above, SL engaged in “improper professional conduct” within the meaning 
+ 19 
+of Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice.  
+III. 
+ 
+In view of the allegations made by the Division of Enforcement, the Commission deems it 
+necessary and appropriate in the public interest that public administrative and cease-and-desist 
+proceedings be instituted to determine: 
+ 
+A.  Whether the allegations set forth in Section II hereof are true and, in connection 
+therewith, to afford Respondent an opportunity to establish any defenses to such allegations;  
+ 
+B.  Whether, pursuant to Section 21C of the Exchange Act, Respondent should be 
+ordered to cease and desist from committing or causing violations of and any future violations of 
+Section 10A(a)(2) of the Exchange Act and Rule 2-02(b)(1) of Regulation S-X;  
+ 
+C.  What, if any, remedial action is appropriate in the public interest against Respondent 
+pursuant to Section 21C of the Exchange Act including, but not limited to, disgorgement and civil 
+penalties pursuant to Section 21B of the Exchange Act; and  
+ 
+D.  What, if any, remedial action is appropriate in the public interest against Respondent 
+pursuant to Section 4C of the Exchange Act and Section 102(e) of the Commission’s Rules of 
+Practice. 
+IV. 
+ 
+IT IS ORDERED that a public hearing before the Commission for the purposes of taking 
+evidence on the questions set forth in Section III hereof shall be convened not earlier than 30 days 
+and not later than 60 days from service of this Order at a time and place to be fixed by further order 
+of the Commission, pursuant to Rule 110 of the Commission’s Rules of Practice, 17 C.F.R. 
+§ 201.110. 
+  
+IT IS FURTHER ORDERED that Respondent shall file an Answer to the allegations 
+contained in this Order within twenty (20) days after service of this Order, as provided by Rule 
+220(b) of the Commission’s Rules of Practice, 17 C.F.R. § 201.220(b).  
+ 
+IT IS FURTHER ORDERED that the Division of Enforcement and Respondent shall 
+conduct a prehearing conference pursuant to Rule 221 of the Commission’s Rules of Practice, 17 
+C.F.R. § 201.221, within fourteen (14) days of service of the Answer.  The parties may meet in 
+person or participate by telephone or other remote means; following the conference, they shall file 
+a statement with the Office of the Secretary advising the Commission of any agreements reached at 
+said conference.  If a prehearing conference was not held, a statement shall be filed with the Office 
+of the Secretary advising the Commission of that fact and of the efforts made to meet and confer. 
+ 
+If Respondent fails to file the directed Answer, or fails to appear at a hearing or conference 
+after being duly notified, Respondent may be deemed in default and the proceedings may be 
+determined against it upon consideration of this Order, the allegations of which may be deemed to 
+ 20 
+be true as provided by Rules 155(a), 220(f), 221(f) and 310 of the Commission’s Rules of Practice, 
+17 C.F.R.  §§ 201.155(a), 201.220(f), 201.221(f), and 201.310. 
+ 
+This Order shall be served forthwith upon Respondent by any means permitted by the 
+Commission’s Rules of Practice.   
+ 
+Attention is called to Rule 151(b) and (c) of the Commission’s Rules of Practice, 17 C.F.R. 
+§ 201.151(b) and (c), providing that when, as here, a proceeding is set before the Commission, all 
+papers (including those listed in the following paragraph) shall be filed with the Office of the 
+Secretary and all motions, objections, or applications will be decided by the Commission.  The 
+Commission requests that an electronic courtesy copy of each filing should be emailed to 
+APFilings@sec.gov in PDF text-searchable format.  Any exhibits should be sent as separate 
+attachments, not a combined PDF.   
+ 
+The Commission finds that it would serve the interests of justice and not result in prejudice 
+to any party to provide, pursuant to Rule 100(c) of the Commission’s Rules of Practice, 17 C.F.R. 
+§ 201.100(c), that notwithstanding any contrary reference in the Rules of Practice to filing with or 
+disposition by a hearing officer, all filings, including those under Rules 210, 221, 222, 230, 231, 
+232, 233, and 250 of the Commission’s Rules of Practice, 17 C.F.R. §§ 201.210, 221, 222, 230, 
+231, 232, 233, and 250, shall be directed to and, as appropriate, decided by the Commission.  This 
+proceeding shall be deemed to be one under the 120-day timeframe specified in Rule of Practice 
+360(a)(2)(i), 17 C.F.R. § 201.360(a)(2)(i), for the purposes of applying Rules of Practice 233 and 
+250, 17 C.F.R. §§ 201.233 and 250.   
+ 
+The Commission finds that it would serve the interests of justice and not result in prejudice 
+to any party to provide, pursuant to Rule 100(c) of the Commission’s Rules of Practice, 17 C.F.R. 
+§ 201.100(c), that the Commission shall issue a decision on the basis of the record in this 
+proceeding, which shall consist of the items listed at Rule 350(a) of the Commission’s Rules of 
+Practice, 17 C.F.R. § 201.350(a), and any other document or item filed with the Office of the 
+Secretary and accepted into the record by the Commission.  The provisions of Rule 351 of the 
+Commission’s Rules of Practice, 17 C.F.R. § 201.351, relating to preparation and certification of a 
+record index by the Office of the Secretary or the hearing officer are not applicable to this 
+proceeding. 
+ 
+The Commission will issue a final order resolving the proceeding after one of the 
+following:  (A) The completion of post-hearing briefing in a proceeding where the public hearing 
+has been completed; (B) The completion of briefing on a motion for a ruling on the pleadings or a 
+motion for summary disposition pursuant to Rule 250 of the Commission’s Rules of Practice, 17 
+C.F.R. § 201.250, where the Commission has determined that no public hearing is necessary; or 
+(C) The determination that a party is deemed to be in default under Rule 155 of the Commission’s 
+Rules of Practice, 17 C.F.R. § 201.155, and no public hearing is necessary.   
+ 
+In the absence of an appropriate waiver, no officer or employee of the Commission engaged 
+in the performance of investigative or prosecuting functions in this or any factually related 
+proceeding will be permitted to participate or advise in the decision of this matter, except as witness 
+or counsel in proceedings held pursuant to notice.  Since this proceeding is not “rule making” within 
+ 21 
+the meaning of Section 551 of the Administrative Procedure Act, it is not deemed subject to the 
+provisions of Section 553 delaying the effective date of any final Commission action. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 
+ 
+ 
+ 
+ 

raw/aaer/2019/AAER-4106.txt

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+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES ACT OF 1933 
+Release No. 10731 / December 5, 2019 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 87670 / December 5, 2019 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4106 / December 5, 2019 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19613 
+ 
+ 
+In the Matter of 
+ 
+            JATINDAR KAPUR, CPA 
+ 
+Respondent. 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 8A OF THE SECURITIES ACT OF 
+1933, SECTIONS 4C AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+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 Jatindar 
+Kapur, CPA (“Kapur” or “Respondent”) pursuant to Section 8A of the Securities Act of 1933 
+2 
+ 
+(“Securities Act”), Sections 4C1 and 21C of the Securities Exchange Act of 1934 (“Exchange 
+Act”) and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.2 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Kapur has submitted an Offer of 
+Settlement (the “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, and without admitting or denying the findings herein, except as 
+to the Commission’s jurisdiction over them and the subject matter of these proceedings, which are 
+admitted, Kapur consents to the entry of this Order Instituting Public Administrative and Cease-
+and-Desist Proceedings Pursuant to Section 8A of the Securities Act, Sections 4C and 21C of the 
+Exchange Act 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 Kapur’s Offer, the Commission finds3 that:  
+ 
+Summary 
+  
+1. Respondent Jatindar Kapur was, from April 2008 to April 2014, the Senior Vice 
+President, Finance and Corporate Controller for Hertz Global Holdings, Inc. (“Hertz Holdings”).    
+ 
+2. From at least February 2012 through March 2014, the public filings of Hertz 
+Holdings and its wholly-owned subsidiary The Hertz Corporation (together, “Hertz”)  materially 
+overstated pretax income by $235 million because of accounting errors made in a number of 
+business units, and over multiple reporting periods, as reflected in the Restatement that Hertz filed 
+on July 16, 2015.  Among the accounting errors contributing to this total were misstatements 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, to any person the privilege 
+of appearing or practicing before the Commission in any way, if that person is found by the Commission . . 
+. (1) not to possess the requisite qualifications to represent others; (2) to be lacking in character or integrity, 
+or to have engaged in unethical or improper professional conduct; or (3) to have willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or the rules and regulations 
+issued thereunder. 
+ 
+2  Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before 
+ it . . . to any person who is found  by the Commission...to have willfully violated, or willfully aided and 
+abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder. 
+ 
+3  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding. 
+3 
+ 
+concerning Hertz’s accrual for expenses related to “wrecks,” the amortization periods for Hertz 
+vehicle licenses and registrations, and an allowance for uncollectible amounts offsetting potential 
+recoveries from third parties (“subrogation” receivables) for rental related damages.  Kapur 
+approved accounting methodology changes in each of those areas that contributed to errors that 
+overstated pretax income by approximately $21 million. 
+  
+3. Based on the foregoing and the conduct described herein below, Kapur willfully 
+violated Sections 17(a)(2) and 17(a)(3) of the Securities Act, Section 13(b)(5) of the Exchange Act 
+and Rule 13b2-1 thereunder, and willfully aided and abetted and caused Hertz Holdings’ violations 
+of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-
+11 and 13a-13 thereunder, and Hertz Corp.’s violations of Sections 15(d), 13(b)(2)(A) and 
+13(b)(2)(B)  of the Exchange Act and Rules 12b-20, 15d-1, 15d-11 and 15d-13 thereunder. 
+ 
+Respondent 
+ 
+4. Jatindar Kapur (“Kapur”) was, from April 2008 to April 2014, Senior Vice 
+President, Finance and Corporate Controller of Hertz Global Holdings, Inc.  His CPA license in 
+Pennsylvania expired in 1990 and has not since been renewed.  In his role as Corporate Controller, 
+Kapur, among other things, had substantial responsibility for Hertz’s accounting function. 
+ 
+Other Relevant Entities 
+ 
+ 5.         Hertz Global Holdings, Inc. (“Hertz Holdings”) is a Delaware corporation 
+headquartered in Estero, Florida.  Its securities are registered pursuant to Section 12(b) of the 
+Exchange Act.  Its common stock trades on the New York Stock Exchange, and Hertz Holdings 
+files periodic reports, including Forms 10-K and 10-Q, with the Commission pursuant to Section 
+13(a) of the Exchange Act and related rules thereunder.  As of June 30, 2016, Hertz Holdings was 
+spun off from and designated as the accounting successor to a company with the same name, 
+whose securities had also been registered pursuant to Section 12(b) of the Exchange Act. 
+ 
+ 6.         The Hertz Corporation (“Hertz Corp.”) is a Delaware corporation headquartered 
+in Estero, Florida.  It filed registration statements with the Commission on Form S-4 that became 
+effective in February and October 2013.  Accordingly, as required by Section 15(d) of the 
+Exchange Act, Hertz Corp. filed periodic reports, including Forms 10-K and 10-Q, respecting 
+fiscal year 2013 pursuant to Section 15(d) of the Exchange Act and related rules thereunder.  Hertz 
+Corp. is the wholly-owned operating subsidiary of Hertz Holdings, and it previously was the 
+wholly-owned subsidiary of Hertz Holdings’ predecessor. 
+  
+Facts 
+ 
+7. On July 16, 2015, Hertz restated its financial results for 2012, 2013 and prior 
+periods, including selected data for 2011 (unaudited).  Including revisions made in early 2014, the 
+company reduced its previously reported GAAP pretax income by a total of $235 million.  Part of 
+the misstated income resulted from errors made in various accounts that are subject to management 
+4 
+ 
+estimate.  For years, Hertz’s allowance related expenses were understated and income was inflated 
+because Hertz relied on inappropriate estimation methodologies that resulted in inadequate 
+allowances and write-offs.  The inappropriate methodologies occurred within a pressured corporate 
+environment where, in certain instances, there was an inappropriate emphasis on meeting internal 
+budgets, business plans, and earnings estimates. 
+ 
+8. Among the accounting errors contributing to the restated amounts were 
+misstatements concerning Hertz’s accrual for wrecks expense, the amortization periods for Hertz 
+vehicle licenses and registrations, and estimated recoveries for vehicle damage expense, or 
+“subrogation.”  Kapur approved changes to the models, calculations and/or methodologies for each 
+of those areas that, taken together, contributed to errors that overstated pretax income by 
+approximately $21 million. 
+ 
+9. First, in late 2012 Kapur approved erroneous accounting methodology changes in 
+the accrual for expenses related to wrecks—cars that were damaged so extensively that they only 
+retained salvage value.  Most notably, in October 2012, Kapur approved an accounting 
+methodology change that sharply reduced a key input into the wrecks reserve calculation – the rate 
+by which wrecks were incurred but not reported - from 32% to 3%.  The new methodology Kapur 
+approved effectively assumed that a vehicle is not truly a wreck, and thus no reserve must be 
+recognized, until management identifies the vehicle as such.  This approach, which was maintained 
+through May 2014, vitiated the function of an accrual for wrecks incurred but not reported, and so 
+significantly understated the wrecks reserve balance during that period.  Hertz subsequently 
+identified this as an error and reversed this change in its restatement.  
+ 
+10. Second, in the spring of 2013 Kapur approved an inappropriate extension of the 
+amortization period for the expenses incurred in obtaining licenses and registrations for the Hertz 
+U.S. rental car fleet’s vehicles.  Although the vast majority of those cars were operated in states 
+that had annual licensing and registration requirements, the extension, first from 12 to 17 months 
+and then from 17 to 18 months, was based on the average holding period in the fleet – in other 
+words, useful life of the car, which is different from license length.  The proposal to Kapur and 
+others clearly outlined the $1.5 million savings that would result from this extended amortization 
+period, but lacked adequate support for the change.  Kapur was at least aware of the first extension, 
+and his approval of the second is reflected in a subordinate’s email on which he was copied, saying 
+“Jatindar is good with the move from 17 to 18 months. . . .”  The proposal approved by Kapur did 
+not include or document any rationale but did highlight that moving to 18 months would improve 
+Hertz’s financial results by providing a “one-time pick-up of approx $700k in April” 2013.   
+ 
+11. After the methodology change was made, several staff members in Hertz’s regions, 
+including some of the largest states in Hertz’s rental car fleet, noticed it and expressed the view 
+that it made no sense from an accounting perspective.   Kapur, despite having been alerted by these 
+staff members to the accounting issue, took inadequate steps to follow up and ensure that the 
+matter was properly addressed.  In fact, the erroneous accounting treatment was not changed 
+during 2013.  Hertz reversed this change in its restatement. 
+ 
+5 
+ 
+12. Third, Kapur participated in decisions by operations staff in charge of Hertz’s 
+subrogation unit, contrary to Hertz policy and GAAP, to make accounting methodology changes in 
+ways that improved the company’s financial results.     
+ 
+13. Subrogation refers to Hertz’s claims to rights to offset expenses for vehicle damage 
+during rental periods by recovering money from renters and other third parties, depending on 
+whether there was applicable insurance or credit card coverage and, in some cases, whether the 
+renters purchased the loss damage waiver.  Hertz accounted for subrogation by recording income 
+and a receivable for amounts subject to recovery, partially offset by an associated expense and 
+allowance for the possibility that some percentage of those amounts might not be recovered.  
+Amounts ultimately uncollected would be written off against the allowance. 
+ 
+14. FASB Accounting Standards Codification Topic 450, “Contingencies” (ASC 450),  
+provides guidance on the accounting for collectability of receivables.  ASC 450-20-25-2 requires 
+the accrual of losses from uncollectible receivables if a loss is probable and the amount of the loss 
+can be reasonably estimated.  Hertz’s longstanding policy for calculating the allowance was based 
+on a rolling 12-month average, not of collections experience, but of write-offs, divided by monthly 
+billed receivables. 
+ 
+15. During 2013, subrogation staff kept up to $10 million of aged and largely 
+uncollectible receivables on the company’s books, even though Hertz policy recited the GAAP 
+requirement for “an allowance for doubtful accounts if (1) it is probable that a receivable (or 
+portion thereof) is uncollectible, and (2) the amount of loss can be reasonably estimated.”  
+Contemporaneous documents indicate that subrogation staff understood company policy to require 
+a 100% reserve for receivables aged over 360 days, because at that point it was probable they were 
+uncollectible, so that the 2013 practice, of which Kapur was made aware no later than April 2013, 
+was a departure from that prior policy.    However, Kapur took no corrective action, and the 
+defective methodology remained in place.  For the next seven months, subrogation staff wrote off 
+uncollectible receivables only to the extent that doing so fit within company budget targets.  This 
+practice, caused by financial performance pressures rather than application of Hertz’s accounting 
+policies, resulted in between $7.7 and $10.4 million in aged subrogation receivables remaining on 
+Hertz’s books from June to October 2013.   
+ 
+16. The subrogation issue reemerged in late October 2013 when, with Kapur’s 
+knowledge, Hertz’s senior management team pressed for opportunities to “lower the reserve” in 
+subrogation and other parts of the U.S. rental car business in an effort to close another earnings 
+gap.    In response to the gap-closing effort, Hertz staff proposed reducing certain non-subrogation 
+allowances, but recommended a corresponding increase in the subrogation allowance, to alleviate 
+the risk associated with the aged receivables.  Staff emphasized to Kapur and others that existing 
+practice had been deviating from “current policy [which] expects a reserve of 100% for receivables 
+aged +360.”  This again put Kapur on notice that Hertz’s subrogation accounts had been 
+inconsistent with GAAP during 2013.   
+ 
+6 
+ 
+17. After internal review and discussion, the allowance for aged subrogation 
+receivables was increased, but the allowance applied to younger receivables was reduced, leaving 
+the total subrogation reserve in a “steady state,” thus avoiding any negative impact on Hertz’s 
+bottom line.  The final methodology ultimately presented to Kapur reserved for receivables more 
+than a year old at the full 100% rate – restoring the old methodology that Kapur was on notice had 
+been ignored during 2013.  However, to offset the cost of this change, the proposal lowered other 
+parts of the subrogation reserve in ways that Hertz later determined during the restatement to have 
+been improper. 
+ 
+ First, the proposal reserved for claims referred to attorneys and aged less than 360 days 
+at an arbitrary 50% rate “until we have experience,” thus indicating the proposal lacked 
+any historical basis or support.  In fact, however, 2012-13 collection rates by attorneys 
+had thus far been about 3%, indicating that the appropriate reserve rate should have 
+been much higher than 50%. 
+ 
+ Receivables not referred to attorneys and less than a year old were reserved for at a 
+mere 4% rate, thus assuming a 96% recovery rate that was far above the company’s 
+historical average for such collections.   
+  
+ The proposal reserved for receivables not yet billed at only a 1% rate.  The calculation 
+used to determine that rate erroneously ignored the fact that the overall collection rate 
+for unbilled receivables was only 60-70%, dictating a much higher reserve. 
+ 
+18. Despite the obvious flaws in these formulae, which had no basis in GAAP or 
+historical experience, Kapur approved these changes.  Moreover, while staff asked Kapur several 
+times about consulting with Hertz’s auditor concerning the proposed accounting methodology 
+changes, Kapur did not do so, and no such consultation occurred.  
+ 
+19. In each of the instances described above, Kapur knowingly or recklessly approved 
+accounting methodology changes that were not in accordance with GAAP.   
+ 
+20. As set forth in the Restatement, and as reflected in the above description of 
+accounting errors, Hertz’s internal control over financial reporting suffered from a series of 
+material weaknesses, including inadequate controls over accounting estimates and changes to 
+accounting policies. 
+ 
+21. In his capacity as Senior Vice President, Finance and Corporate Controller, Kapur 
+was the designated “owner” of accounting-related policies at Hertz and was in position to 
+implement proper internal accounting controls.  As Kapur knew, the methodology changes 
+discussed above were implemented without uniform and consistent procedures documenting the 
+reviews and approvals of accrual and amortization methodologies.  Not only were changes to and 
+rationales for such methodologies inadequately documented, but, as Kapur knew, at times Hertz’s 
+practices with respect to subrogation accruals did not follow what was understood to be the 
+company’s own prescribed methodology.   
+7 
+ 
+  
+Hertz’s Restatement 
+ 
+22. On July 16, 2015, based on the results of an accounting review and an internal 
+investigation, Hertz restated its 2011, 2012 and 2013 financial statements.  The restatement of 
+applicable accounts due to the three errors discussed above impacted, at least, Hertz Holdings’ FY 
+2012 and FY 2013 Forms 10-K, its Forms 10-Q for the third quarter of 2012 and the first quarter of 
+2013, and its earnings reports on Forms 8-K for the third and fourth quarters of 2012 and the first 
+and fourth quarters of 2013.  They also affected Hertz Corp.’s parallel filing of Forms 10-K, Forms 
+10-Q and/or earnings reports on Forms 8-K, for the period during which they were required to be 
+filed, from at least February 2013 through March 2014.  Kapur was the corporate controller for all 
+the periods restated.  Kapur sold shares of Hertz Holdings stock during the relevant period, which 
+he acquired through the exercise of stock options. 
+ 
+Violations 
+ 
+23. As a result of the conduct described above, the Commission finds that: 
+ 
+a. Respondent Kapur willfully violated Sections 17(a)(2) and 17(a)(3) of the 
+Securities Act, which prohibit any person from directly or indirectly obtaining 
+money or property by means of any untrue statement of a material fact or any 
+omission to state a material fact necessary in order to make the statements 
+made, in light of the circumstances under which they made, not misleading, or 
+engaging in any transaction, practice, or course of business which operates or 
+would operate as a fraud or deceit upon the purchaser, in the offer or sale of 
+securities;   
+b. Respondent Kapur willfully violated Section 13(b)(5) of the Exchange Act, 
+which prohibits any person from knowingly circumventing or failing to 
+implement a system of internal accounting controls or knowingly falsifying 
+any book, record or account described in Section 13(b)(2) of the Exchange 
+Act;  
+c. Respondent Kapur willfully violated Rule 13b2-1, which prohibits any person, 
+directly or indirectly, from falsifying, or causing to be falsified, any book, 
+record or account subject to section 13(b)(2)(A) of the Exchange Act; 
+d. Respondent Kapur willfully aided and abetted and caused Hertz Holdings’ 
+violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-
+11, and 13a-13 thereunder, which require issuers with securities registered 
+under Section 12 of the Exchange Act to file annual, current, and quarterly 
+reports with the Commission containing such information as the Commission’s 
+rules may require and such further material information as may be necessary to 
+make the required statements, in light of the circumstances under which they 
+were made, not misleading;  
+8 
+ 
+ 
+e. Respondent Kapur willfully aided and abetted and caused Hertz Corp.’s 
+violations of Section 15(d) of the Exchange Act and Rules 12b-20, 15d-1, 15d-
+11 and 15d-13 thereunder, which require issuers which have filed a registration 
+statement with the Commission which has become effective pursuant to Section 
+15(d) of the Exchange Act to file annual, current, and quarterly reports with the 
+Commission containing such information as the Commission’s rules may 
+require and such further material information as may be necessary to make the 
+required statements, in light of the circumstances under which they were made, 
+not misleading;   
+ 
+f. Respondent Kapur willfully aided and abetted and caused Hertz Holdings’ and 
+Hertz Corp.’s violations of Section 13(b)(2)(A) of the Exchange Act, which 
+requires issuers with securities registered under Section 12 of the Exchange 
+Act or which are required to file reports pursuant to Section 15(d) of the 
+Exchange Act to make and keep books, records and accounts which, in 
+reasonable detail, accurately and fairly reflect the transactions and dispositions 
+of assets of the issuer; 
+ 
+g. Respondent Kapur willfully aided and abetted and caused Hertz Holdings’ and 
+Hertz Corp.’s violations of Section 13(b)(2)(B) of the Exchange Act, which 
+requires issuers with securities registered under Section 12 of the Exchange 
+Act or which are required to file reports pursuant to Section 15(d) of the 
+Exchange Act to devise and maintain a system of internal accounting controls 
+sufficient to provide reasonable assurance that, among other things, 
+transactions are recorded as necessary to permit preparation of financial 
+statements in conformity with GAAP; and 
+ 
+h. Respondent Kapur willfully violated or willfully aided and abetted violations 
+of the federal securities laws or rules and regulations thereunder pursuant to 
+Section 4C of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s 
+Rules of Practice. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate, in the public interest, to 
+impose the sanctions agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+A. Pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act, 
+Respondent Kapur cease and desist from committing or causing any violations and any future 
+violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act, Sections 13(a), 13(b)(2)(A), 
+9 
+ 
+13(b)(2)(B), 13(b)(5) and 15(d) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13, 
+13b2-1, 15d-1, 15d-11 and 15d-13 thereunder. 
+ 
+B. Pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(iii) of the 
+Commission’s Rules of Practice, Kapur is denied the privilege of appearing or practicing before the 
+Commission as an accountant.  
+ 
+C. After two (2) years from the date of this order, Kapur 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 (other than as a member of an audit committee, as that term is 
+defined in Section 3(a)(58) of the Securities Exchange Act of 1934).  Such 
+an application must satisfy the Commission that Kapur’s work in his practice 
+before the Commission as an accountant 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.    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 as a member of an audit committee, as that term is defined in 
+Section 3(a)(58) of the Securities Exchange Act of 1934.  Such an 
+application will be considered on a facts and circumstances basis with 
+respect to such membership, and the applicant’s burden of demonstrating 
+good cause for reinstatement will be particularly high given the role of the 
+audit committee in financial and accounting matters; and/or 
+ 
+  3. an independent accountant.   
+ 
+Such an application must satisfy the Commission that: 
+      
+           (a) Kapur, or the public accounting firm with which he is associated, 
+is registered with the Public Company Accounting Oversight 
+Board (“Board”) in accordance with the Sarbanes-Oxley Act of 
+2002, and such registration continues to be effective; 
+ 
+   (b) Kapur, or the registered public accounting firm with which he is 
+associated, has been inspected by the Board and that inspection did 
+not identify any criticisms of or potential defects in the 
+respondent’s or the firm’s quality control system that would 
+indicate that Kapur will not receive appropriate supervision; 
+10 
+ 
+   (c) Kapur has resolved all disciplinary issues with the Board, and has 
+complied with all terms and conditions of any sanctions imposed 
+by the Board (other than reinstatement by the Commission); and 
+ 
+   (d) Kapur acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, 
+including, but not limited to, all requirements relating to 
+registration, inspections, concurring partner reviews and quality 
+control standards.   
+ 
+D. The Commission will consider an application by Kapur 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 state licensure is dependent 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 Kapur’s character, 
+integrity professional conduct, or qualifications to appear or practice before the Commission as 
+an accountant.  Whether an application demonstrates good cause will be considered on a facts 
+and circumstances basis with due regard for protecting the integrity of the Commission’s 
+processes. 
+ 
+E. Respondent Kapur shall, within 30 days of the entry of this Order, pay 
+disgorgement of $18,610.67, prejudgment interest thereon of $3,997.64, and a civil money penalty 
+in the amount of $75,000.00 to the Securities and Exchange Commission for transfer to the general 
+fund of the United States Treasury, subject to Section 21F(g)(3) of the Exchange Act.  If timely 
+payment of disgorgement and prejudgment interest is not made, additional interest shall accrue 
+pursuant to SEC Rule of Practice 600.  If timely payment of a civil money penalty is not made, 
+additional interest shall accrue pursuant to 31 U.S.C. § 3717. 
+ 
+Payment must be made in one of the following ways:   
+ 
+(1) Kapur may transmit payment electronically to the Commission, which will 
+provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Kapur may make direct payment from a bank account via Pay.gov through 
+the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Kapur may pay by certified check, bank cashier’s check, or United States 
+postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+11 
+ 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Kapur as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
+the cover letter and check or money order must be sent to Sanjay Wadhwa, Senior Associate 
+Regional Director, Division of Enforcement, New York Regional Office, Securities and Exchange 
+Commission, Brookfield Place, 200 Vesey Street, New York, NY 10281.   
+ 
+F. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Kapur agrees that in any Related Investor Action, 
+he shall not argue that he is entitled to, nor shall he benefit by, offset or reduction of any award of 
+compensatory damages by the amount of any part of Kapur’s payment of a civil penalty in this 
+action (“Penalty Offset”).  If the court in any Related Investor Action grants such a Penalty Offset, 
+Kapur agrees that he shall, within 30 days after entry of a final order granting the Penalty Offset, 
+notify the Commission's counsel in this action and pay the amount of the Penalty Offset to the 
+Securities and Exchange Commission.  Such a payment shall not be deemed an additional civil 
+penalty and shall not be deemed to change the amount of the civil penalty imposed in this 
+proceeding.  For purposes of this paragraph, a "Related Investor Action" means a private damages 
+action brought against Kapur by or on behalf of one or more investors based on substantially the 
+same facts as alleged in the Order instituted by the Commission in this proceeding. 
+ 
+V. 
+ 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and  
+admitted by Respondent, and further, any debt for civil penalty or other amounts due by 
+Respondent under this Order or any other judgment, order, consent order, decree or settlement 
+agreement entered in connection with this proceeding, is a debt for the violation by Respondent of 
+the federal securities laws or any regulation or order issued under such laws, as set forth in Section 
+523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Vanessa A.Countryman 
+       Secretary 

raw/aaer/2019/AAER-4108.txt

@@ -0,0 +1,622 @@
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  87750 / December 16, 2019 
+ 
+INVESTMENT ADVISERS ACT OF 1940 
+Release No. 5418 / December 16, 2019 
+ 
+INVESTMENT COMPANY ACT OF 1940 
+Release No.  33715 / December 16, 2019 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4108 / December 16, 2019 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19619 
+ 
+ 
+In the Matter of 
+ 
+TIM LEISSNER, 
+ 
+Respondent . 
+ 
+ 
+ORDER INSTITUTING 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 15(b) AND 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+SECTION 203(f) OF THE INVESTMENT 
+ADVISERS ACT OF 1940, AND SECTION 
+9(b) OF THE INVESTMENT COMPANY 
+ACT OF 1940, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS AND 
+A CEASE-AND-DESIST ORDER 
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
+instituted pursuant to Sections 15(b) and 21C of the Securities Exchange Act of 1934 (“Exchange 
+Act”), Section 203(f) of the Investment Advisers Act of 1940 (“Advisers Act”), and Section 9(b) of 
+the Investment Company Act of 1940 (“Investment Company Act”) against Tim Leissner 
+(“Respondent” or “Leissner”). 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, Respondent admits the Commission’s 
+jurisdiction over him and the subject matter of these proceedings, and consents to the entry of this 
+Order Instituting Administrative and Cease-and-Desist Proceedings Pursuant to Sections 15(b) and 
+21C of the Securities Exchange Act of 1934, Section 203(f) of the Investment Advisers Act of 
+1940, and Section 9(b) of the Investment Company Act of 1940, 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 Respondent’s Offer, the Commission finds1 that:  
+ 
+SUMMARY 
+ 
+1. This matter relates to a massive corruption scheme perpetrated by Leissner while 
+acting as a senior executive of The Goldman Sachs Group, Inc. (“Goldman Sachs” or the 
+“Company”).  Leissner, in coordination with other Goldman Sachs senior executives, authorized 
+and paid bribes and kickbacks to government officials in Malaysia and the Emirate of Abu Dhabi 
+(“Abu Dhabi”) in order to secure lucrative business for Goldman Sachs.  Leissner’s actions 
+resulted in violations of the antibribery, books and records and circumvention of internal 
+accounting controls provisions of the Foreign Corrupt Practices Act (“FCPA”). 
+ 
+2. 1Malaysia Development Berhad (“1MDB”) is a Malaysian state-owned and 
+controlled investment fund created to pursue projects for the economic benefit of Malaysia and its 
+people.  Between approximately 2009 and 2014, as 1MDB raised capital to fund its projects, 
+billions of dollars were diverted from 1MDB.  The diverted funds included a substantial portion of 
+the approximately $6.5 billion in capital that 1MDB raised in 2012 and 2013 through three bond 
+offerings that it executed with Goldman Sachs (the “bond deals”).  As part of the scheme, Leissner 
+and others bribed government officials in Malaysia and in Abu Dhabi to obtain and retain lucrative 
+business for Goldman Sachs, including the 2012 and 2013 bond deals, from which Goldman Sachs 
+earned approximately $600 million. 
+ 
+3. Leissner willfully violated Section 30A of the Exchange Act by directly 
+participating in the bribery scheme.  He also caused Goldman Sachs’s books and records to not, in 
+reasonable detail, accurately or fairly reflect the transactions and dispositions of the company’s 
+assets in violation of Section 13(b)(2)(A) of the Exchange Act, and he willfully aided and abetted 
+violations of that Section.  Additionally, Leissner willfully violated Section 13(b)(5) of the 
+                                              
+1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other 
+person or entity in this or any other proceeding.  
+ 
+ 
+ 
+ 
+3 
+Exchange Act and Rule 13b2-1 thereunder by knowingly circumventing what internal accounting 
+controls Goldman Sachs had in place in order to both advance and conceal the corrupt scheme.   
+ 
+Respondent  
+ 
+4. Tim Leissner, age 50, was employed by Goldman Sachs between April 1998 and 
+March 2016.  Prior to his separation from Goldman Sachs, Leissner was a Participating Managing 
+Director, Vice Chairman of the Investment Banking Division for Asia Ex-Japan, and Chairman of 
+South East Asia.  Leissner was a coverage banker for various clients in the Asia Ex-Japan region, 
+including 1MDB.  Leissner was at all relevant times an associated person of the Company’s U.S. 
+registered broker-dealer and investment adviser, Goldman Sachs & Co. LLC. 
+ 
+Related Entities  
+ 
+5. The Goldman Sachs Group, Inc. (“Goldman Sachs” or the “Company”) is a U.S. 
+based global investment banking, securities, and investment management firm headquartered in 
+New York, New York.  The common stock of the Company is registered pursuant to Section 12(b) 
+of the Exchange Act and is listed for trading on the New York Stock Exchange.  The Company is 
+an “issuer” within the meaning of the FCPA.   
+ 
+6. Goldman Sachs & Co. LLC (“GS&Co.”), a subsidiary of Goldman Sachs, is 
+registered as a broker-dealer and as an investment adviser with the Commission.  GS&Co.’s 
+principal business operations are located in New York, New York.  Leissner was associated with 
+GS&Co. from April 1998 until March 2016.   
+ 
+7. 1MDB  was a strategic investment and development company wholly-owned by the 
+Malaysian government through the Malaysian Ministry of Finance.  It was formed in 2009 when 
+the Malaysian government took control of a municipal entity called Terengganu Investment 
+Authority (“TIA”).  1MDB was created to pursue investment and development projects for the 
+economic benefit of Malaysia and its people, primarily relying on debt to fund these investments.  
+1MDB's development projects were focused in the areas of energy, real estate, tourism and 
+agribusiness.  1MDB was overseen by senior Malaysian government officials, was controlled by 
+the Malaysian government, and performed a government function on behalf of Malaysia.   
+ 
+8. The Middle Eastern Sovereign Wealth Fund was an investment fund wholly-
+owned by the government of Abu Dhabi.  It was established by the government of Abu Dhabi 
+pursuant to an Emiri Decree in or around 1984 with a mandate to advance Abu Dhabi’s natural 
+petroleum wealth for the development of the emirate.  The Middle Eastern Sovereign Wealth Fund 
+was overseen by senior Abu Dhabi government officials, was controlled by the Abu Dhabi 
+government, which appointed all the members of the Middle Eastern Sovereign Wealth Fund’s 
+board of directors, and performed a government function on behalf of Abu Dhabi. 
+ 
+9. The Middle Eastern Investment Firm, a subsidiary of the Middle Eastern 
+Sovereign Wealth Fund, was a public joint stock company incorporated under the laws of Abu 
+Dhabi.   
+ 
+ 
+ 
+4 
+ 
+10. Jho Low, age 38, is a Malaysian national who advised on the creation of TIA, 
+1MDB’s predecessor entity.  Jho Low has never held a formal position at 1MDB.  Jho Low 
+nevertheless exercised significant control over 1MDB during the time period relevant to this Order.  
+Jho Low worked as a finder and intermediary in relation to 1MDB officials and other government 
+officials on numerous financial transactions and projects involving Goldman Sachs.  
+ 
+11. Roger Ng, age 47, is a Malaysian national who was employed as a Managing 
+Director and acted as an agent of Goldman Sachs.  He worked with Leissner at Goldman Sachs 
+from approximately 2009 to May 2014.   
+ 
+12. Najib Razak, age 66, was the Prime Minister of Malaysia from 2009 to 2018 who 
+held a position of authority with 1MDB.  
+ 
+FACTS 
+ 
+Background 
+13. 1MDB was formed in or around 2009, when the Malaysian government asserted 
+federal control over TIA, which previously had been a development fund controlled by the 
+Malaysian state of Terengganu.  
+ 
+14. 1MDB was created for the stated purpose of pursuing investment projects for the 
+economic benefit of Malaysia and its people, relying mainly on debt to support these projects.  
+1MDB was supervised by senior Malaysian government officials, controlled by the Malaysian 
+government, and performed a government function on behalf of Malaysia.  Upon 1MDB’s 
+formation, Najib Razak assumed a position of authority with 1MDB.  Najib Razak had the 
+authority to approve all appointments to, and removals from, 1MDB’s Board of Directors and 
+1MDB’s Senior Management Team.  In addition, any financial commitments by 1MDB, including 
+investments, that were likely to affect a guarantee given by the government of Malaysia for the 
+benefit of 1MDB or any policy of the Malaysian government, required the approval of Najib 
+Razak. 
+ 
+Malaysian Intermediary Jho Low 
+ 
+15. Low had advised on the creation of TIA, 1MDB’s predecessor entity.  Although he 
+did not hold a formal title with 1MDB or the Malaysian government, Low worked as a finder and 
+intermediary in relation to 1MDB officials and other government officials on multiple financial 
+transactions and projects, including transactions involving Goldman Sachs. 
+ 
+16. Goldman Sachs, through its participating managing director Leissner, was retained 
+to provide financial advice to the government of Malaysia in connection with the 2009 federal 
+takeover of TIA (“Project Tiara”).  Notwithstanding Low’s public denials about any involvement 
+with 1MDB during this time, while working on this project, Leissner and other senior executives at 
+Goldman Sachs knew that Low worked as a finder and intermediary in relation to 1MDB, and 
+ 
+ 
+ 
+5 
+began to actively work to conceal Low’s involvement in Goldman Sachs-related transactions from 
+others at the firm.  Leissner and others, including Goldman Sachs Managing Director Roger Ng, at 
+the time knew that Low remained close to 1MDB officials and other government officials in 
+Malaysia, including Najib Razak, and Abu Dhabi.  During this time, Low also specifically 
+requested that Leissner, Ng and others conceal his involvement in Goldman Sachs’s business. 
+ 
+17. Goldman Sachs’s various internal FCPA and accounting controls were overseen 
+and enforced by its compliance function (the “Compliance Group”) and its legal department (the 
+“Intelligence Group”).  These groups worked in conjunction with, and as part of, various Goldman 
+Sachs committees (“GS Committees”) in reviewing transactions for approval. 
+ 
+18. Goldman Sachs’s written policies required bankers who submitted transactions to 
+GS Committees for approval, such as Leissner, to broadly disclose information relevant to the 
+matters at issue, including “a full assessment of the transaction risks.”  Nevertheless, while 
+working on Project Tiara and thereafter, Leissner selectively concealed from other employees of 
+Goldman Sachs, including the GS Committees and their members, that he was working with Low 
+as an intermediary to secure the deals.  Leissner did this in an effort to avoid potential heightened 
+scrutiny of the bond deals by the GS Committees, the Compliance Group or the Intelligence 
+Group.   
+ 
+19. Between in or around September 2009 and in or around March 2011, Leissner and 
+others, including Ng, supported at least three attempts to make Low a formal client of Goldman 
+Sachs.  Leissner and Ng supported these efforts because, in part, they believed that Low would 
+work to deliver lucrative business deals, including from 1MDB, for the ultimate benefit of 
+Goldman Sachs, Leissner, Ng and others.  These attempts were unsuccessful because certain 
+personnel within Goldman Sachs’s Compliance Group and Intelligence Group had previously 
+refused to approve any business relationship with Low.  Their refusal was based, in part, on 
+concerns that these groups had concerning the source of Low’s wealth.  Personnel within the 
+Compliance Group and the Intelligence Group communicated the rejection of Low’s application to 
+Leissner and others within Goldman Sachs.  Notwithstanding their knowledge of the concerns that 
+had been raised about Low not being a suitable client for Goldman Sachs, Leissner and other 
+employees and agents of Goldman Sachs continued to work with Low based upon their belief that 
+Low would help ensure that government officials in Malaysia and Abu Dhabi would deliver 
+lucrative business deals to Goldman Sachs. 
+ 
+The Bond Deals 
+ 
+20. Later, when Goldman Sachs was retained by 1MDB to assist it with three large debt 
+financings in 2012 and 2013 – the “bond deals” – Leissner and other senior executives of Goldman 
+Sachs knew that Low was playing a central role in these transactions, including by acting as an 
+intermediary between Goldman Sachs, 1MDB and other Malaysian and Abu Dhabi government 
+officials.  Leissner and other senior executives of Goldman Sachs also knew that Low promised to 
+pay bribes and kickbacks to these officials to secure 1MDB business for Goldman Sachs.   
+ 
+ 
+ 
+ 
+6 
+21. Throughout 2012 and 2013, Leissner and other senior executives of Goldman Sachs 
+actively worked to obtain and retain business from 1MDB for the benefit of Goldman Sachs 
+through the promise and payment of bribes and kickbacks to government officials in Malaysia and 
+Abu Dhabi using, in part, misappropriated and embezzled proceeds from the bond deals.  During 
+this time, through the course of the scheme, Leissner and others paid millions of dollars in bribes 
+and kickbacks to government officials, and obtained 1MDB business for Goldman Sachs, in 
+particular, the three bond deals.  These three bond financing transactions were referred to internally 
+at Goldman Sachs as “Project Magnolia,” “Project Maximus” and “Project Catalyze.”  
+ 
+22. Goldman Sachs’s role as underwriter for the bond deals meant that the firm would 
+be using its own capital to fund the initial purchase of the 1MDB bonds.  Accordingly, the 
+transactions were formally reviewed and approved by multiple GS Committees including the 
+Firmwide Capital Committee (“Capital Committee”).  The Capital Committee’s charter states as 
+follows:   
+ 
+The Committee provides approval and oversight globally of debt-related 
+transactions, including principal commitments of the Firm’s capital. The 
+Committee aims to ensure that business, reputational and suitability standards for 
+underwritings and capital commitments are maintained on a global basis.   
+ 
+23. Although the purported purpose of the approximately $6.5 billion raised by the 
+three bond transactions was to support 1MDB projects for the benefit of the Malaysian people, 
+Leissner and others instead planned and executed a scheme to misappropriate more than $2.7 
+billion and distribute the money as bribes and kickbacks to government officials in Malaysia and 
+Abu Dhabi, including but not limited to Najib Razak, as well as to other participants in the scheme 
+and their families, including Leissner. 
+ 
+Goldman Sachs Obtains Project Magnolia from Malaysian Sovereign Wealth Fund 
+ 
+24. In or around early 2012, Leissner and other senior executives of Goldman Sachs 
+met in Malaysia with others, including Low and other 1MDB officials.  A purpose of the meeting 
+was to discuss 1MDB’s proposed purchase of a Malaysian energy company (“Malaysian Energy 
+Company A”) and Goldman Sachs’s preparedness to help obtain financing for the purchase.   
+ 
+25. During that meeting, Leissner and other senior executives of Goldman Sachs 
+discussed with Low the type of financial guarantee that 1MDB needed to obtain for the bond 
+issuance to meet Goldman Sachs’s underwriting requirements.  They ultimately agreed on a 
+guarantee from the Middle Eastern Sovereign Wealth Fund.  Leissner, Ng and another senior 
+executive of Goldman Sachs understood that Low was acting as an intermediary between 1MDB, 
+Najib Razak and other government officials from Abu Dhabi. 
+ 
+26. In late February 2012, Leissner and other senior executives of Goldman Sachs met 
+with Low and other 1MDB officials in London to discuss the proposed financing.  During this 
+meeting, Low explained that in order to secure the guarantee from the Middle Eastern Sovereign 
+Wealth Fund discussed at the prior meeting with Leissner and others, they would have to pay 
+ 
+ 
+ 
+7 
+bribes and kickbacks to government officials, including to certain officials in Malaysia and Abu 
+Dhabi.  After the February 2012 meeting, Leissner discussed this information with other senior 
+executives of Goldman Sachs.  
+ 
+27. In or around March 2012, 1MDB formally engaged Goldman Sachs to be the sole 
+underwriter for the $1.75 billion debt financing transaction designed, in part, to pay for the 
+acquisition of Malaysian Energy Company A, which was guaranteed by the Middle Eastern 
+Sovereign Wealth Fund.   
+ 
+28. In or around March 2012, Leissner and certain other senior executives of Goldman 
+Sachs traveled to Abu Dhabi along with Low and certain other 1MDB officials  
+to meet with officials of the Middle Eastern Sovereign Wealth Fund and its subsidiary the Middle 
+Eastern Investment Firm to discuss the contemplated guarantee for Project Magnolia.  Throughout 
+that time, Leissner knew Low had arranged the meetings with the officials of the Middle Eastern 
+Sovereign Wealth Fund and the Middle Eastern Investment Firm, and that some of these officials, 
+among others, would be paid bribes by Low to secure the guarantee.  
+ 
+29. Leissner and other senior executives of Goldman Sachs also knew that Low would 
+pay bribes and kickbacks to influence Malaysian officials to obtain the necessary approvals to 
+execute Project Magnolia for Goldman Sachs.  During the months leading up to the issuance of 
+Project Magnolia, Leissner knew that Low enlisted 1MDB officials to assist him in ensuring that 
+all necessary approvals were obtained from 1MDB officials and others to complete the transaction, 
+in exchange for bribes and kickbacks to those 1MDB officials. 
+ 
+30. In or around the end of May 2012, near the closing of Project Magnolia, Leissner 
+actively worked with another senior executive of Goldman Sachs and Low to divert some of the 
+bond proceeds that Goldman Sachs raised from Project Magnolia into the bank accounts of shell 
+companies that Leissner, the other Goldman Sachs senior executive and Low beneficially owned 
+and controlled.  These individuals understood and expected to keep some of the diverted funds for 
+their personal use, and that other funds would be used to pay bribes and kickbacks to government 
+officials in Malaysia and Abu Dhabi and elsewhere in exchange for their assistance in obtaining 
+and retaining business for Goldman Sachs in connection with Project Magnolia. 
+ 
+31. On or about May 21, 2012, Project Magnolia closed, earning approximately $193 
+million in fees for Goldman Sachs. 
+ 
+32. Goldman Sachs transferred the proceeds of the Magnolia bond offering via wire to 
+the 1MDB entity designated to receive the payment.  At the time, Leissner, Low and others knew 
+that a large portion of the proceeds of the bond offering would be diverted to themselves and 
+others, including government officials, through shell companies beneficially owned and controlled 
+by Low, Leissner and others.   
+ 
+33. Goldman Sachs’s documentation of the wire transfer – including a signed payment 
+authorization and instruction, an executed agreement between Goldman Sachs and its client, and 
+the Project Magnolia offering circular (collectively, the “Magnolia Bond Documents”) – falsely 
+ 
+ 
+ 
+8 
+stated that the proceeds would be used only to pay for the acquisition of Malaysian Energy 
+Company A or for “general corporate purposes.”  Leissner knowingly caused these records to be 
+false.   
+ 
+34. Within three months of the closing of Project Magnolia, millions of dollars of bond 
+proceeds were transferred through shell companies beneficially owned and controlled by Low and 
+other participants in the scheme into a Hong Kong bank account in the name of shell companies 
+incorporated in the British Virgin Islands and controlled by Leissner.  Leissner also used a portion 
+of these funds for his personal use and enjoyment.  Leissner also knew that other bond funds from 
+Project Magnolia were transferred through shell company accounts beneficially owned and 
+controlled by Low and other participants in the scheme and ultimately into accounts of shell 
+companies beneficially owned and controlled by Abu Dhabi government officials with influence 
+over the transaction. 
+ 
+Goldman Sachs Obtains Project Maximus from Malaysian Sovereign Wealth Fund 
+ 
+35. In or about May 2012, Leissner, Low and others began to plan a second bond 
+transaction, known internally at Goldman Sachs as “Project Maximus,” which was designed, in 
+part, to raise capital for 1MDB to purchase a second Malaysian power generation company 
+(“Malaysian Energy Company B”).  Leissner and certain other senior executives of Goldman 
+Sachs intended that Low and others would pay bribes and kickbacks to influence Malaysian and 
+Abu Dhabi officials to obtain the necessary approvals to execute the bond offering.  The mandate 
+to underwrite this bond offering was also awarded by 1MDB to Goldman Sachs, and it was 
+structured similarly to the first bond issuance but only with an indirect guarantee from the Middle 
+Eastern Sovereign Wealth Fund. 
+ 
+36. Although the Middle Eastern Sovereign Wealth Fund did not provide a direct 
+financial guarantee of the Project Maximus bonds as it had with Project Magnolia, it nevertheless 
+agreed to privately secure the bonds on a bilateral basis with Goldman Sachs.  As with Project 
+Magnolia, Leissner and others continued to work with Low to acquire this business for Goldman 
+Sachs. 
+ 
+37. Leissner knew that a large portion of the proceeds of Project Maximus would be 
+illegally diverted to himself and others, including government officials, through shell companies 
+beneficially owned and controlled by Leissner and others.  Leissner also knew at the time that 
+Najib Razak and government officials from Abu Dhabi and 1MDB officials would receive money 
+from the proceeds of Project Maximus that passed through various shell companies beneficially 
+owned and controlled by himself, Low and others.  Moreover, along with Low and others, it was 
+Leissner’s intended purpose that the payments were to flow to these government officials to 
+influence the officials to execute the bond transaction with Goldman Sachs.  A close relative of 
+Najib Razak and a senior official with the Middle Eastern Sovereign Wealth Fund, among others, 
+received some of these funds. 
+ 
+38. On or about October 10, 2012, Leissner participated in a GS Committee meeting 
+that included senior Goldman Sachs executives participating from multiple locations globally, 
+ 
+ 
+ 
+9 
+including New York City, New York.  The meeting was convened for the purpose of approving 
+Goldman Sachs’s role in Project Maximus.  During the meeting, Leissner was directly asked 
+whether Low was involved in Project Maximus.  Leissner told the GS Committee affirmatively 
+that Low was not involved in Project Maximus, though Leissner and other senior executives of 
+Goldman Sachs knew at the time that this statement was false.   
+ 
+39. Project Maximus closed on or about October 17, 2012, raising approximately $1.75 
+billion for the designated 1MDB entity and resulting in approximately $188 million in fees for 
+Goldman Sachs.   
+ 
+40. Leissner knew that some of the proceeds from Project Maximus were transferred by 
+or per Low to Leissner in furtherance of the scheme.  Thereafter, Leissner, Low and others caused 
+some of these funds to be transferred to the accounts of 1MDB officials or relatives of such 
+officials, or to the accounts of shell companies beneficially owned by 1MDB officials, in exchange 
+for their assistance in obtaining and retaining business for Goldman Sachs. 
+ 
+41. Goldman Sachs’s documentation of its transfer of funds to purchase the bonds – 
+including a signed payment authorization and instruction, an executed agreement between 
+Goldman Sachs and its client, and the Project Maximus offering circular (collectively, the 
+“Maximus Bond Documents”) – falsely stated that the bond proceeds would be used solely to pay 
+for the acquisition of Malaysian Energy Company B or for “general corporate purposes.”  Leissner 
+knowingly caused these records to be false.   
+ 
+42. In 2012, 1MDB issued a total of $3.5 billion in bonds that were underwritten by 
+Goldman and indirectly guaranteed by the Middle Eastern Sovereign Wealth Fund. 
+ 
+Goldman Sachs Obtains Project Catalyze from Malaysian Sovereign Wealth Fund 
+ 
+43. In or about November 2012, despite having raised over $3 billion in the  prior 11 
+months, 1MDB sought to raise an additional $3 billion through a bond issuance known internally 
+at Goldman Sachs as “Project Catalyze.”  This debt financing was purportedly designed to fund 
+1MDB’s portion of a joint venture with the Middle Eastern Investment Firm.  Goldman Sachs was 
+engaged to underwrite the project in or around early 2013. 
+ 
+44. As they had with the two prior 1MDB bond issuances, Leissner and other senior 
+executives of Goldman Sachs continued to work with Low as an intermediary between Goldman 
+Sachs, 1MDB officials, Najib Razak and other Malaysian government officials.  Further, although 
+required by internal compliance policies of Goldman Sachs, Leissner failed to disclose that (a) he 
+had received a portion of the funds diverted from the prior bond transactions via Low and (b) that 
+Leissner, Low and others paid bribes and kickbacks to 1MDB officials and others who were 
+involved in the transactions. 
+ 
+45. The Project Catalyze bond issued on or about March 19, 2013, resulting in 
+approximately $186 million in fees to Goldman Sachs from this deal.  A portion of the 
+ 
+ 
+ 
+10 
+approximately $3 billion raised by this bond issuance was transferred to Leissner by or at the 
+direction of Low. 
+ 
+46. Goldman Sachs’s documentation of the transaction – including a signed payment 
+authorization and instruction, an executed agreement between Goldman Sachs and its client, and 
+the Project Catalyze offering circular (collectively, the “Catalyze Bond Documents”) – falsely 
+stated that the bond proceeds would be used solely to fund Malaysia’s contribution to a joint 
+venture investment vehicle with Abu Dhabi or for “general corporate purposes.”   Leissner 
+knowingly caused these records to be false. 
+ 
+Leissner and Goldman Sachs Seek to Obtain Further Business from Malaysia Post-Catalyze 
+ 
+47. Following the closing of Project Catalyze, through the end of 2014, Leissner and 
+Goldman Sachs sought, obtained and worked to execute several additional transactions with 
+1MDB, particularly focusing on a proposed initial public offering of 1MDB's energy assets 
+(“Energy IPO”).   
+ 
+48. Throughout the time period of these additional transactions, Leissner and other 
+participants in the scheme continued to pay bribes and kickbacks to certain Malaysian government 
+officials, including from the proceeds of the Project Catalyze bond and other 1MDB transactions, 
+to influence those officials to award a role for Goldman Sachs in the Energy IPO.  
+ 
+49. These bribes and kickbacks included transferring millions of dollars to the accounts 
+of shell companies beneficially owned and controlled by 1MDB officials, and transferring 
+approximately $1.3 million to the account of a New York jeweler to pay for jewelry for the spouse 
+of Najib Razak.  
+ 
+50. Between in or around June 2012 and October 2014, more than $200 million of the 
+proceeds of the three 1MDB bond deals and other 1MDB business was transferred by Low or at 
+his direction into accounts beneficially owned and controlled by Leissner. 
+ 
+LEGAL STANDARDS AND VIOLATIONS 
+ 
+51. Under Section 21C(a) of the Exchange Act, the Commission, after making certain 
+required findings, may impose a cease-and-desist order upon any person who is violating, has 
+violated, or is about to violate any provision of the Exchange Act or any rule or regulation 
+thereunder, and upon any other person that is, was, or would be a cause of the violation, due to an 
+act or omission the person knew or should have known would contribute to such violation.   
+ 
+Leissner Violated Exchange Act Section 30A 
+ 
+52. The anti-bribery provisions of the FCPA, Section 30A of the Exchange Act, make it 
+unlawful for  any issuer with a class of securities registered pursuant to Section 12 of the Exchange 
+Act, or any employee or agent of such issuer,  to make use of the mails or any means or 
+instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to 
+ 
+ 
+ 
+11 
+pay, or authorization of the payment of any money, or offer, gift or promise to give anything of 
+value to any foreign official for purposes of influencing any act or decision of such foreign official 
+in his official capacity in order to assist such issuer in obtaining or retaining business for or with 
+any person.  15 U.S.C. § 78dd-1. 
+ 
+53. As described above, while acting as Goldman Sachs’s employee and agent, 
+Leissner made use of interstate commerce by, among other things, sending wire transfers from a 
+foreign bank account to a U.S. bank account in furtherance of his corrupt offers and promises to 
+bribe foreign officials, through which Leissner intended that the officials would use their official 
+positions to assist Goldman Sachs in obtaining the bond deals and other business.  By this conduct 
+Leissner willfully violated Exchange Act Section 30A.   
+ 
+Leissner Aided and Abetted and Caused Violations of Exchange Act Section 13(b)(2)(A) 
+ 
+54. The books and records provision of the FCPA, Section 13(b)(2)(A) of the Exchange 
+Act, requires every issuer with a class of securities registered pursuant to Section 12 of the 
+Exchange Act to make and keep books, records, and accounts, which, in reasonable detail, 
+accurately and fairly reflect the transactions and dispositions of the assets of the issuer.  15 U.S.C. 
+§ 78m(b)(2)(A). 
+   
+55. As described above, Leissner knowingly actively concealed highly relevant 
+information from financial, legal and compliance executives, including by making misstatements 
+to these executives regarding Low’s role as an intermediary in the bond deals.  This caused 
+Goldman Sachs to improperly record transactions in the Magnolia Bond Documents, the Maximus 
+Bond Documents, and the Catalyze Bond Documents (collectively, the “1MDB Bond 
+Documents”) so as to misstate the actual intended uses of bond proceeds.  By this conduct Leissner 
+willfully aided and abetted and caused violations of Section 13(b)(2)(A).   
+ 
+Leissner Violated Exchange Act Section 13(b)(5) and Rule 13b2-1 
+ 
+56. Exchange Act Section 13(b)(5) provides that no person shall “knowingly 
+circumvent . . . a system of internal accounting controls or knowingly falsify any book, record, or 
+account.”  15 U.S.C. § 13(b)(5).  Exchange Act Rule 13b2-1 further provides that “no person shall, 
+directly or indirectly, falsify or cause to be falsified, any book, record, or account.”  17 CFR 
+§ 240.13b2-1.   
+ 
+57. As described above, Leissner knowingly circumvented those internal accounting 
+controls that Goldman Sachs had in place and caused the company’s books, records and accounts 
+to be falsified through the misrepresentations that he made to Goldman Sachs’s executives and 
+committees.  Leissner’s conduct caused Goldman Sachs to improperly record in the 1MDB Bond 
+Documents payments that it made in connection with the bond deals.  The bond proceeds were in 
+fact used in part to make bribes and other illicit payments.  By this conduct, Leissner willfully 
+violated Exchange Act Section 13(b)(5) and Rule 13b2-1 thereunder. 
+ 
+ 
+ 
+ 
+ 
+12 
+ 
+ 
+Criminal and Other Regulatory Dispositions 
+ 
+58. Respondent has pleaded guilty to criminal conduct relating to the findings in the 
+Order.  Specifically, in United States v. Leissner, Cr. No. 18-CR-439 (MKB) (E.D.N.Y. 2018) 
+Respondent pleaded guilty to one count of Conspiracy to Violate the FCPA and one count of 
+Conspiracy to Commit Money Laundering.  As part of his guilty plea, Leissner agreed to forfeit 
+$43,700,000.   
+ 
+59. Respondent has also entered into a parallel civil settlement with the Board of 
+Governors of the Federal Reserve System (the “Federal Reserve Board”) concerning some of the 
+findings in the Order.  Specifically, in In the Matter of Tim Leissner, Docket No. 19-008-E-I (Mar. 
+11, 2019), Leissner agreed to pay a civil money penalty of $1,425,000. 
+ 
+Non-Imposition of a Civil Penalty 
+ 
+60. Respondent acknowledges that the Commission is not imposing a civil penalty 
+based upon (a) Respondent’s guilty plea as part of his resolution with the United States Department 
+of Justice, and (b) the imposition of a civil money penalty as part of the settlement with the Federal 
+Reserve Board.  
+ 
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate and in the public interest 
+to impose the sanctions agreed to in Respondent’s Offer. 
+ 
+Accordingly, pursuant to Sections 15(b) and 21C of the Exchange Act, Section 203(f) 
+of the Advisers Act, and Section 9(b) of the Investment Company Act, it is hereby ORDERED 
+that: 
+ 
+A. Respondent cease and desist from committing or causing any violations and  any 
+future violations of Sections 30A, 13(b)(2)(A), and 13(b)(5) of the Exchange Act and Rule 
+13b2-1 thereunder. 
+ 
+B. Respondent be, and hereby is: 
+ 
+barred from association with any broker, dealer, investment adviser, municipal 
+securities dealer, municipal advisor, transfer agent, or nationally recognized 
+statistical rating organization;  
+ 
+prohibited from serving or acting as an employee, officer, director, member of an 
+advisory board, investment adviser or depositor of, or principal underwriter for, a 
+registered investment company or affiliated person of such investment adviser, 
+depositor, or principal underwriter; and 
+ 
+ 
+ 
+13 
+ 
+barred from participating in any offering of a penny stock, including: acting as a 
+promoter, finder, consultant, agent or other person who engages in activities with 
+a broker, dealer or issuer for purposes of the issuance or trading in any penny 
+stock, or inducing or attempting to induce the purchase or sale of any penny 
+stock. 
+ 
+C. Any reapplication for association by the Respondent will be subject to the 
+applicable laws and regulations governing the reentry process, and reentry may be conditioned 
+upon a number of factors, including, but not limited to, compliance with the Commission’s 
+order and payment of any or all of the following:  (a) any disgorgement or civil penalties 
+ordered by a Court against the Respondent in any action brought by the Commission; (b) any 
+disgorgement amounts ordered against the Respondent for which the Commission waived 
+payment; (c) any arbitration award related to the conduct that served as the basis for the 
+Commission order; (d) any self-regulatory organization arbitration award to a customer, 
+whether or not related to the conduct that served as the basis for the Commission order; and (e) 
+any restitution order by a self-regulatory organization, whether or not related to the conduct 
+that served as the basis for the Commission order. 
+ 
+D. Respondent shall pay to the Commission disgorgement of $43,700,000.  The 
+amount of this obligation shall be reduced and deemed satisfied by the amount of Respondent’s 
+criminal forfeiture in United States v. Leissner, Cr. No. 18-CR-439 (MKB) (E.D.N.Y. 2018) up 
+to and including the entire amount of this obligation.  
+ 
+By the Commission. 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 

raw/aaer/2020/AAER-4111.txt

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+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+  
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 87884 / January 3, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4111 / January 3, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19634 
+  
+ 
+ 
+ 
+In the Matter of 
+ 
+Robert A. Karmann, CPA,  
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING ADMINISTRATIVE 
+PROCEEDINGS PURSUANT TO RULE 
+102(e) OF THE COMMISSION’S RULES OF 
+PRACTICE, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS 
+ 
+ 
+ 
+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 Robert 
+A. Karmann (“Respondent” or “Karmann”) pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice.1   
+II. 
+ 
+                                                
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . 
+suspend from appearing or practicing before it any . . . accountant . . . who has been by name: (A) [p]ermanently 
+enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the 
+Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of 
+the rules and regulations thereunder; or (B) [f]ound 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) or aided and abetted the violation of any provision of the Federal securities laws or of the rules and 
+regulations thereunder. 
+ 2 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, Respondent admits the Commission’s 
+jurisdiction over him and the subject matter of these proceedings, and the findings contained in 
+paragraph III.2 below, and consents to the entry of this Order Instituting Public Administrative 
+Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and 
+Imposing Remedial Sanctions (“Order”), as set forth below.  
+  
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+1. Karmann, age 53, is and has been a certified public accountant licensed to practice 
+in the State of California.  He served as the chief financial officer of a private California 
+corporation headquartered in Benicia, California from 2015 through 2018, and as the controller 
+from 2014 to 2015. 
+ 
+2. On December 20, 2019, a judgment was entered by consent against Karmann, 
+permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 
+(“Securities Act”), and Section 10(b) of the Securities Exchange Act of 1934 (“Exchange Act”) 
+and Rule 10b-5 thereunder, in the civil action entitled Securities and Exchange Commission v. 
+Robert A. Karmann, Civil Action Number 2:19-cv-2531, in the United States District Court for the 
+Eastern District of California.  
+ 
+3. The Commission’s complaint alleged, among other things, that Karmann engaged 
+in a course of conduct designed to deceive investors in securities offered by certain solar energy 
+companies in which, among other things, Karmann: (1) transferred or arranged for the transfer of 
+funds among companies to deceive investors about the source of purported revenue; and (2) 
+provided reports and financial statements that he knew contained materially false and misleading 
+information to investors and prospective investors.   
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent Karmann’s Offer. 
+ 
+  
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 3 
+Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ Robert A. Karmann is suspended from appearing or practicing before the Commission as 
+an accountant.   
+ 
+ By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 

raw/aaer/2020/AAER-4112.txt

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 87969 / January 15, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4112 / January 15, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18346 
+______________________________ 
+:  
+In the Matter of   : 
+     : ORDER OF SUSPENSION PURSUANT 
+DAVID MIDDENDORF, CPA, : TO RULE 102(e)(2) OF THE 
+: COMMISSION’S RULES OF PRACTICE  
+Respondent.   :   
+______________________________: 
+ 
+ I. 
+ 
+The Securities and Exchange Commission deems it appropriate to issue an order of 
+forthwith suspension of David Middendorf pursuant to Rule 102(e)(2) of the Commission’s 
+Rules of Practice [17 C.F.R. § 201.102(e)(2)].1 
+ 
+ II. 
+ 
+The Commission finds that:  
+ 
+1. Middendorf is a certified public accountant in Georgia, New York, and Ohio. 
+ 
+2. On September 11, 2019, a judgment of conviction was entered against 
+Middendorf in United States v. David Middendorf, et al, No. 18-Cr.-36, in the United States 
+District Court for the Southern District of New York, finding him guilty of one count of 
+conspiracy to commit wire fraud and three counts of wire fraud. 
+ 
+3. As a result of this conviction, Middendorf was sentenced to imprisonment of one 
+year and one day in a federal penitentiary. 
+ 
+                         
+1  Rule 102(e)(2) provides in pertinent part that “any person who has been convicted of a felony or a 
+misdemeanor involving moral turpitude shall be forthwith suspended from appearing or practicing before the 
+Commission.” 
+ 
+ 
+ 
+ 
+2 
+ 
+III. 
+ 
+In view of the foregoing, the Commission finds that Middendorf has been convicted of a 
+felony within the meaning of Rule 102(e)(2) of the Commission’s Rules of Practice. 
+ 
+Accordingly, it is ORDERED, that David Middendorf is forthwith suspended from 
+appearing or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission’s 
+Rules of Practice. 
+ 
+By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 

raw/aaer/2020/AAER-4113.txt

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 87970 / January 15, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4113 / January 15, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18346 
+______________________________ 
+:  
+In the Matter of   : 
+     : ORDER OF SUSPENSION PURSUANT 
+JEFFREY WADA, CPA, : TO RULE 102(e)(2) OF THE 
+: COMMISSION’S RULES OF PRACTICE  
+Respondent.   :   
+______________________________: 
+ 
+ I. 
+ 
+The Securities and Exchange Commission deems it appropriate to issue an order of 
+forthwith suspension of Jeffrey Wada pursuant to Rule 102(e)(2) of the Commission’s Rules of 
+Practice [17 C.F.R. § 201.102(e)(2)].1 
+ 
+ II. 
+ 
+The Commission finds that:  
+ 
+1. Wada is a certified public accountant in California. 
+ 
+2. On October 11, 2019, a judgment of conviction was entered against Wada in 
+United States v. David Middendorf, et al, No. 18-Cr.-36, in the United States District Court for 
+the Southern District of New York, finding him guilty of one count of conspiracy to commit wire 
+fraud and two counts of wire fraud. 
+ 
+3. As a result of this conviction, Wada was sentenced to imprisonment of nine 
+months in a federal penitentiary. 
+ 
+                         
+1  Rule 102(e)(2) provides in pertinent part that “any person who has been convicted of a felony or a 
+misdemeanor involving moral turpitude shall be forthwith suspended from appearing or practicing before the 
+Commission.” 
+ 
+ 
+ 
+ 
+2 
+ 
+III. 
+ 
+In view of the foregoing, the Commission finds that Wada has been convicted of a felony 
+within the meaning of Rule 102(e)(2) of the Commission’s Rules of Practice. 
+ 
+Accordingly, it is ORDERED, that Jeffrey Wada is forthwith suspended from appearing 
+or practicing before the Commission pursuant to Rule 102(e)(2) of the Commission’s Rules of 
+Practice. 
+ 
+By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 

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+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+January 16, 2020 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88001 / January 16, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4114 / January 16, 2020 
+ 
+Admin. Proc. File No. 3-18994 
+ 
+ 
+ 
+In the Matter of  
+ 
+JOSEPH S. AMUNDSEN, CPA, 
+MICHAEL T. REMUS, CPA, and  
+MICHAEL REMUS CPA 
+ 
+ 
+CORRECTED ORDER 
+GRANTING 
+PETITIONS 
+FOR REVIEW 
+AND SCHEDULING 
+BRIEFS 
+ 
+ 
+ 
+Pursuant to Commission Rule of Practice 411,
+1 the petitions of Joseph S. Amundsen, 
+CPA, Michael T. Remus, CPA, and Michael Remus CPA for review of the administrative law 
+judge's initial decision2 is granted.  Pursuant to Rule of Practice 411(d), 3 the Commission will 
+determine what sanctions, if any, are appropriate in this matter.   
+Accordingly, IT IS ORDERED, pursuant to Rule of Practice 450(a),4 that briefs in 
+support of the petitions for review shall be filed by February 18, 2020.  A brief in opposition  
+  
+                                                 
+1  17 C.F.R. § 201.411. 
+2   Joseph S. Amundsen, CPA, Michael T. Remus , CPA, and Michael Remus CPA, Initial 
+Decision Release No. 1391 (Dec. 5, 2019), 2019 WL 6683122.   
+3  17 C.F.R. § 201.411(d). 
+4  17 C.F.R. § 201.450(a). 
+2 
+ 
+ 
+shall be filed by March 19, 2020, and any reply briefs shall be filed by April 2, 2020.5  Pursuant 
+to Rule of Practice 180(c),6 failure to file a brief in support of the petition may result in dismissal 
+of this review proceeding. 
+ 
+For the Commission, by the Office of the General Counsel, pursuant to delegated 
+authority. 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 
+ 
+                                                 
+5 As provided by Rule of Practice 450(a), no briefs in addition to those specified in this 
+schedule may be filed without leave of the Commission.  Attention is called to Rules 150 – 153, 
+17 C.F.R. § 201.150 – 153, with respect to form and service, and Rules of Practice 450(b) and 
+(c), 17 C.F.R. § 201.450(b), 201.450(c), with respect to content and length limitations.  Requests 
+for extensions of time to file briefs are disfavored. 
+6  17 C.F.R. § 201.180(c).  

raw/aaer/2020/AAER-4115.txt

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+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 88048 / January 27, 2020 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 4115 / January 27, 2020 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-14624 
+ 
+In the Matter of  
+Steven M. Des Champs, 
+CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+RESPONSIBLE FOR THE PREPARATION OR 
+REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+TO BE FILED WITH THE COMMISSION 
+ 
+On November 16, 2011, Steven M. Des Champs, CPA (“Des Champs”) was suspended 
+from appearing or practicing before the Commission as an accountant as a result of settled public 
+administrative proceedings instituted by the Commission against him pursuant to Rule 102(e)(3) 
+of the Commission’s Rules of Practice.1  This order is issued in response to Des Champs’ 
+application for reinstatement to appear and practice before the Commission as an accountant 
+responsible for the preparation or review of financial statements required to be filed with the 
+Commission. 
+The Commission found that Des Champs had been permanently enjoined by a United 
+States District Court from future violations of Section 17(a)(2) and (3) of the Securities Act of 
+1933 and Rule 13a-14 under the Securities Exchange Act of 1934 (“Exchange Act”), and from 
+aiding and abetting violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange 
+Act and Rules 12b-20, 13a-1, 13a-11, and 13a-13 thereunder in an action brought by the 
+Commission.  In its complaint in the injunctive action, the Commission alleged that Des 
+Champs, as the Chief Accounting Officer and Chief Financial Officer of Bally Technologies, 
+Inc. (“Bally”), was responsible for the improper recognition of revenue from certain bill and hold 
+transactions and for the improper recognition of revenue on sales of gaming machines for which 
+collectability was not reasonably assured.  This conduct resulted in misstatements in filings that 
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 3336 dated November 16, 2011.  Des Champs was 
+permitted, pursuant to the order, to apply for reinstatement after five years upon making certain showings. 
+ 
+ 2 
+Bally made with the Commission for periods between the fourth quarter of fiscal year 2003 and 
+the third quarter of fiscal year 2005. 
+ 
+In his capacity as a preparer or reviewer, or as a person responsible for the preparation or 
+review, of financial statements of a public company to be filed with the Commission, Des 
+Champs attests that he will undertake to have his work reviewed by the independent audit 
+committee of any company for which he works, or in some other manner acceptable to the 
+Commission, while practicing before the Commission in this capacity.  Des Champs is not, at 
+this time, seeking to appear or practice before the Commission as an independent accountant.  If 
+he should wish to resume appearing and practicing before the Commission as an independent 
+accountant, he will be required to submit an application to the Commission showing that he has 
+complied and will comply with the terms of the original suspension order in this regard.  
+Therefore, Des Champs suspension from practice before the Commission as an independent 
+accountant continues in effect until the Commission determines that a sufficient showing has 
+been made in this regard in accordance with the terms of the original suspension order. 
+ 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+ 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Des Champs, it appears that he has complied with the terms of the November 16, 2011 order 
+suspending him from appearing or practicing before the Commission as an accountant, that no 
+information has come to the attention of the Commission relating to his character, integrity, 
+professional conduct or qualifications to practice before the Commission that would be a basis 
+for adverse action against him pursuant to Rule 102(e) of the Commission's Rules of Practice, 
+and that Des Champs, by undertaking to have his work reviewed by the independent audit 
+committee of any company for which he works, or in some other manner acceptable to the 
+Commission, in his practice before the Commission as a preparer or reviewer of financial 
+statements required to be filed with the Commission, has shown good cause for reinstatement.  
+Therefore, it is accordingly, 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+2 Rule 102(e)(5)(i) provides: 
+ 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this rule may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a hearing; 
+however, the suspension or disqualification shall continue unless and until the applicant has been reinstated by the 
+Commission for good cause shown.”  17 C.F.R. § 201.102(e)(5)(i). 
+ 
+ 
+ 3 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission’s Rules of Practice that 
+Steven M. Des Champs, CPA is hereby reinstated to appear and practice before the Commission 
+as an accountant responsible for the preparation or review of financial statements required to be 
+filed with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+Vanessa Countryman  
+Secretary  

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88140 / February 6, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4116 / February 6, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-18967 
+ 
+ 
+ 
+In the Matter of 
+ 
+LBB & ASSOCIATES LTD., 
+LLP and 
+CARLOS LOPEZ, CPA,  
+ 
+Respondents. 
+ 
+ 
+ 
+ORDER MAKING FINDINGS AND IMPOSING 
+REMEDIAL SANCTIONS PURSUANT TO 
+SECTION 4C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 AND RULE 102(e) OF 
+THE COMMISSION’S RULES OF PRACTICE  
+  
+ 
+I. 
+ 
+ On January 14, 2019, the Securities and Exchange Commission (“Commission”) issued an 
+Order Instituting Administrative Proceedings against LBB & Associates Ltd., LLP (“LBB”) and 
+Carlos Lopez, CPA (“Lopez”)  (collectively, “Respondents”) pursuant to Section 4C1 of the Securities 
+Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) 2 of the Commission’s Rules of 
+Practice. 
+ 
+ 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ 
+The Commission may censure any person, or deny, temporarily or permanently, to any 
+person the privilege of appearing or practicing before the Commission in any way, if that person is 
+found . . . (1) not to possess the requisite qualifications to represent others . . . (2) to be lacking in 
+character or integrity, or to have engaged in unethical or improper professional conduct. 
+ 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of appearing or 
+practicing before it . . . to any person who is found . . . to have engaged in unethical or improper 
+professional conduct. 
+ 2 
+II. 
+ 
+ In connection with these proceedings, Respondents have submitted Offers of Settlement (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 them and the subject matter of these proceedings, which are admitted, 
+Respondents consent to the entry of this Order Making Findings and Imposing Remedial Sanctions 
+Pursuant to Section 4C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s 
+Rules of Practice (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondents’ Offers, the Commission finds that: 
+ 
+A. SUMMARY 
+ 
+1. For annual audits of years 2012, 2013 and 2014, Respondents engaged in a pattern of 
+improper professional conduct as auditors.  Specifically, Respondents failed to comply with Public 
+Company Accounting Oversight Board (“PCAOB”) standards in their audit of Behavioral 
+Recognition Systems, Inc. (now known as Giant Gray, Inc.) (“BRS”) for fiscal year 2012 and in 
+their engagement quality reviews (“EQR”) of the 2013 and 2014 fiscal year audits.  Lopez, LBB’s 
+managing partner and majority owner, served as LBB’s engagement partner for the 2012 audit and 
+as its EQR partner for the 2013 and 2014 audits.     
+ 
+2. During the 2012 audit, Lopez did not comply with PCAOB standards regarding: (i) 
+the identification of related party transactions or (ii) the audit procedures required when examining 
+known related party transactions.   
+ 
+3. First, Lopez relied exclusively on BRS’s management to disclose related party 
+transactions to him, despite the fact that he was aware of certain red flags indicating that additional 
+related party transactions existed.  As a result, although Blackstone Group, Inc. (“Blackstone”) 
+received payments of approximately $1.5 million in 2012 and was one of BRS’s largest vendors 
+that year, Lopez failed to apply the audit procedures set forth in AU § 334 and failed to identify 
+those payments as transactions involving a related party controlled by BRS’s then-CEO, Ray Davis 
+(“Davis”).            
+ 
+4. Second, Lopez also failed to comply with PCAOB standards in Respondents’ 2012 
+audit of known related party transactions because, among other things, he did not (i) properly assess 
+the risks associated with those transactions; (ii) complete audit procedures designed to confirm the 
+business purpose, nature, and extent of the payments made; or (iii) exercise due professional care in 
+performing his audit work.  Here, again, Lopez relied exclusively on BRS management to explain 
+an almost three-fold increase in expenses to an individual he knew was related to Davis (“Related 
+Party A”) without, for example, reviewing any invoices or taking any other steps to determine the 
+purpose, nature, and extent of the expenses and their effect on the financial statements.        
+ 
+ 3 
+5. Respondents also failed to comply with PCAOB standards in connection with their 
+EQRs for both the 2013 and 2014 BRS audits.  In particular, PCAOB standards prohibit a person 
+who served as the engagement partner on either of the two preceding audits from serving as the 
+EQR partner on an audit.  Thus, because Lopez served as the engagement partner on the 2012 BRS 
+audit, Respondents failed to comply with these PCAOB standards when Lopez served as the EQR 
+partner on the 2013 and 2014 audits.  
+ 
+6. By failing to conduct the BRS audits in accordance with PCAOB standards, LBB 
+and Lopez engaged in improper professional conduct.  
+ 
+B. RESPONDENTS 
+ 
+7. LBB & Associates Ltd., LLP, is a PCAOB-registered accounting and auditing firm 
+based in Houston, Texas with approximately 28 public company clients.  LBB has two partners and 
+approximately eight accountants on staff.    
+ 
+8. Carlos Lopez, age 56, is LBB’s managing partner and majority owner.  He is a 
+Certified Public Accountant (“CPA”) licensed in Texas and resides in Houston.  Lopez served as 
+the engagement partner for BRS’s 2012 audit and as the EQR partner for its 2013 and 2014 audits.  
+ 
+C. OTHER RELEVANT ENTITIES 
+ 
+9. Behavioral Recognition Systems, Inc., now known as Giant Gray, Inc., is a private, 
+Texas corporation with its principal place of business in Houston, Texas and has never had an 
+obligation to file audited financial statements with the Commission.  BRS was founded in 2005 and 
+sold video analytic software that allowed linked video cameras or other systems to recognize certain 
+abnormal or suspicious events chosen by the user.  For all three fiscal years relevant to this Order, 
+Ray Davis served as BRS’s CEO and Chairman.  On December 14, 2017, the Commission filed a 
+complaint against BRS, Davis, and several relief defendants alleging that BRS and Davis engaged 
+in a fraudulent scheme to divert BRS investor funds for Davis’s personal use, including millions of 
+dollars paid to Blackstone, a company controlled by Davis.  SEC v.  Davis et al., No. 17-cv-03774 
+(S.D. Tex. Dec. 14, 2017).  Davis is now deceased, and Giant Gray was forced into Chapter 7 
+bankruptcy proceedings in April 2018.      
+ 
+D. FACTS 
+ 
+i. Background 
+10. Lopez first met Davis when he was working for another audit firm and was assigned 
+to the team responsible for auditing a company for which Davis served as CEO.   
+ 
+11. Years later, after Lopez formed LBB in 2004, Davis hired LBB to conduct a review 
+of BRS’s 2009 financial statements.  Subsequently, Davis hired LBB to conduct audits for BRS, 
+which LBB did for the years 2010 through 2014.  Lopez served as the engagement partner for the 
+2010 through 2012 audits and, as noted, as the EQR partner for the 2013 and 2014 audits.       
+ 
+ 4 
+ii. Respondents Were Aware that BRS Audits Were High Risk and that BRS Planned to 
+Provide Its Audited Financial Statements to Investors  
+12. For the 2012 audit, Respondents were aware that BRS was a high-risk audit client 
+based in part on their prior audit work for BRS.  BRS had no chief financial officer and relied on a 
+single part-time bookkeeper to maintain its accounting records.  BRS never had an audit committee, 
+and the board of directors consisted only of Davis and another BRS executive.  As Lopez knew, 
+BRS’s board did not hold a single meeting in 2012. 
+ 
+13. At the time of the 2012 audit, Respondents were also aware of control deficiencies in 
+BRS’s internal controls, including a lack of any controls over Davis’s unrestricted ability to 
+authorize, approve, and direct payments and expenses.  Respondents noted in the 2012 audit’s Risk 
+Assessment Summary Form that management override of internal controls presented a significant 
+risk in connection with the audit.  Respondents further indicated that they would not test or rely on 
+BRS’s internal controls during the audit, but rather would base the audit on substantive audit 
+procedures.3   
+ 
+14. Respondents knew when they conducted the 2012 audit and EQRs for the 2013 and 
+2014 audits that BRS planned to provide its investors with the audited financial statements.  
+Moreover, in each of the signed audit reports for the 2012 through 2014 audits, Respondents stated:  
+“We conducted our audits in accordance with the standards of the Public Company Accounting 
+Oversight Board (United States).” 
+ 
+iii. Respondents Failed to Conduct the 2012 BRS Audit in Accordance with PCAOB 
+Standards 
+ 
+a. Failure to Conduct Audit Steps for Identifying Related Party Transactions  
+ 
+15. PCAOB audit standard (“AU”) § 334.07 provided that determining the existence of 
+related party relationships that are not clearly evident required the application of specific audit 
+procedures.4  Such procedures may include evaluating the client’s process for identifying related 
+parties, requesting names of related parties from management, and reviewing stockholder lists.  (AU 
+§ 334.07.)  The standard also outlined audit procedures designed to provide guidance for identifying 
+material transactions with unidentified related parties, including reviewing the nature of transactions 
+                                                 
+3  Under PCAOB standards, the audit procedures performed in response to the assessed risks 
+of material misstatement can be classified into two categories:  “test of controls” and “substantive 
+procedures.”  (AS § 13.10.)  For significant risks, the substantive procedures should be specifically 
+responsive to the assessed risks and include tests of details.  (AS § 13.11.)  On the other hand, if the 
+auditor plans to assess control risk (at less than the maximum) by relying on controls, the auditor 
+must obtain evidence that the controls selected for testing are designed effectively and operated 
+effectively for the entire period during which those controls were relied upon.  (AS § 13.16.)   
+    
+4 Citations to “AU” and “AS” refer to PCAOB standards in effect at the time of the conduct 
+discussed herein.   
+ 
+ 5 
+with major customers for indications of previously undisclosed relationships and reviewing 
+accounting records for large, unusual, or nonrecurring transactions, particularly those transactions 
+recognized at or near the end of the reporting period.  (AU § 334.08(e) and (g).) 
+ 
+16. During the 2012 audit, Lopez was aware of several red flags indicating the possible 
+existence of unidentified related party transactions.  In particular, in response to an audit 
+questionnaire, BRS claimed that there were no related party transactions in 2012, but Lopez knew 
+that response was not accurate because he was aware of recurring transactions with at least two 
+related parties from his work on prior BRS audits.  Lopez also identified control deficiencies 
+concerning BRS’s authorization of payments, including Davis’s unrestricted ability to direct 
+payments. 
+ 
+17. Despite his awareness of these red flags, Lopez did not take any audit steps during 
+the 2012 audit to identify whether material transactions were with related parties.  Rather, Lopez 
+relied exclusively on BRS management to identify related party transactions and did not evaluate 
+BRS’s procedures for identifying related parties.  In fact, BRS had no policies for identifying 
+related parties.       
+ 
+18. In 2012, BRS paid Blackstone approximately $1.5 million – comprising 
+approximately 9.2% of BRS’s total operating expenses – making Blackstone one of BRS’s largest 
+vendors for the year.  Yet, Lopez did not perform the relevant audit steps outlined in AU § 334 to 
+evaluate whether BRS’s payments to Blackstone, which were purportedly for “web site 
+optimization,” involved a related party.  For example, Lopez did not review stockholder lists or 
+examine the nature of the transactions between BRS and Blackstone by reviewing the accounting 
+records for large transactions.  Similarly, Lopez never requested or reviewed any contract between 
+BRS and Blackstone. 
+  
+19. Had Lopez conducted the relevant audit steps outlined in AU §§ 334.07 and 334.08, 
+he may have identified that these material transactions involved a corporation created, owned, and 
+controlled by BRS’s CEO and Chairman, Ray Davis. 
+ 
+b. Respondents Also Failed to Conduct Appropriate Audit Steps for Known Related 
+Party Transactions 
+ 
+20. For known related party transactions, the PCAOB standards required the auditor to 
+apply the procedures he or she considered necessary to obtain satisfaction regarding the purpose, 
+nature, and extent of the transactions and their effect on the client’s financial statements.  The 
+procedures should be directed towards obtaining and evaluating sufficient appropriate evidence to 
+support BRS’s accounting treatment and were required to extend beyond simply an inquiry of 
+management.  Specifically, the audit procedures that Respondents should have considered included:  
+obtaining an understanding of the business purpose of the transaction; examining invoices, 
+contracts, and other pertinent documents; determining whether the transactions had been approved 
+by the board of directors; and testing the amounts for reasonableness.  (AU § 334.09.) 
+   
+ 6 
+21. For the BRS audit in 2012, Respondents knew about the related party transactions 
+involving Related Party A and were aware of significant red flags surrounding those transactions.  
+Yet, Respondents failed to take appropriate audit steps to understand their purpose, nature, or effect 
+on BRS’s financial statements and simply relied on BRS management’s representations. 
+ 
+22. In particular, Lopez was aware that Davis approved the payments to Related Party A, 
+who he knew was related to Davis.  Although BRS management disclosed in its notes to its 
+financial statements that Related Party A was paid for consulting services and for efforts selling 
+BRS securities to investors, Lopez knew that there was no written agreement outlining the services 
+to be provided by, or the fees to be paid to, this related party.  Lopez also was aware that BRS’s 
+board of directors did not hold any board meetings in 2012, calling into question whether the board 
+had approved payments to Related Party A.   
+ 
+23. Moreover, during the 2012 audit, Lopez conducted an analysis showing that BRS’s 
+consulting expenses had increased almost ten-fold from 2011 to 2012, including a three-fold 
+increase in expenses for Related Party A.  Specifically, consulting expenses increased from 
+approximately $113,000 in 2011 to approximately $1.17 million in 2012 (approximately 7.2% of 
+BRS’s total operating expenses for the year).  In both years, the majority of BRS’s consulting 
+expenses concerned Related Party A.  The results of this analysis should have prompted Lopez to 
+conduct additional audit steps, including gathering additional evidence so that Lopez could 
+understand what caused such a significant increase in consultant expenses.  Lopez, however, did not 
+complete any such steps. 
+ 
+24. In fact, notwithstanding the red flags outlined above, Lopez failed to obtain any 
+invoices, contracts, or other documents related to payments from BRS to Related Party A.  Lopez 
+never determined whether BRS’s board of directors had approved the payments.  Again, Lopez 
+relied exclusively on BRS’s management to explain the nature of the payments to Related Party A, 
+noting in his audit work papers as part of substantive analytical procedures performed that:  “Per 
+inquiry, the increase of consulting fee is mostly due to BRS utilized [Related Party A] more this 
+year to help out with investor relations.  Appears reasonable as the revenue is not enough to cover 
+the operating expenses and company needs funding through out [sic] the year.”         
+ 
+25. In short, Lopez failed to perform any of the audit procedures outlined in AU § 
+334.09, or any other procedures, and, thus, failed to obtain an adequate understanding of the 
+approximately $951,000 in 2012 consulting expenses for Related Party A—which comprised 
+approximately 7.7% of BRS’s net loss for that year.  Accordingly, Respondents had no basis for 
+concluding that the consulting expenses regarding Related Party A were fairly presented in BRS’s 
+2012 financial statements.   
+ 
+c. Other 2012 Audit Failures  
+ 
+26. Respondents failed to comply with other PCAOB audit standards in connection with 
+their work on the 2012 BRS audit.         
+ 
+ 7 
+27. Audit standard AU § 9334 provided that the risk associated with management’s 
+assertions about related party transactions is often assessed higher than many other types of 
+transactions because of the possibility that the parties to the transaction are motivated by reasons 
+other than those that exist for most business transactions.  (AU § 9334.18.)  That audit standard 
+further noted that, the higher the assessment of risk, the more extensive or effective the audit tests 
+should be.  (AU § 9334.19.)  In addition, AU § 9334 provided:  “In assessing the risk of the related 
+party transactions the auditor obtains an understanding of the business purpose of the transactions.  
+Until the auditor understands the business sense of material transactions, he cannot complete his 
+audit.”  (Id.) 
+  
+28. For significant risks, the PCAOB auditing standard § 13.11 explained that the auditor 
+should perform substantive procedures, including tests of details that are specifically responsive to 
+the assessed risks.  (AS §13.11.) 
+ 
+29. Respondents failed to comply with both AU § 9334 and AS § 13.11.  Lopez did not 
+assess the audit risk associated with related party transactions at BRS as high during the 2012 audit 
+despite the fact that he was aware of the significant red flags described above, including the lack of 
+contracts and controls regarding management override of payments.  Payments to Related Party A, 
+for example, could have been motivated by Davis’s desire to funnel money to a relative.  Under 
+these circumstances, Respondents should have expanded procedures to obtain audit evidence 
+regarding the services Related Party A performed and how the amounts paid for each service were 
+determined.  Had Lopez reviewed invoices from Related Party A, he would have seen that they only 
+generically described the services provided as “Consulting” or “Financial Services” with no other 
+details or descriptions of what services, if any, were performed or how the amounts invoiced were 
+determined.  Respondents also failed to conduct audit steps that would have allowed them to 
+understand the nature of the transactions.   
+ 
+30. Moreover, the PCAOB standards memorialized in AU § 329 provided that, when an 
+auditor performs substantive analytical review procedures, its expectations should be “precise 
+enough to provide the desired level of assurance that differences that may be potential material 
+misstatements, would be identified for the auditor to investigate.”  (AU § 329.17.)  The standards 
+also noted that expectations developed at a detailed level generally have a greater chance of 
+detecting misstatement of a given amount than do broad comparisons.  (AU §§ 329.17 and 329.19.)  
+Accordingly, the auditor should evaluate significant unexpected differences, and management’s 
+responses should ordinarily be corroborated with other evidence.  (AU § 329.21.) 
+ 
+31. Respondents failed to comply with AU § 329.  In particular, Respondents failed to 
+perform audit steps with sufficient precision to adequately evaluate unexpected differences, 
+including, for example, the significant increase in consulting expenses from 2011 to 2012 that was 
+identified through the analysis described above.  For the same reason, Lopez also failed to 
+corroborate management’s assertions that significant payments for two related parties (Related 
+Party A and an entity associated with a BRS executive) were made for legitimate business purposes.  
+In fact, Lopez did not apply any substantive audit procedures at all.  Rather, he only compared year-
+over-year changes in total expenses.  Establishing expectations and analysis of those changes at a 
+ 8 
+more precise level was required, however, in order for the analytics to be considered substantive 
+audit tests. 
+ 
+32. Additionally, AS § 15 required that the auditor plan and perform audit procedures to 
+obtain sufficient appropriate audit evidence to provide a reasonable basis for his or her opinion.  
+(AS § 15.04.)  Notably, as the risk in an audit increases, the amount of evidence that the auditor 
+should obtain also increases.  Ordinarily, more evidence is needed to respond to significant risks.  
+(AS § 15.05.) 
+ 
+33. Respondents did not obtain sufficient appropriate audit evidence in their 2012 audit 
+of BRS and therefore failed to comply with AS § 15.  As noted, rather than gather evidence 
+sufficient to understand the above-described transactions, Lopez instead relied on management’s 
+assertions.   
+ 
+34. Lastly, AU § 230 required auditors to exercise due professional care when 
+conducting an audit and preparing a report.  (AU § 230.01.)  Under AU § 230, auditors were 
+required to maintain an attitude of professional skepticism, which included “a questioning mind and 
+a critical assessment of audit evidence.”  (AU § 230.07.)  The standard noted that gathering and 
+objectively evaluating audit evidence required the auditor to consider the competency and 
+sufficiency of the evidence.  (AU § 230.08.)  
+ 
+35. By failing to gather and objectively evaluate audit evidence as described above, 
+however, Respondents also demonstrated their failure to conduct the 2012 BRS audit with due 
+professional care and an attitude of professional skepticism.  Therefore, Respondents violated AU § 
+230.            
+ 
+iv. Respondents Failed to Conduct the 2013 and 2014 BRS EQRs in Accordance with 
+PCAOB Standards 
+36. As noted, after serving as the engagement partner for the 2012 audit, Lopez served as 
+the EQR partner for both the 2013 and 2014 audits.  In order to maintain the objectivity of the EQR 
+partner, PCAOB standards do not permit a person to serve as the EQR partner on an audit if they 
+served as the engagement partner on either of the two prior audits.  (AS §7.8.)  Thus, Respondents 
+failed to comply with AS § 7.8 in connection with the EQRs of the 2013 and 2014 BRS audits. 
+ 
+E. VIOLATIONS 
+   
+37. As a result of the conduct described above, Respondents engaged in improper 
+professional conduct within the meaning of Section 4C(a)(2) of the Exchange Act and Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice.  Section 4C of the Exchange Act and Rule 
+102(e)(1)(ii) provide, in pertinent part, that the Commission may censure or deny, temporarily or 
+permanently, the privilege of appearing or practicing before the Commission to any person who is 
+found by the Commission to have engaged in improper professional conduct.  Exchange Act 
+Section 4C(b) and Rule 102(e)(1)(iv) define improper professional conduct with respect to persons 
+licensed to practice as accountants. 
+ 9 
+ 
+38. Under Section 4C(b) and Rule 102(e)(1)(iv)(B), the term “improper professional 
+conduct” means one of two types of negligent conduct:  (1) a single instance of highly unreasonable 
+conduct in circumstances for which heightened scrutiny is warranted; or (2) repeated instances of 
+unreasonable conduct that indicate a lack of competence. 
+ 
+39. Respondents’ failures in the 2012 BRS audit to abide by the applicable professional 
+standards concerning the identification of related party transactions and audit of known related party 
+transactions (articulated in AU §334 and AU § 9334) constitute multiple instances of highly 
+unreasonable conduct in circumstances that warranted heightened scrutiny.  Those violations, 
+Respondents’ other failures during the 2012 audit to conform to applicable professional standards 
+(articulated in AU § 230, AU § 329, AS § 7, AS § 13, and AS § 15), and their failures in connection 
+with the EQRs for the 2013 and 2014 BRS audits (articulated in AS § 7) also constitute repeated 
+instances of unreasonable conduct.     
+ 
+F.  FINDINGS 
+ 
+40. Based on the foregoing, the Commission finds that Respondents engaged in 
+improper professional conduct within the meaning of Section 4C(a)(2) of the Exchange Act and 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed 
+to in Respondents’ Offers. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. LBB and Lopez are denied the privilege of appearing or practicing before the 
+Commission as accountants. 
+ 
+B. After two (2) years from the date of this order, Lopez 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 (other than as a 
+member of an audit committee, as that term is defined in Section 3(a)(58) of the Securities 
+Exchange Act of 1934).  Such an application must satisfy the Commission that Lopez’s work in his 
+practice before the Commission as an accountant 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.    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 as a 
+ 10 
+member of an audit committee, as that term is defined in Section 3(a)(58) of the Securities Act of 
+1934.  Such an application will be considered on a facts and circumstances basis with respect to 
+such membership, and the applicant’s burden of demonstrating good cause for reinstatement will 
+be particularly high given the role of the audit committee in financial and accounting matters; 
+and/or  
+ 
+3. an independent accountant.   
+ 
+Such an application must satisfy the Commission that: 
+      
+           (a) Lopez, or the public accounting firm with which he is associated, is 
+registered with the Public Company Accounting Oversight Board (“PCAOB”) in accordance with 
+the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Lopez, or the registered public accounting firm with which he is 
+associated, has been inspected by the PCAOB and that inspection did not identify any criticisms of 
+or potential defects in Lopez’s or the firm’s quality control system that would indicate that Lopez 
+will not receive appropriate supervision; 
+   (c) Lopez has resolved all disciplinary issues with the PCAOB, and has 
+complied with all terms and conditions of any sanctions imposed by the PCAOB (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Lopez acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to comply with all requirements of 
+the Commission and the PCAOB, including, but not limited to, all requirements relating to 
+registration, inspections, concurring partner reviews and quality control standards.   
+C.  The Commission will consider an application by Lopez 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 state licensure is dependent 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 
+Lopez’s character, integrity, professional conduct, or qualifications to appear or practice 
+before the Commission as an accountant.  Whether an application demonstrates good cause 
+will be considered on a facts and circumstances basis with due regard for protecting the 
+integrity of the Commission’s processes.  
+D. After two (2) years from the date of this order, LBB may request that the 
+Commission consider its 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 (other 
+than as a member of an audit committee, as that term is defined in Section 3(a)(58) of the 
+ 11 
+Securities Exchange Act of 1934).  Such an application must satisfy the Commission that LBB’s 
+work in its practice before the Commission as an accountant will be reviewed either by the 
+independent audit committee of the public company for which it works or in some other 
+acceptable manner, as long as it practices before the Commission in this capacity; and/or 
+2. an independent accountant.   
+ Such an application must satisfy the Commission that: 
+(a) LBB is registered with the PCAOB in accordance with the Sarbanes-
+Oxley Act of 2002, and such registration continues to be effective.  However, if registration with the 
+PCAOB is dependent upon reinstatement by the Commission, the Commission will consider the 
+application on its other merits; 
+(b) LBB hired an independent CPA consultant (“consultant”), who is not 
+unacceptable to staff of the Commission and is affiliated with a public accounting firm registered with 
+the PCAOB, that has conducted a review of LBB’s quality control system and submitted to the staff of 
+the Commission a report that describes the review conducted and procedures performed, and represents 
+that the review did not identify any criticisms of or potential defects in the firm’s quality control system 
+that would indicate that any of LBB’s employees will not receive appropriate supervision.  LBB agrees 
+to require the consultant, if and when retained, to enter into an agreement that provides that for the 
+period of review and for a period of two years from the completion of the review, the consultant shall 
+not enter into any employment, consultant, attorney-client, auditing or other professional relationship 
+with LBB, 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 shall not, without prior written consent of the staff, 
+enter into any employment, consultant, attorney-client, auditing or other professional relationship with 
+LBB, or any of its present or former affiliates, directors, employees, or agents acting in their capacity 
+as such for a period of two years after the review;  
+(c) LBB has resolved all disciplinary issues with the PCAOB, and has 
+complied with all terms and conditions of any sanctions imposed by the PCAOB (other than 
+reinstatement by the Commission); and  
+(d) LBB acknowledges its responsibility, as long as it appears or practices 
+before the Commission as an independent accountant, to comply with all requirements of the 
+Commission and the PCAOB, including, but not limited to, all requirements relating to registration, 
+inspections, engagement quality reviews and quality control standards. 
+E. The Commission will consider an application by LBB to resume appearing or 
+practicing before the Commission provided that its state CPA license is current and it has 
+resolved any disciplinary issues with the applicable state boards of accountancy.  However, if 
+state licensure is dependent on reinstatement by the Commission, the Commission will consider 
+an application on its other merits.  The Commission’s review may include consideration of, in  
+ 
+ 12 
+addition to the matters referenced above, any other matter relating to LBB’s character, integrity, 
+professional conduct, or qualifications to appear before the Commission as an accountant.  
+ Whether an application demonstrates good cause will be considered on a facts and circumstances 
+basis with due regard for protecting the integrity of the Commission’s processes. 
+ By the Commission. 
+ 
+ 
+Vanessa A. Countryman 
+       Secretary 
+ 

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+ 
+ 
+ 
+ 
+ 
+UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88287 / February 26, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4117 / February 26, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19710 
+ 
+ 
+ 
+In the Matter of 
+ 
+RSM US LLP 
+(f/k/a/ McGladrey LLP),  
+ 
+Respondent. 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 4C OF THE 
+SECURITIES EXCHANGE ACT OF 1934 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF 
+PRACTICE, MAKING FINDINGS, AND 
+IMPOSING REMEDIAL SANCTIONS 
+ 
+I. 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative proceedings be, and hereby are, instituted against RSM US LLP (“Respondent” or 
+“RSM”) pursuant to Section 4C1 of the Securities Exchange Act of 1934 (“Exchange Act”) and 
+Rule 102(e)(1)(ii) of the Commission’s Rules of Practice.2 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . (1) not to possess the requisite qualifications 
+to represent others; (2) to be lacking in character or integrity, or to have engaged 
+in unethical or improper professional conduct; or (3) to have willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or 
+the rules and regulations issued thereunder. 
+ 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have 
+engaged in unethical or improper professional conduct. 
+ 
+2 
+ 
+ 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Public 
+Administrative Proceedings Pursuant to Section 4C of the Securities Exchange Act of 1934 and 
+Rule 102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+III. 
+ On the basis of this Order and Respondent’s Offer, the Commission finds3 that:  
+SUMMARY 
+1. This matter involves certain deficiencies in RSM’s system of quality control for 
+staffing certain private investment fund financial statement audits for the calendar years ended 
+2013, 2014, and 2015.  For each of those years, RSM performed audits of a series of private pooled 
+investment funds (“Private Funds”) managed by SBB Research Group, LLC (“SBB”), an SEC-
+registered investment adviser (the “SBB Audits”).4  The Private Funds invested almost exclusively 
+in structured notes linked to equity indices and valued those investments for purposes of its 
+financial statements using a proprietary valuation model.  Due to insufficient quality controls, 
+RSM failed to staff the SBB Audits with appropriate personnel with the necessary competence and 
+capabilities to perform the engagements in accordance with professional standards.  The RSM 
+audit team, including assigned internal valuation specialists, lacked the appropriate competence 
+and capabilities to evaluate SBB’s valuation model and the resulting valuations of the structured 
+notes.  As a result, RSM’s audit team repeatedly violated professional standards by failing to 
+properly assess, test, and document risks of material misstatement associated with SBB’s valuation 
+of the structured notes.     
+ 
+2. In 2019, RSM resigned as the Private Funds’ auditor and recalled its previously 
+issued audit reports on the Private Funds’ financial statements.   
+  
+                                                 
+3  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
+binding on any other person or entity in this or any other proceeding.   
+ 
+4  This Order references the American Institute of Certified Public Accountants (“AICPA”) 
+standards in effect at the time of the 2013, 2014, and 2015 audits.  These standards are 
+encompassed in the Generally Accepted Auditing Standards.   
+ 
+3 
+ 
+ 
+RESPONDENT 
+3. RSM US LLP (formerly known as McGladrey, LLP) (“RSM”), is an accounting 
+and advisory firm headquartered in Chicago, Illinois.  Through approximately 80 offices across the 
+country, RSM provides audit, tax, and consulting services.  RSM is registered with the Public 
+Company Accounting Oversight Board (“PCAOB”). 
+ 
+OTHER RELEVANT PARTIES 
+ 
+4. SBB Research Group, LLC (“SBB”), an Illinois limited liability company 
+headquartered in Northbrook, Illinois, is a registered investment adviser that provides investment 
+advisory services to pooled investment vehicles, private funds, and separately managed accounts. 
+ 
+FACTS 
+ 
+A. SBB’s Private Funds 
+ 
+5. Since 2011, SBB has provided investment advisory services to the Private Funds.  
+SBB implemented similar investment strategies across the Private Funds with structured notes as 
+the primary investment.5  The notes had varying maturity dates but were generally tied to the 
+performance of the S&P 500 Index and the Russell 2000 Index. 
+ 
+6. The Private Funds represented to prospective and existing investors, and to RSM, 
+that their financial statements were presented, and books of account were maintained, in 
+accordance with generally accepted accounting principles (“GAAP”) and that their investments 
+were record at fair value; which SBB defined as “the price that would be received to sell an asset 
+or paid to transfer a liability in an orderly transaction between market participants at the 
+measurement date.” 
+ 
+7. ASC 820 sets forth a fair value measurement framework and defines fair value as 
+an “exit price,” the “price that would be received to sell an asset or paid to transfer a liability in an 
+orderly transaction between market participants at the measurement date.”  ASC 820-10-20.  Under 
+ASC 820, fair value is a “market-based measurement, not an entity-specific measurement” and is 
+measured “using the assumptions that market participants would use when pricing the asset.”  ASC 
+820-10-05-1B, 1C.   
+ 
+8. From approximately December 2011 through November 2016, SBB used an 
+internally developed model to value the structured notes held by the Private Funds (the “Valuation 
+Model”).  Contrary to GAAP, SBB knowingly used a valuation methodology and assumptions that 
+resulted in valuations that were inconsistent with the price a market participant would pay to 
+acquire the assets, and were therefore inconsistent with ASC 820. 
+                                                 
+5  Structured notes are unsecured debt securities with payouts that depend on the values of 
+one or more underlying assets.  The underlying assets can be individual stocks, indexes, or other 
+calculated values.  Structured notes have a fixed maturity and include two components—a bond 
+component and an embedded derivative. 
+ 
+4 
+ 
+ 
+ 
+9. The modifications introduced inappropriate bias into SBB’s model and inflated note 
+values and smoothed returns.  Since structured notes constituted more than 90% of the Private 
+Funds’ assets, the Valuation Model materially overstated the Private Funds’ net asset value 
+(“NAV”) and fund performance, and increased SBB’s fees. 
+ 
+10. To satisfy the Custody Rule,6 SBB retained RSM to audit the Private Funds’ 
+financial statements for years ended December 31, 2013, 2014, 2015, 2016, 2017, and 2018.  RSM 
+completed audits for each year from 2013 through 2017.  In each of these audited financial 
+statements distributed to investors, SBB represented that its financial statements were presented in 
+accordance with GAAP.  During each audit, SBB’s management represented to RSM that they 
+prepared the financial statements in accordance with GAAP and that their structured notes were 
+stated at fair value (e.g. in accordance with ASC 820). 
+ 
+11. RSM stated in each of the Private Fund audit reports for years ended December 31, 
+2013 through 2017 that its audits were conducted in accordance with generally accepted auditing 
+standards (“GAAS”) and opined that each of the Private Funds’ financial statements “present 
+fairly, in all material respects, the financial position of [the Private Funds] … in accordance with 
+accounting principles generally accepted in the United States of America.” 
+ 
+B. RSM’s Staffing of the Private Fund Audits 
+ 
+12. During the relevant time period through September 2016, RSM used the RSM Risk 
+Assessment Model (“MRAM”), an RSM-developed system to evaluate risk for new and continuing 
+engagements.  The MRAM considered several risk-rating factors, such as industry, financial 
+condition, governance, management, control environments, size, complexity, and international 
+reach.  The MRAM also identified potential risks of material misstatement, the need for the 
+involvement of subject matter experts, and other engagement risks.  All new and continuing 
+engagements received a MRAM “score” ranging from 1 to 7, with scores between 5 and 7 
+indicating high risk audit.  The score indicated the required level at which RSM must obtain 
+approval to accept the engagement and the required staffing for the engagement.  For example, all 
+engagements with scores of 5+ required a consultation with and approval by RSM’s National 
+Professional Standards Group (“NPSG”) Industry Leader and Financial Services Client 
+Acceptance, and Re-Evaluation Committee (“FSCAR”).  The Private Funds engagements typically 
+received risk scores of 4 or 5. 
+ 
+                                                 
+6  The Custody Rule requires, among other things, that registered investment advisers with 
+custody of client assets maintain those funds and securities with a qualified custodian, who must 
+provide account statements to investors at least quarterly, and requires client assets to be verified 
+through an annual surprise examination by an independent public accountant.  An adviser does 
+not have to comply with certain Custody Rule requirements if, in connection with a limited 
+partnership, it completes and distributes annual audited financial statements prepared in 
+accordance with GAAP to each limited partner within 120 days of the end of the partnership’s 
+fiscal year (the “Audit Exception”).  See Rule 206(4)-2(b)(4) under the Advisers Act.   
+ 
+5 
+ 
+ 
+13. During the relevant period, RSM’s National Office of Risk Management 
+(“NORM”), in consultation with RSM’s Regional Professional Practice Office, maintained a list of 
+individuals by industry and engagement risk rating who were authorized to serve as engagement 
+partners, managers, and engagement quality reviewers for particular audits.   
+ 
+14. Engagement Partner, a partner in RSM’s Financial Service Group, was assigned as 
+the engagement partner for all of RSM’s Private Fund audits.  Although Engagement Partner was 
+authorized to work on audit engagements of all risk levels, prior to the Private Fund audits, 
+Engagement Partner had no experience auditing or valuing structured notes.  In addition, the audit 
+team had virtually no experience auditing or valuing structured notes, which constituted more than 
+90% of the Private Funds’ total assets.  RSM staffing policy at the time was not designed to 
+adequately address deficiencies in the audit team’s competence and capabilities regarding 
+structured note valuation. 
+ 
+15. In planning each of the Private Fund audits, the audit team identified the valuation 
+of structured notes as a “significant risk” of a material misstatement and as involving “significant 
+accounting estimates with high estimation uncertainty.”  Under AICPA’s standards for performing 
+risk assessment procedures related to accounting estimates, auditors should, among other things, 
+obtain an understanding of how management made its accounting estimates and the data on which 
+they were based, including: (i) the methods and model used in making fair value estimates; (ii) 
+relevant controls; (iii) the assumptions underlying the fair value estimates; and (iv) whether there 
+had been any changes from the prior period in the methods or assumptions for making fair value 
+estimates.  AU-C § 540.08.7  And because the audit team identified SBB’s accounting estimates as 
+a “significant risk,” the audit team should have evaluated how SBB considered alternative 
+assumptions or outcomes and why it had rejected them and whether SBB’s assumptions were 
+reasonable.  AU-C § 540.15. 
+ 
+16. RSM’s Audit Policies, modeled after AU-C § 540.13, provided for three methods 
+of testing the fair value of an investment security when, like SBB’s approach, the fair value is 
+determined based on a model: (i) “Subsequent Events and Transaction” Approach (determining 
+whether events occurring up to the date of the auditor’s report provide audit evidence regarding the 
+fair value estimate); (ii) “Test Management’s Method” Approach (testing how management made 
+the fair value estimate, the data on which it is based, and the model’s assumptions and 
+methodology); and (iii) “Independent Estimate” Approach (developing a point estimate or range to 
+evaluate management’s point estimate). 
+ 
+C. 2013 Private Fund Audits 
+ 
+17. For the 2013 Private Fund audits, RSM used the Independent Estimate approach to 
+test the reasonableness of SBB’s fair value estimates.  The third-party valuation provider’s 
+software that RSM utilized to perform this approach, however, was only approved by RSM for 
+assets valued using “Level 1” and “Level 2” inputs, not for assets that were valued using “Level 3” 
+                                                 
+7  AU-C § 540, titled “Auditing Accounting Estimates, Including Fair Value Accounting 
+Estimates, and Related Disclosures,” addresses the auditor’s responsibilities relating to fair value 
+accounting estimates. 
+ 
+6 
+ 
+ 
+inputs, such as the structured notes owned by the Private Funds.8  SBB had mischaracterized the 
+Private Funds’ structured notes as “Level 2” in its financial statements, and the audit team, 
+including the assigned valuation specialists, did not uncover this mischaracterization, in part due to 
+the team’s inexperience with the assets and lack of understanding of SBB’s valuation techniques. 
+ 
+18. The audit team priced each SBB structured note using a third-party valuation 
+service provider’s valuation software, and compared, on a note-by-note basis and a fund basis, the 
+third party’s fair value estimate against SBB’s fair value estimate.  The audit team concluded that 
+SBB’s estimates appeared reasonable because the variance between the third-party estimate and 
+SBB’s estimate fell below RSM’s internal allowable variance threshold.   
+ 
+19. The audit team, however, failed to obtain an understanding of the inputs, methods, 
+and assumptions underlying the Valuation Model, as required by AU-C § 540.08.  No one assigned 
+to the audit had the appropriate competence and capabilities to evaluate the Valuation Model.  As 
+discussed above, SBB’s valuation policy clearly reflected that SBB was eschewing industry 
+standards and that its inputs and methodologies were inconsistent with the valuation practices of 
+market participants.  Moreover, the results of RSM’s Independent Estimate testing showed that 
+SBB’s Valuation Model consistently valued the structured notes higher than the third-party 
+valuation service provider, revealing potential inappropriate bias in the model. 
+ 
+  
+                                                 
+8 Whereas Level 2 inputs are observable, Level 3 inputs are unobservable.  Unobservable inputs 
+are inputs that reflect the reporting entity’s own assumptions about the assumptions market 
+participants would use in pricing the asset or liability developed based on the best information 
+available in the circumstances. See ASC 820. 
+ 
+7 
+ 
+ 
+D. 2014 Private Fund Audits 
+ 
+20. Like the 2013 audits, RSM began the 2014 audits using the Independent Estimate 
+approach and priced the SBB’s structured notes through the same third-party valuation service 
+provider that had been used in connection with the 2013 audits.  This time, the variance between 
+the third-party’s estimate and SBB’s estimate exceeded, on a fund level, RSM’s allowable variance 
+threshold for three of the Private Funds.  The SBB’s estimates were uniformly higher than the 
+third-party’s estimates. 
+ 
+Fund SBB Value Third-Party 
+Value 
+Variance $ Variance % RSM 
+Allowable 
+Variance 
+Threshold 
+Fund I $48,661,637 $46,060,824 $2,600,814 5.34% $858,299 
+Fund II $21,346,747 $20,058,901 $1,287,846 6.00% $311,298 
+Fund III $15,069,189 $14,353,902 $715,286 4.75% $353,023 
+ 
+21. Under RSM’s Audit Policies, unresolved valuation variances exceeding firm 
+thresholds may indicate that the financial statements are materially misstated and must be 
+documented in the work papers.  The audit team was unable to resolve the differences in valuation.  
+The audit team consulted with RSM’s NPSG, which is responsible for RSM’s audit training, for 
+preparing audit manuals and audit programs, and for providing audit guidance to engagement 
+teams.  After the consultation, the audit team switched to a Test Management’s Method approach. 
+ 
+22. Under RSM’s Test Management’s Methods approach, consistent with AU-C § 
+540.13, the auditor should evaluate whether the valuation model is appropriate, management’s 
+inputs are sufficiently reliable, and assumptions are reasonable.  To be reasonable, management’s 
+assumptions should reflect and be consistent with “what knowledgeable, willing arm’s length 
+parties (sometimes referred to as market participants or equivalent) would use in determining fair 
+value when exchanging an asset.”  AU-C § 540.A33 (emphasis in original).  The Test 
+Management’s Methods approach would also require consideration as to whether specialized skills 
+or knowledge is required in order to obtain sufficient appropriate audit evidence.  See AU-C § 
+620.07 (“If expertise in a field other than accounting or auditing is necessary to obtain sufficient 
+appropriate audit evidence, the auditor should determine whether to use the work of an auditor’s 
+specialist.”) 
+ 
+23. Here, Engagement Partner concluded that Engagement Partner lacked the 
+competence and capabilities to adequately assess the reasonableness of SBB’s Valuation Model 
+inputs and assumptions and that a valuation specialist was necessary to obtain sufficient 
+appropriate audit evidence to evaluate whether SBB’s inputs and assumptions were reasonable and 
+appropriately supported. 
+ 
+24. At the time, RSM lacked sufficient quality controls, policies, and procedures for 
+staffing internal valuation specialists on audits and lacked sufficient firm oversight to provide 
+reasonable assurance that the assigned valuation specialists possessed the necessary competence 
+and experience to render reasonableness opinions on particular products or classes of securities at 
+ 
+8 
+ 
+ 
+issue in the audit.  Instead, it was incumbent upon each individual valuation specialist to determine 
+whether he/she had the requisite competence and experience to work on a particular engagement.  
+And it was incumbent upon the audit team to find a specialist with the competencies and 
+capabilities that were necessary and appropriate in the individual engagement circumstances. 
+ 
+25. With the audit deadline 13 days away, a member of the audit team sent an email to 
+Valuation Specialist 1, who at the time was a valuation manager, asking if he had any experience 
+with structured notes, and explaining that SBB estimates fair value using pricing models that take 
+into account various terms that were laid out in the email.  Valuation Specialist 1 said that he did.  
+In documenting its satisfaction with Valuation Specialist 1’s qualifications, reputation, and 
+objectivity, the audit team stated: “He has several years of industry experience prior to joining 
+[RSM].  He has been with the firm for 10.5 years and is a manager.”  
+ 
+26. In reality, Valuation Specialist 1 had no experience with structured notes: he had 
+never valued a structured note or assessed the reasonableness of a structured note pricing model.  
+Valuation Specialist 1’s experience with options valuation was limited to assessing the 
+reasonableness of employee stock ownership plans valuations.  Valuation Specialist 1 lacked the 
+competence and capabilities to evaluate the reasonableness of SBB’s assumptions and therefore 
+could not properly assess whether the assumptions were reasonable in light of the measurement 
+objectives, such as (1) whether SBB’s assumptions were consistent with observable market 
+assumptions, (2) whether SBB incorporated market-specific inputs into the development of its 
+assumptions, (3) how SBB selected certain assumptions which deviated from the assumptions of 
+market participants, and (4) the characteristics of market participants relevant to the accounting 
+estimate.  AU-C § 540.A83-84. 
+ 
+27. Compounding Valuation Specialist 1’s lack of experience and competence on the 
+2014 Private Fund audits was the fact that Valuation Specialist 2, who was assigned to review 
+Valuation Specialist 1’s work, also had no experience valuing structured notes and had never 
+worked on an audit involving structured notes.  
+ 
+28. Valuation Specialist 1 was unfamiliar with, and in some cases misunderstood, 
+several of SBB’s valuation techniques and assumptions, which jeopardized his and the audit team’s 
+ability to assess the reasonableness of SBB’s valuation assumptions, possible inappropriate 
+management bias, the reliability of SBB’s inputs, and the appropriateness of SBB’s valuation 
+methodology.   
+ 
+29. Instead of evaluating significant inputs and assumptions, Valuation Specialist 1 and 
+the audit team focused exclusively on SBB’s volatility input, based on Valuation Specialist 1’s 
+assumption that the volatility input that would be the primary driver of the overall valuation.  
+Valuation Specialist 1 did not perform any analysis of other non-standard inputs in SBB’s model 
+that increased and smoothed returns.   
+ 
+30. Because Valuation Specialist 1 had never seen anything like SBB’s volatility 
+calculation—nor had four other RSM valuation specialists consulted on the Private Fund audits—
+Valuation Specialist 1 asked SBB for additional support for management’s atypical method of 
+ 
+9 
+ 
+ 
+calculating volatility, including academic or theoretical support for the method, but management 
+did not have any support for its method of determining volatility.   
+ 
+31. Valuation Specialist 1 and the audit team, after consultation with the NPSG and 
+managers in RSM valuation group, conducted two tests to assess the reasonableness of SBB’s 
+volatility input.  Under applicable AICPA standards, auditors should obtain sufficient appropriate 
+audit evidence to reduce audit risk to an acceptably low level and to enable the auditor to draw 
+reasonable conclusions on which to base the auditor’s opinion.  AU-C § 200.19, § 500.06.  The 
+tests failed to provide the audit team with sufficient appropriate audit evidence of the 
+reasonableness of SBB’s valuations.  Nevertheless, Valuation Specialist 1 concluded based solely 
+on the two flawed volatility tests that SBB’s “methodologies are appropriate and the assumptions 
+appear to be reasonable” and that SBB’s note valuations “are reasonable.”  Valuation Specialist 1’s 
+work was reviewed and approved by Valuation Specialist 2. 
+ 
+32. The audit team relied on Valuation Specialist 1’s assessment of the reasonableness 
+of the assumptions and the appropriateness of the methods used by SBB and their application in 
+concluding that SBB’s note valuations were reasonable. 
+ 
+E. 2015 Private Fund Audits 
+ 
+33. The audit team and Valuation Specialist 1 performed similar audit procedures to 
+assess the reasonableness of SBB’s fair value estimates for the 2015 Private Fund audits. 
+ 
+34. The audit team, in consultation with Valuation Specialist 1, again designed no audit 
+procedures to assess the reasonableness of certain significant assumptions, the reliability of certain 
+of SBB’s inputs, or the appropriateness of certain of SBB’s methods.  Like the 2014 audits, they 
+focused on testing one input, volatility, to assess the reasonableness of SBB’s fair value estimates.  
+The volatility testing suffered from the same deficiencies as in 2014. 
+ 
+35. Based on the volatility testing alone, Valuation Specialist 1 concluded that SBB’s 
+valuation methodologies and key assumptions appeared reasonable.  Valuation Specialist 1’s work 
+was reviewed and approved by Valuation Specialist 2. 
+ 
+36. Once again, Valuation Specialist 1 and the audit team failed to sufficiently 
+understand or evaluate the reasonableness of SBB’s valuation assumptions, the reliability of SBB’s 
+inputs, and the appropriateness of SBB’s methods.  Nevertheless, Valuation Specialist 1 concluded 
+that SBB’s “methodologies are appropriate and the assumptions appear to be reasonable” and that 
+SBB’s note valuations “are reasonable.” 
+ 
+37. The audit team relied on Valuation Specialist 1’s assessment of the reasonableness 
+of the assumptions and the appropriateness of the methods used by SBB and their application and 
+relied on Valuation Specialist 1’s conclusion that SBB’s note valuations were reasonable. 
+ 
+10 
+ 
+ 
+ 
+F. 2016 and 2017 Private Fund Audits 
+ 
+38. RSM, citing the SEC’s pending enforcement investigation, delayed completing the 
+2016 and 2017 Private Fund audits until May 2018.  During that time gap, RSM also became 
+aware of an SEC exam deficiency letter issued to SBB citing numerous flaws in SBB’s Valuation 
+Model, fair valuation estimates, and net asset values and fees calculated based on those estimates. 
+ 
+39. Beginning in December 2016, SBB abandoned its Valuation Model and retained a 
+third-party valuation service provider (“Provider”) to value its structured notes.  Provider generated 
+retrospective note valuations, on a monthly basis, for all structured notes held by the Private Funds 
+from January 2013 through November 2016.  Provider’s valuations were uniformly lower than 
+SBB’s valuations.  
+ 
+40. Upon receiving Provider’s valuations, RSM evaluated the materiality of SBB’s 
+revised valuations to determine whether the Private Funds’ prior financial statements were 
+materially misstated.  For nearly all of the Private Funds, the difference between Provider’s values 
+and SBB’s values exceeded RSM’s quantitative materiality thresholds.   
+ 
+41. Despite the fact that SBB’s revised note valuations resulted in reduced NAVs that 
+exceeded RSM’s quantitative materiality thresholds for nearly all the Private Funds in 2014 and 
+2015, RSM concluded that restatement of prior periods was unnecessary.   
+ 
+G. RSM Resigns and Recalls its Prior Private Fund Audit Reports 
+ 
+42. On April 12, 2019, weeks before the close of the 2018 Private Fund audits, RSM 
+resigned as the Private Funds’ auditor and recalled its 2013 through 2017 Private Fund audit 
+reports.  RSM, citing multiple inconsistencies between (i) what SBB’s management communicated 
+to RSM during prior audits, and (ii) documents and testimony management provided to the SEC in 
+connection with an enforcement investigation, concluded that it could “no longer rely on 
+management representations” and resigned as the Private Funds’ auditor.  Specifically, 
+ 
+ SBB witnesses testified that they believed they had communicated to RSM the 
+criticisms the SEC’s exam staff raised with SBB’s proprietary model in a timely 
+manner.  RSM claimed this was not accurate.  SBB did not disclose the exam 
+staff’s (1) October 2014 concerns or (2) March 2016 deficiency letter until 
+December 2016.   
+ 
+ SBB was providing different sets of performance figures to existing and potential 
+investors during the same time period in which SBB represented to RSM that SBB 
+“had not implemented another [valuation] model.” 
+ 
+ SBB’s model was not designed to be GAAP compliant or reflect an exit price for 
+the structured notes. 
+ 
+ 
+11 
+ 
+ 
+ SBB never disclosed to RSM that at least two different consulting firms expressed 
+significant concerns about the reasonableness of SBB’s proprietary model.  The two 
+consulting firms shared several of the concerns expressed by the SEC exam team to 
+SBB in October 2014.  This is further evidence that SBB knew its model was not 
+GAAP-compliant, contrary to SBB’s representations to RSM. 
+ 
+43. Because RSM could no longer rely on management representations, it recalled all 
+of the audit reports it prepared for SBB and the Private Funds. 
+ 
+RSM’s VIOLATIONS OF PROFESSIONAL STANDARDS 
+ 
+44. The American Institute of Certified Public Accountants (“AICPA”) established 
+Quality Control standards for public accounting firms’ accounting and auditing practice.  QC § 10.  
+A system of quality control consists of policies designed to achieve the following objectives and 
+the procedures necessary to implement and monitor compliance with those policies.  QC § 10.04.  
+The objective of a public accounting firm is to establish and maintain a system of quality control to 
+provide it with reasonable assurance that (1) the firm and its personnel comply with professional 
+standards and applicable legal and regulatory requirements and (2) reports issued by the firm are 
+appropriate in the circumstances.  QC § 10.12.  In relevant part, a firm should establish policies and 
+procedures requiring that the engagement partner has the appropriate competence and capabilities 
+to perform the role.  QC § 10.33.  In addition, a firm should establish policies and procedures for 
+the acceptance and continuance of client relationships and specific engagements, designed to 
+provide the firm with reasonable assurance that the firm will undertake engagements only where, 
+among other things, it is competent to perform the engagement and has the capabilities, including 
+time and resources, to do so.  QC § 10.27.  A firm should also establish policies and procedures to 
+assign appropriate personnel with the necessary competence and capabilities to perform 
+engagements in accordance with professional standards and applicable legal and regulatory 
+requirements and to enable the firm to issue reports that are appropriate in the circumstances.  
+QC § 10.34.  This includes consideration of the team’s technical knowledge and experience.  
+QC § 10.A31.  As a result of the conduct described above, RSM failed to meet the standards that 
+required competence and proficiency in client acceptance and continuance, staffing, and 
+supervision on the Private Fund audits. 
+VIOLATIONS 
+45. Rule 102(e)(1)(ii) of the Commission’s Rules of Practice provides that the 
+Commission may censure a person or deny a person the privilege of appearing or practicing before 
+the Commission, if it finds that such person has engaged in improper professional conduct.  
+Improper professional conduct includes either of the following two types of negligent conduct: (i)   
+a single instance of highly unreasonable conduct that results in a violation of applicable 
+professional standards in circumstances in which an accountant knows, or should know, that 
+heightened scrutiny is warranted; or (ii) repeated instances of unreasonable conduct, each resulting 
+in violations of applicable professional standards, that indicate a lack of competence to practice 
+before the Commission.  Rule 102(e)(1)(iv)(B)(1) and (2).  RSM engaged in improper professional 
+conduct as defined in Rule 102(e)(1)(iv). 
+ 
+12 
+ 
+ 
+FINDINGS 
+ 
+46. Based on the foregoing, the Commission finds that RSM engaged in improper 
+professional conduct within the meaning of Exchange Act Section 4(C)(a)(2) and Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice. 
+ 
+RSM’s REMEDIAL EFFORTS 
+ 
+47. In determining to accept the Offer, the Commission considered remedial efforts 
+undertaken by RSM to review and evaluate the sufficiency and adequacy of RSM’s quality 
+controls and policies and procedures regarding: (1) client acceptance / risk evaluation; (2) rating 
+and assignment of specialists; (3) auditor oversight of specialists, including planning, 
+communication, and documentation; (4) valuation training; and (5) exercise of professional due 
+care relating to audits of fair value measurements and disclosure of financial and non-financial 
+assets.  In particular, RSM (i) performed an internal review and evaluation of the sufficiency and 
+adequacy of certain quality controls, policies, and procedures for audits of private funds within its 
+financial services practice, (ii) made certain enhancements to its quality controls, policies, and 
+procedures, including enhancements that have been implemented since April 2016, and (iii) 
+proposed additional initiatives (collectively, the “RSM Enhancements”).  The undertakings set 
+forth below are designed to test the effectiveness, post-implementation, of the RSM Enhancements 
+and to ensure that RSM’s quality controls, including the RSM Enhancements, are designed to 
+provide reasonable assurance of compliance with Commission regulations and PCAOB standards 
+and rules. 
+ 
+UNDERTAKINGS 
+ 
+48. Respondent RSM undertakes to complete the following actions:  
+ 
+1. Notification. RSM shall provide all audit personnel a copy of this Order within 
+ten (10) business days after entry of the Order.  
+ 
+2. RSM Policies Report and Validation Plan. 
+ 
+Within one hundred eighty (180) days after the entry of this Order, RSM shall 
+submit to the Commission staff a report (the “RSM Policies Report”) describing 
+in reasonable detail its quality controls set forth in its audit manual and audit- 
+and quality-related guidance and policies, relating to its policies and procedures 
+set forth therein for RSM’s quality controls and its audit and interim review 
+procedures regarding the subject areas specified below (hereinafter referred to 
+as “Specified RSM Policies”).  The RSM Policies Report shall also describe in 
+reasonable detail RSM’s methodology and work plan, including the internal 
+quality inspection processes administered by RSM, to review, test, and assess 
+whether the Specified RSM Policies are designed to provide reasonable 
+assurance of compliance with Commission regulations and PCAOB standards 
+and rules (the “Validation Plan”).  The Commission staff may make reasonable 
+requests for further evidence of the quality controls and validation plan set forth 
+ 
+13 
+ 
+ 
+in the RSM Policies Report and Validation Plan, and RSM agrees to provide 
+such evidence.  The Validation Plan, not unacceptable to the Commission staff, 
+shall describe RSM’s review, testing, and assessment of the following Specified 
+RSM Policies: 
+  
+a. Staffing evaluation and decision-making as part of the client acceptance and 
+continuance process for audits of SEC registrants and private funds within 
+RSM’s Financial Services Practice, including policies and procedures 
+designed to provide reasonable assurance that (i) the engagement partner 
+has the competence and capabilities to perform the role based on the nature 
+of the client engagement (e.g., industry, balance sheet items/asset classes, 
+significant risks), and (ii) such engagements are staffed with appropriate 
+personnel with the necessary competence and capabilities to perform the 
+engagements; 
+ 
+b. Identification of the need for assignment and the actual assignment of 
+valuation specialists to engagements for audits of SEC registrants and 
+private funds within RSM’s Financial Services Practice, including policies 
+and procedures designed to provide reasonable assurance that assigned 
+valuation specialists have the necessary competence, capabilities, technical 
+knowledge, and experience to perform such engagements; and 
+ 
+c. Professional education in engagement staffing and in working with, and 
+reviewing and evaluating the work of, such valuation specialists. 
+ 
+3. Validation Report and Certification.    
+  
+a. Validation Report.  Within two hundred seventy (270) days after the 
+issuance of the RSM Policies Report and Validation Plan, RSM shall 
+submit to the Commission staff a written report setting forth a description of 
+the testing, analysis, and results of its Validation Plan (“Validation 
+Report”).  In particular, the Validation Report shall describe (i) the results of 
+the processes identified in Paragraph 48.2 as they relate to the Specified 
+RSM Policies identified in the RSM Policies Report, (ii) any deficiencies 
+involving the Specified RSM Policies identified as a result of such 
+processes, and (iii) any remedial actions taken in response thereto.    
+ 
+b. Validation Certification.  The Validation Report shall include a certification 
+executed by RSM’s (i) Chief Risk Officer and (ii) National Audit Leader 
+that the Specified RSM Policies are designed to provide reasonable 
+assurance of compliance with Commission regulations and PCAOB 
+standards and rules, and if significant deficiencies in the design or operation 
+of the Specified RSM Policies are identified, shall report such significant 
+deficiencies to the Commission staff (“Validation Certification”).  The 
+Commission staff may make reasonable requests for further evidence of 
+compliance, including the testing results, and RSM agrees to provide such 
+ 
+14 
+ 
+ 
+evidence.  If RSM identifies significant deficiencies that are not remediated 
+as of the date of the Validation Report and Certification (“Unremediated 
+Specified Policies”), RSM shall state that it cannot certify compliance as to 
+those Unremediated Specified Policies but shall otherwise certify 
+compliance as to all other Specified RSM Policies.  If RSM can certify 
+compliance as to all Specified RSM Policies, then no further validation or 
+certification is necessary pursuant to these Undertakings provided that there 
+are no objections from the Commission staff within ninety (90) days of 
+receipt of the Validation Certification.    
+  
+4. Remediation Plan.  In the event that RSM cannot certify compliance pursuant to 
+Paragraph 48.3.b above as to all Specified RSM Policies, then, within ninety 
+(90) days after the issuance of the Validation Report and Certification, RSM 
+shall submit to the Commission staff a plan not unacceptable to the 
+Commission staff: (a) to review, test, and assess, where applicable, including 
+through the internal quality inspection processes administered by RSM, whether 
+the Unremediated Specified Policies are designed to provide reasonable 
+assurance of compliance with Commission regulations and PCAOB standards 
+and rules; and (b) a remediation plan that contains a schedule of remedial 
+measures to correct the Unremediated Specified Policies (collectively, the 
+“Remediation Plan”).  
+  
+5. Remediation Report and Certification.    
+  
+a. Remediation Report.  Within two hundred seventy (270) days after the 
+issuance of the Remediation Plan (if one is required under Paragraph 48.4), 
+RSM shall submit to the Commission staff a written report setting forth a 
+complete description of the testing, analysis, and results, where applicable, 
+of its Remediation Plan (“Remediation Report”).  In particular, the 
+Remediation Report shall describe (i) the results of the processes identified 
+in Paragraph 48.4 as they relate to the Unremediated Specified Policies 
+identified in the RSM Policies Report, and (ii) any remedial actions taken in 
+response thereto.    
+  
+b. Remediation Certification.  The Remediation Report shall include a 
+certification executed by RSM’s (i) Chief Risk Officer and (ii) National 
+Audit Leader that, as of the date of the Remediation Report, the 
+Unremediated Specified Policies are designed to provide reasonable 
+assurance of compliance with Commission regulations and PCAOB 
+standards and rules, and if significant deficiencies in the design or operation 
+of the Unremediated Specified Policies are identified, shall report such 
+significant deficiencies to the Commission staff (“Remediation 
+Certification”). The Commission staff may make reasonable requests for 
+further evidence of compliance, including the testing results, where 
+applicable, and RSM agrees to provide such evidence.  If RSM identifies 
+significant deficiencies that are not remediated as of the date of the 
+ 
+15 
+ 
+ 
+Remediation Report and Certification, RSM shall state that it cannot certify 
+compliance.  If RSM can certify compliance, then no further validation or 
+certification is necessary pursuant to these Undertakings, provided that there 
+are no objections from the Commission staff within ninety (90) days of 
+receipt of the Remediation Certification.    
+  
+6. Subsequent Remediation Plans, Reports, and Certifications.  In the event that 
+RSM cannot certify compliance pursuant to Paragraph 48.5.b above, RSM shall 
+repeat the undertakings described in Paragraphs 48.4 and 48.5 annually until 
+such time that no Unremediated Specified Policies are identified.  
+  
+7. Internal Team Leader.  RSM shall appoint an Internal Team Leader (“ITL”) 
+knowledgeable and experienced in U.S. GAAP, Commission regulations, and 
+PCAOB standards and rules not unacceptable to Commission staff to oversee 
+these undertakings.  The ITL, or his/her successor as approved the SEC staff, 
+shall continue in this role until all undertakings have been deemed satisfied by 
+the Commission staff.  The ITL shall have overall responsibility for the 
+planning and scope of all Validation Plans.  The ITL also shall have overall 
+responsibility for developing the methodology for the selection of RSM 
+controls subject to review not unacceptable to Commission staff.  The ITL shall 
+also oversee testing.  The ITL shall engage RSM professionals with appropriate 
+experience, and outside consultants or third-party support, if needed, to develop 
+the Validation Plans and to perform all reviews, testing, and preparation of all 
+reports described in these undertakings.  The ITL shall oversee the preparation 
+of all reports submitted to the Commission staff.  RSM shall provide the ITL 
+with staffing and other resources as necessary to accomplish these undertakings 
+in a timely manner.  RSM shall not obstruct the ITL in the execution of his or 
+her duties during the course of these undertakings.   
+  
+8. Submissions to the Commission Staff.  The Commission staff may request 
+access to documents, internal review and PCAOB inspection materials, training 
+materials, RSM personnel, and/or meetings with RSM, within thirty (30) days 
+of receipt of any Report, Plan, or Certification.  Within fifteen (15) days of 
+receipt of the above requested information or meetings, the Commission staff 
+may submit to RSM any questions regarding the Reports, Plans, or 
+Certifications, and RSM agrees to address all such questions   Unless otherwise 
+directed by the Commission staff, all Reports, Plans, Certifications, and other 
+documents required to be provided to the Commission staff shall be sent to 
+Jeffrey A. Shank, Assistant Regional Director, Securities and Exchange 
+Commission, 175 W. Jackson Blvd., Suite 1450, Chicago, IL 60604, or such 
+other address as the Commission may provide, with a copy to the Office of 
+Chief Counsel of the Enforcement Division (the “Designees”).  RSM will make 
+all Reports, Plans, and Certifications available to PCAOB staff upon request.  
+All such Reports, Plans, Certifications, and other documents provided to the 
+Commission staff pursuant to these undertakings likely will include proprietary, 
+financial, confidential, and competitive business information.  Public disclosure 
+ 
+16 
+ 
+ 
+of the reports could discourage cooperation, impede pending or potential 
+government investigations or undermine the objectives of the reporting 
+requirement.  For these reasons, among others, the Reports, Plans, 
+Certifications, and other documents, and the contents thereof, are intended to 
+remain and shall remain non-public, except (a) pursuant to court order, (b) as 
+agreed by the parties in writing, (c) to the extent that the Commission staff 
+determines in its sole discretion that disclosure is required in furtherance of the 
+Commission’s discharge of its duties and responsibilities, or (d) is otherwise 
+required by law.    
+  
+9. Satisfaction of Undertakings.  Unless otherwise notified by the Division of 
+Enforcement, these undertakings are deemed satisfied ninety (90) days after 
+RSM’s submission of a certification of compliance pursuant to Paragraphs 
+48.3.b, 48.5.b, or 48.6.  
+  
+10. Recordkeeping.  RSM shall preserve and retain all documentation regarding all 
+certifications and reports for seven (7) years and will make it available to the 
+staffs of the Commission or the PCAOB upon request.  
+  
+11. Deadlines.  For good cause shown, the Commission staff may in its sole 
+discretion extend any of the procedural dates relating to the undertakings.  
+Deadlines for procedural dates shall be counted in calendar days, unless 
+otherwise specified.  If the last calendar day falls on a weekend or a federal 
+holiday, the next business day shall be considered to be the last day.  
+ 
+12. Petition to Reopen Matter.  In determining whether to accept RSM’s Offer, the 
+Commission has considered these undertakings.  RSM agrees that if the 
+Division of Enforcement believes that RSM has not satisfied these 
+undertakings, it may petition the Commission to reopen the matter to determine 
+whether additional sanctions are appropriate. 
+ 
+49. Cooperation with the Commission’s Investigation and Related Litigations.  RSM 
+(including its partners, principals, officers, agents, and employees) shall cooperate fully with the 
+Commission in any and all investigations, litigations, administrative and other proceedings 
+commenced by the Commission or to which the Commission is a party relating to or arising from 
+the matters described in this Order.  In connection with such investigation, litigation, 
+administrative or other proceedings, RSM: (i) agrees to appear and be interviewed by Commission 
+staff at such times and places as the staff requests upon reasonable notice; (ii) will accept service 
+by mail, facsimile transmission, or email of notices or subpoenas issued by the Commission for 
+documents or testimony at depositions, hearing, or trials, or in connection with any related 
+investigation by Commission staff; (iii) appoints counsel Christopher Kearney of Keker Van Nest 
+& Peters, as agent to receive service of such notices and subpoenas; (iv) with respect to such 
+notices and subpoenas, waives the territorial limits on service contained in Rule 45 of the Federal 
+Rules of Civil Procedures and any applicable local rules, provided that the party requesting the 
+testimony reimburses RSM’s travel, lodging, and subsistence expenses at the then-prevailing U.S. 
+Government per diem rates; and (v) consents to personal jurisdiction over RSM in any United 
+ 
+17 
+ 
+ 
+States District Court for purposes of enforcing any such subpoena.  The foregoing obligations are 
+subject to RSM’s reservation of rights (i) to claim that documents or information requested are 
+subject to appropriate and applicable evidentiary objections and privileges, including the attorney-
+client privilege, attorney work product protection, or other applicable privileges or protections, and 
+(ii) to seek entry of a confidentiality order as to sensitive business documents or information, 
+sensitive personnel documents or information, or other confidential information (including 
+information pertaining to clients other than the client identified in this Order). 
+ 
+50. In determining whether to accept RSM’s Offer, the Commission has considered the 
+undertakings in Paragraphs 48 and 49. 
+ 
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent RSM’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that:  
+ 
+A. RSM is censured; and  
+ 
+B. RSM shall comply with the undertakings enumerated in paragraph 48 above. 
+ 
+ 
+By the Commission. 
+ 
+ 
+ 
+      Vanessa A. Countryman 
+Secretary  
+ 

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+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88303 / February 28, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 4118 / February 28, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19718 
+ 
+ 
+ 
+In the Matter of 
+ 
+Cardinal Health, Inc. 
+ 
+Respondent. 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND- 
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE- 
+AND-DESIST ORDER 
+ 
+I. 
+ 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Cardinal Health, Inc. (“Cardinal” or 
+“Respondent”). 
+ 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
+Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. 
+ 
+2 
+ 
+III. 
+ 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+ 
+Summary 
+ 
+1.  These proceedings arise out of Cardinal’s violations of the internal accounting 
+controls and recordkeeping provisions of the Foreign Corrupt Practices Act of 1977 (the 
+“FCPA”) through the operations of its former subsidiary in China. 
+ 
+2.  In November 2010, Cardinal entered the Chinese market by acquiring the 
+Chinese subsidiaries of an established pharmaceutical distribution company.  Cardinal 
+rebranded the acquired entities as “Cardinal China” after the acquisition.  Prior to the 
+acquisition, the pharmaceutical distribution company had longstanding distribution agreements 
+with a number of global manufacturers of prescription medications, medical devices, and 
+consumer health products. 
+ 
+3.  In addition to its role as a distributor for the products sold by its business partners, 
+Cardinal China also operated and maintained on its own books, financial accounts that certain 
+distribution customers used to fund their operations and marketing efforts in China.  These 
+accounts largely consisted of excess distribution margin that Cardinal China  generated from 
+distributing customers’ products, and Cardinal China was obligated to return these funds to the 
+customers in accordance with its contractual agreements.  Cardinal China authorized and made 
+payments from these marketing accounts  as directed by the employees of its  distribution 
+customers. 
+ 
+4.  After it was acquired by Cardinal, Cardinal China terminated most of the 
+marketing accounts due in part to known FCPA-related compliance risks associated with 
+channeling the marketing expenses of third parties through its own books and records.  But 
+despite these risks, until 2016, Cardinal China maintained and operated marketing accounts 
+for a European supplier of non-prescription, over-the-counter dermocosmetic products for 
+which Cardinal China served as the exclusive product distributor in China. 
+ 
+5.  In addition to maintaining and operating marketing accounts for the 
+dermocosmetic company, Cardinal China also formally employed approximately 2,400 
+employees for the dermocosmetic company pursuant to an administrative and HR services 
+agreement.  The 2,400 employees reported to the dermocosmetic company, and while Cardinal 
+China administratively managed the employees pursuant to its contractual agreement, it did not 
+supervise their day-to-day activities.  Most of these employees were beauty assistants and 
+supervisors, who worked in retail stores and interacted with individual consumers.  The remaining 
+approximately 100 employees were sales, marketing, management, and back office employees.  
+The sales and marketing employees were responsible for marketing and selling the 
+                                                      
+1 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other person 
+or entity in this or any other proceeding. 
+ 
+3 
+dermocosmetic company’s products in China, and regularly drew down funds from the marketing 
+accounts to pay third parties for marketing-related expenses. 
+ 
+6.  Although Cardinal determined that other marketing accounts should be 
+terminated because of their significant FCPA-related compliance risks, Cardinal 
+inaccurately assessed the risks of the arrangements with the dermocosmetic company as 
+minimal.  Cardinal thus did not apply its full internal accounting controls to these accounts, or 
+to the conduct of the marketing employees Cardinal China employed for the company.  
+Cardinal China regularly authorized and made payments from the marketing accounts at the 
+direction of the dermocosmetic company without controls sufficient to provide reasonable 
+assurance that the transactions were executed in accordance with management’s general or 
+specific authorization, and failed accurately to record on its books and records payments made 
+from the accounts.  
+ 
+7.  In 2016, Cardinal China learned that the marketing employees and the 
+dermocosmetic company had hidden the purpose of certain purported marketing payments, 
+which were redirected to healthcare professionals who provided marketing services to the 
+dermocosmetic company, and to other employees of state-owned retail entities who had 
+influence over purchasing decisions related to the dermocosmetic company’s products.  Upon 
+learning of the misconduct, Cardinal and Cardinal China took action to cease these payments in 
+2016. 
+ 
+8.  Cardinal benefitted from its arrangement with the dermocosmetic company. 
+As the company’s exclusive distributor in China, Cardinal China directly profited from the 
+distribution, administrative, and HR services it provided to the dermocosmetic company, and 
+Cardinal was unjustly enriched by approximately $5,400,000 between March 1, 2013, and 
+December 31, 2016, as a result of its deficient internal accounting controls relating to the 
+marketing accounts.  
+ 
+Respondent 
+ 
+9.  Cardinal is a global, integrated healthcare services and products company, 
+incorporated and headquartered in Ohio, specializing in the distribution of pharmaceuticals and 
+other medical products.  Cardinal’s common stock is registered with the Commission pursuant to 
+Section 12(b) of the Exchange Act, and trades on the New York Stock Exchange.  Cardinal 
+operates in forty-six countries and has over 50,000 employees worldwide. 
+ 
+10. Between November 2010 and February 2018, Cardinal China was owned and 
+controlled by Cardinal, and distributed pharmaceuticals, medical devices, and consumer health 
+products into the Chinese market.  Cardinal China’s books and records were consolidated into 
+Cardinal’s financial statements. 
+ 
+ 
+ 
+ 
+ 
+4 
+Facts 
+ 
+Cardinal China Failed to Implement Sufficient Controls Over Marketing Accounts it 
+Administered and Marketing Employees that it Hired on Behalf of a Customer 
+ 
+11. Between 2010 and 2016, Cardinal China acted as the exclusive distributor in the 
+Chinese market for a large European dermocosmetic company.  As part of its commercial 
+agreement with the company, Cardinal China administered marketing accounts on the 
+company’s behalf.  As part of an administrative and HR service agreement with the 
+dermocosmetic company, Cardinal Health also retained approximately 2,400 employees on the 
+company’s behalf.  Most of these employees were beauty assistants and supervisors, who worked 
+in retail stores and interacted with individual consumers.  The remaining approximately 100 
+employees were sales, marketing, management and back office employees.  The sales and 
+marketing employees were responsible for promoting the sale of the dermocosmetic company’s 
+products and interacted with employees of state-owned hospitals and retailers.    
+ 
+12. Although the marketing employees were managed day-to-day by, and reported to 
+the dermocosmetic company, Cardinal China entered into employment contracts with the 
+marketing employees, administered their payroll, and assumed other human resource and 
+administrative functions for them.  Because Cardinal China received a distribution margin 
+from the sales of the dermocosmetic company’s products, Cardinal China profited from the 
+marketing employees’ successful marketing efforts, including through improper payments made 
+from the marketing accounts. 
+ 
+13. Despite these facts, Cardinal assessed the risk of the arrangements with the 
+dermocosmetic company as minimal, and as a result, Cardinal China did not subject the 
+marketing employees, who it employed on behalf of the dermocosmetic company, to its full 
+internal accounting controls, such as providing FCPA and anti-bribery training, or providing any 
+oversight of their interactions with third parties in China.  In addition, as Cardinal China knew 
+from its business arrangement with the dermocosmetic company, a large portion of the marketing 
+employees conducted some of their business using e-mail accounts and computer systems that 
+belonged to the dermocosmetic company and were inaccessible to Cardinal’s and Cardinal 
+China’s compliance personnel, and Cardinal China had no ability to review the full scope of the 
+marketing employees’ activities.   
+ 
+14. From at least March 2013 through December 2016, Cardinal failed to apply 
+sufficient internal accounting controls to the marketing employees and the marketing accounts.  
+For example, Cardinal China executed payments requested by the marketing employees without 
+requiring sufficient supporting documentation to verify the purpose of the transactions.  Over the 
+four-year period from 2013 through 2016, Cardinal China authorized and paid more than $250 
+million from the marketing accounts, but had insufficient policies and procedures in place 
+concerning the payments. 
+ 
+15. Without the authorization of Cardinal’s management, Cardinal China, at the 
+request of the marketing employees, regularly made payments from the marketing accounts that 
+were improperly redirected to government-employed healthcare providers and employees of 
+Chinese state-owned retailers to promote the sale of the dermocosmetic company’s products.  
+ 
+5 
+The improper payments took varied forms, including cash, luxury goods, gift cards, and travel. 
+ 
+16. Due to Cardinal’s insufficient internal accounting controls, the marketing 
+employees were able to easily disguise these payments by channeling funds through complicit 
+third-party vendors and by characterizing transactions with healthcare providers as payments to 
+printing companies for “production fees,” and they were also reimbursed for high-value gifts 
+based on falsified or incomplete documentation. 
+ 
+Cardinal Did Not Properly Evaluate Red Flags and Failed to Resolve Known 
+Internal Control Deficiencies 
+ 
+17. At the time that it operated the marketing accounts on behalf of the 
+dermocosmetic company, Cardinal and Cardinal China were aware of the compliance risks posed 
+by marketing accounts in China.   
+ 
+18. Shortly after it acquired Cardinal China in November 2010, Cardinal determined 
+that Cardinal China’s practice of administering marketing accounts for its suppliers created 
+excessive FCPA-compliance risks because the accounts could be used by suppliers to facilitate 
+surreptitious payments to government officials without Cardinal China’s knowledge.  By July 
+2011, Cardinal directed Cardinal China to wind down all of its pharmaceutical marketing 
+accounts due to these risks.  Nevertheless, Cardinal China continued to administer marketing 
+accounts for certain large suppliers for several years.  
+ 
+19. After it was acquired by Cardinal, on at least two occasions, Cardinal China 
+abruptly terminated third-party marketing accounts amid allegations that they had been used 
+to facilitate improper payments: 
+   Cardinal China terminated a marketing account it administered for an 
+Italian pharmaceutical manufacturer after receiving an internal report in 2012 
+that Chinese authorities had fined the Chinese subsidiary of the Italian 
+pharmaceutical manufacturer for violating China’s Pharmaceutical 
+Administration Law by providing certain benefits to hospitals. 
+ 
+   Cardinal China terminated a marketing account it administered for a U.K.-
+based pharmaceutical manufacturer after Cardinal’s CEO received an internal 
+report in 2013 alleging that Cardinal China employees were using the account 
+to bribe employees of China’s Center for Disease Control. 
+ 
+20. Despite these events, Cardinal failed to assess whether Cardinal China followed its 
+instruction to wind down the pharmaceutical marketing accounts, or implement stricter controls to 
+reduce the compliance risks for the marketing accounts that it administered for the dermocosmetic 
+company. 
+ 
+21. In December 2012, Cardinal received a report from a Cardinal China employee 
+raising questions about the legality of the marketing accounts and the marketing employees.  The 
+report recommended that Cardinal China hire an external auditor to assess its business 
+arrangement with the dermocosmetic company.  In response to the 2012 report, neither Cardinal 
+ 
+6 
+nor Cardinal China took sufficient steps to enhance their compliance practices concerning the 
+marketing accounts or the marketing employees. 
+ 
+22. In September 2014, Cardinal China was fined by the Shanghai Administration of 
+Industry and Commerce (“AIC”) for providing luxury dermocosmetic products to employees of a 
+Chinese retailer equal to a percentage of the retailer’s sales of the dermocosmetic company’s 
+products.  The AIC found that Cardinal China had provided a “secret commission” to employees 
+of the retailer in violation of Chinese unfair competition law.  Cardinal China had engaged in the 
+practice at the request of the dermocosmetic company, and the products were funded by the 
+marketing accounts that Cardinal China administered on behalf of the dermocosmetic company.  
+Cardinal and Cardinal China, again, failed to sufficiently enhance the supervision of the 
+marketing employees and oversight of the marketing accounts. 
+ 
+23. In July 2015, after discovering that the marketing employees had recently used 
+the marketing accounts to purchase smart phones for undisclosed reasons, Cardinal China’s Vice 
+President of Compliance emailed a colleague, copying Cardinal China’s President, 
+acknowledging that the dermocosmetic company was unlikely to allow Cardinal China to 
+implement its standard compliance protocols to the marketing employees, and observing that this 
+gap in controls had created an “enormous compliance risk” for Cardinal China.  Another Cardinal 
+China employee highlighted that, “This is a big exposure indeed as we have no control [over] 
+how [the marketing employees] may be gifting and spending on entertaining.”  Neither Cardinal 
+nor Cardinal China took steps to enhance the controls associated with the marketing account or 
+marketing employees until 2016. 
+ 
+24. As a result of the conduct described above, Cardinal violated Sections 13(b)(2)(A) 
+and 13(b)(2)(B) of the Exchange Act.  Cardinal violated Section 13(b)(2)(A), which requires 
+every issuer with a class of securities registered pursuant to Exchange Act Section 12 to make and 
+keep books, records and accounts, which, in reasonable detail, accurately and fairly reflect the 
+transactions and disposition of the assets of the issuer.  Cardinal also violated Section 13(b)(2)(B) 
+of the Exchange Act, which requires every issuer with a class of securities registered pursuant 
+to Exchange Act Section 12 to devise and maintain a system of internal accounting controls 
+sufficient to provide reasonable assurances that (i) transactions are executed in accordance with 
+management’s general or specific authorization; (ii) transactions are recorded as necessary (I) 
+to permit preparation of financial statements in conformity with generally accepted accounting 
+principles or any other criteria applicable to such statements, and (II) to maintain accountability 
+for assets; (iii) access to assets is permitted only in accordance with management’s general or 
+specific authorization; and (iv) the recorded accountability for assets is compared with the 
+existing assets at reasonable intervals and appropriate action is taken with respect to any 
+differences.   
+ 
+25. Cardinal China directly profited from the distribution, administrative, and HR 
+services it provided to the dermocosmetic company, and Cardinal was unjustly enriched by 
+approximately $5,400,000 between March 1, 2013, and December 31, 2016. 
+ 
+ 
+ 
+ 
+7 
+Cardinal’s Self-Disclosure, Cooperation, and Remedial Efforts 
+ 
+26. In determining to accept the Offer, the Commission considered Cardinal’s 
+self-disclosure, cooperation, and remedial efforts.   
+ 
+27. In May to June 2016, Cardinal China compliance conducted an audit of the 
+marketing account’s expenses, which identified evidence that payments from the marketing 
+accounts did not comply with Cardinal China’s compliance policy requirements.  Also, in 
+June 2016, Cardinal executives in the United States received an internal report stating that 
+the marketing employees were using the marketing accounts to channel payments to 
+government officials in China. 
+ 
+28. In December 2016, Cardinal voluntarily disclosed the results of its 
+investigation to the Commission staff and subsequently cooperated with its investigation.  
+ 
+29. Cardinal China also undertook significant remedial measures, including 
+terminating the marketing accounts and its employment contracts with the marketing 
+employees, adding anti-bribery representations and obligations to the relevant contracts, and 
+strictly limiting the use of the remaining balance of the dermocosmetic company’s funds to 
+low-risk expenses, such as salary payments, with robust controls and monitoring from 
+Cardinal China’s legal and compliance personnel.  
+ 
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Cardinal’s Offer. 
+ 
+Accordingly, it is hereby ORDERED that: 
+ 
+A.  Pursuant to Section 21C of the Exchange Act, Respondent Cardinal cease and 
+desist from committing or causing any violations and any future violations of Sections 13(b)(2)(A) 
+and 13(b)(2)(B) of the Exchange Act. 
+ 
+B.  Respondent Cardinal shall, within ten days of the entry of this Order, pay 
+disgorgement of $5,400,000 and prejudgment interest of $916,887 to the Securities and Exchange 
+Commission for transfer to the general fund of the United States Treasury, subject to Exchange 
+Act Section 21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to 
+SEC Rule of Practice 600. 
+ 
+C.  Respondent Cardinal shall, within ten days of the entry of this Order, pay a civil 
+money penalty in the amount of $2,500,000 to the Securities and Exchange Commission for 
+transfer to the general fund of the United States Treasury, subject to Exchange Act Section 
+21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant to 31 U.S.C. 
+§ 3717. 
+ 
+Payment must be made in one of the following ways: 
+ 
+8 
+ 
+(1) Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request; 
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; 
+or 
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to: 
+ 
+Enterprise Services Center         
+Accounts Receivable Branch       
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Cardinal Health, Inc. as a Respondent in these proceedings, and the file number of these 
+proceedings; a copy of the cover letter and check or money order must be sent to Anita Bandy, 
+Associate Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., 
+NE, Washington, DC 20549. 
+ 
+D.  Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
+be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such 
+a Penalty Offset, Respondent agrees that it shall, within thirty days after entry of a final order 
+granting the Penalty Offset, notify the Commission’s counsel in this action and pay the amount 
+of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
+deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
+penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action" 
+means a private damages action brought against Respondent by or on behalf of one or more 
+investors based on substantially the same facts as alleged in the Order instituted by the 
+Commission in this proceeding. 
+ 
+By the Commission. 
+ 
+ 
+Vanessa A. Countryman  
+Secretary 

raw/aaer/2020/AAER-4119.txt

@@ -0,0 +1,114 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88377 / March 12, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4119 / March 12, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19729 
+ 
+In the Matter of 
+ 
+DAVID G. DRESLIN, CPA,  
+Respondent. 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+ PURSUANT TO RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+ 
+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 David 
+G. Dreslin (“Respondent” or “Dreslin”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules 
+of Practice.1   
+ 
+ 
+ 
+ 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.3 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 
+102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that: 
+ 
+ 1. Dreslin resides in Seminole, Florida and holds an active certified public 
+accountant license in Florida.  Dreslin provides tax preparation and accounting services for 
+individuals and small businesses.  
+ 
+ 2. Anglesea Enterprises, Inc. (“Anglesea Enterprises”) was incorporated in Nevada 
+in 2011 and had its principal place of business in Tampa, Florida. It was sold in a reverse merger 
+in June 2014, after which, it changed its name.  Anglesea’s common stock was registered with 
+the SEC in 2013 pursuant to Section 12(g) of the Securities Exchange Act of 1934 (“Exchange 
+Act”). 
+ 
+3. On March 3, 2020, the District Court entered Final Judgment against Dreslin, 
+permanently enjoining him from future violations of Section 17(a) of the Securities Act of 1933 
+and Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-2 thereunder, and from aiding 
+and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, and 
+13a-13 thereunder, in the civil action entitled Securities and Exchange Commission v. David G. 
+Dreslin, et al., Civil Action Number 18-cv-02934, in the United States District Court for the 
+Middle District of Florida.  The Final Judgment also barred Dreslin from serving as officer and 
+director of any issuer that has a class of securities registered pursuant to Section 12 of the 
+Exchange Act or that is required to file reports pursuant to Section 15(d) of the Exchange Act, 
+barred him from participating in any offering of a penny stock, and ordered him to pay $183,438 in 
+disgorgement, $30,197 of prejudgment interest, and a $160,000 civil money penalty. 
+   
+ 4. The Commission’s Complaint alleged, among other things, that Dreslin and 
+others, carried out a fraudulent scheme to form Anglesea Enterprises and sell it as a public shell 
+company in a reverse merger.  Dreslin and another defendant created a phony business plan to 
+make it appear as though Anglesea Enterprises was a legitimate Internet marketing company, and 
+they conducted a sham private placement to fake investor interest in the venture.  On behalf of 
+Anglesea Enterprises, Dreslin and another defendant orchestrated the creation and filing of 
+twenty SEC filings that contained material false and misleading statements and omissions 
+ 3 
+regarding, among other things, the company’s control and business operations.  Dreslin further 
+drafted materially false and misleading management representation letters  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Dreslin’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ Dreslin is suspended from appearing or practicing before the Commission as an accountant.  
+  
+ By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+       Secretary 

raw/aaer/2020/AAER-4120.txt

@@ -0,0 +1,107 @@
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88432 / March 20, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4120 / March 20, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19732 
+ 
+In the Matter of 
+RONALD EMMA, CPA  
+Respondent. 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE PROCEEDINGS 
+ PURSUANT TO RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+ 
+   
+ 
+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 Ronald 
+Emma (“Respondent” or “Emma”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.1   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the findings  
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+ 2 
+proceedings, and the findings contained in Section III.3. below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 
+102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+ 1. Emma, age 68, is and has been a certified public accountant licensed to 
+practice in the State of New Jersey.  He served as Chief Accounting Officer of Hill International, 
+Inc. (“Hill”) from 1980 until February 2017. 
+ 
+ 2. Hill was, at all relevant times, a Delaware corporation with its principal place 
+of business in Philadelphia, Pennsylvania.  Hill is in the project and construction management 
+consulting business, and has operations worldwide.  Since 2006, Hill has been registered 
+pursuant to Section 12(g) and then 12(b) of the Securities Exchange Act of 1934 (“Exchange 
+Act”).  Hill has been quoted on the NYSE since 2008 under the ticker “Hill.” 
+ 
+ 3. On January 16, 2020, the Commission filed a Complaint against Emma in 
+SEC v. Hill International, Inc., et al. (Civil Action No. 20-cv-00447) (S.D.N.Y.).  On February 
+11, 2020, the court entered an order permanently enjoining Emma, by consent, from future 
+violations of Section 17(a)(3) of the Securities Act of 1933 (“Securities Act”) and Section 
+13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and from aiding and abetting 
+violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 
+13a-1 and 13a-11, and 13a-3 thereunder.  Emma was also ordered to pay a $75,000 civil money 
+penalty.   
+ 
+  4. The Commission’s Complaint alleged, among other things, that Emma 
+engaged in a scheme resulting in the improper accounting for certain intercompany 
+transactions involving foreign currency fluctuations, which caused Hill to materially overstate 
+its net income in the company’s annual report on Form 10-K for each of the years ended 
+December 31, 2014, 2015, and 2016 and in the company’s quarterly reports on Form 10-Q for 
+each of the quarters ended March 31, June 30, and September 30 in 2015 and 2016, and for the 
+quarter ended March 31, 2017.  The Complaint alleged that Emma negligently engaged in a 
+number of improper accounting practices that materially increased Hill’s Accumulated Other 
+Comprehensive Loss (“AOCL”) on its balance sheet and decreased expenses on its income 
+statement in a departure from generally accepted accounting principles (“GAAP”).   
+   
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Emma’s Offer. 
+ 
+ 3 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ Emma is suspended from appearing or practicing before the Commission as an accountant.   
+  
+ 
+ By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+       Secretary 

raw/aaer/2020/AAER-4121.txt

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+
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+              Jeffrey D. Cordes et al.
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+
+     SEC Charges Former Executives of Apparel Company with Accounting Fraud 
+
+     Litigation Release No. 24792 / April 8, 2020 
+
+     Accounting and Auditing Release No. 4121 / April 8, 2020 
+
+      Securities and Exchange Commission v. Jeffrey D. Cordes et al. , No. 3:20-cv-00822 (N.D. Tex. filed April 8, 2020) 
+
+
+     
+
+       
+
+       
+
+       The Securities and Exchange Commission today charged three former executives of Ironclad Performance Wear Corp. with fraud for allegedly inflating the company's revenues through a series of manipulative and deceptive accounting gimmicks.  Ironclad's former CEO and CFO have agreed to settle the Commission's claims. 
+ 
+       The SEC's complaint alleges that from at least December 2015 through June 2017, Ironclad's senior executives, CEO Jeffrey D. Cordes of Michigan, CFO William M. Aisenberg of Texas, and Senior VP Thomas J. Felton of Texas, collaborated to inflate Ironclad's revenues by prematurely recognizing revenue before it was earned and recognizing revenue that was never earned, including booking nearly $1 million in revenues from a single client for gloves the client never bought, and that Ironclad never shipped.  The complaint further alleges that the defendants took affirmative steps to hide their conduct by, among other things, moving products to a warehouse across the street, delaying moving returned product back into inventory, shipping product to different clients, and altering documents, which inflated the quarterly revenues Ironclad publicly reported during the relevant period by as much as 24 percent. 
+ 
+       The SEC's complaint, filed in the U.S. District Court for the Northern District of Texas, alleges that Cordes, Aisenberg, and Felton violated the antifraud provisions of Sections 17(a)(1) and (3) of the Securities Act of 1933 and Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5(a) and 10b-5(c) thereunder, or in the alternative that Felton aided and abetted these violations by Cordes and Aisenberg.  The complaint further alleges that Cordes and Aisenberg violated Section 10(b) of the Exchange Act and Rule 10b-5(b) thereunder.  The complaint also charges Cordes, Aisenberg, and Felton with violating the reporting, books and records, and internal accounting control provisions of Sections 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1, and 13b2-2 thereunder, and Cordes and Aisenberg with violating Section 13(b)(2)(B) of the Exchange Act and Rule 13a-14 thereunder. 
+ 
+       Cordes and Aisenberg have, without admitting or denying the allegations, consented to the entry of final judgments that impose permanent injunctions and officer and director bars, and require each to pay a $173,437 civil penalty.  The settlements are subject to court approval. 
+ 
+       The SEC's litigation against Felton is ongoing. 
+ 
+       The SEC's investigation was conducted by Jennifer Turner and Laura Bennett and was supervised by David Reece and Eric Werner of the SEC's Forth Worth office.  Jason Reinsch will lead the litigation, under B. David Fraser's supervision. 
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raw/aaer/2020/AAER-4122.txt

@@ -0,0 +1,1012 @@
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88653 / April 15, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4122 / April 15, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19564 
+ 
+ 
+In the Matter of 
+ 
+SCHULMAN LOBEL ZAND 
+KATZEN WILLIAMS & 
+BLACKMAN, LLP A/K/A 
+SCHULMAN LOBEL LLP,  
+ 
+Respondent. 
+ 
+ 
+ORDER MAKING FINDINGS AND 
+IMPOSING REMEDIAL SANCTIONS 
+AND A CEASE-AND-DESIST ORDER 
+PURSUANT TO SECTIONS 4C AND 21C 
+OF THE SECURITIES EXCHANGE ACT 
+OF 1934 AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE 
+   
+ 
+I. 
+ 
+ On September 30, 2019, the Securities and Exchange Commission (“Commission”) 
+instituted public administrative and cease-and-desist proceedings pursuant to Sections 4C1 and 21C 
+of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) and 102(e)(1)(iii) 
+of the Commission’s Rules of Practice2 against Schulman Lobel Zand Katzen Williams & 
+Blackman, LLP a/k/a Schulman Lobel LLP (“Respondent” or “SL”). 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . (1) not to possess the requisite qualifications 
+to represent others; (2) to be lacking in character or integrity, or to have engaged 
+in unethical or improper professional conduct; or (3) to have willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or 
+the rules and regulations issued thereunder. 
+ 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+2 
+II. 
+ 
+In connection with these proceedings, Respondent has submitted an Offer of Settlement 
+(the “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, and without admitting or denying the findings herein, except as to the 
+Commission’s jurisdiction over it and the subject matter of these proceedings, which are admitted, 
+Respondent consents to the entry of this Order Making Findings and Imposing Remedial Sanctions 
+and a Cease-and-Desist Order Pursuant to Sections 4C and 21C of the Securities Exchange Act of 
+1934 and Rule 102(e) of the Commission’s Rules of Practice (“Order”), as set forth below.   
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds3 that:  
+SUMMARY 
+1. These proceedings arise out of deficient audit and review engagements performed 
+by SL in connection with the following audits and reviews of the financial statements and interim 
+financial information of Quadrant 4 System Corp. (“QFOR”):   
+a. the audit of QFOR’s financial statements for the year ended December 31, 2013 
+(the “2013 Audit”), which were included in a Form 10-K filed with the 
+Commission on August 21, 2015 (the “2014 Form 10-K”);  
+b. the audit of QFOR’s financial statements for the year ended December 31, 2014 
+(the “2014 Audit”), which were also included in the 2014 Form 10-K;  
+c. the review of QFOR’s interim financial information for the quarter ended June 30, 
+2016 (the “2Q2016 Review”), which was included in a Form 10-Q filed on August 
+15, 2016 (the “2Q2016 Form 10-Q”); and  
+                                                 
+ The Commission may . . . deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have 
+engaged in unethical or improper professional conduct. 
+ 
+ Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . 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 any provision of 
+the Federal securities laws or the rules and regulations thereunder. 
+ 
+3   The findings herein are made pursuant to Respondent's Offer of Settlement and are not 
+binding on any other person or entity in this or any other proceeding.   
+3 
+d. the audit of QFOR’s amended financial statements for the year ended December 31, 
+2015 (the “2015 Form 10-K/A Audit”), which were included in a Form 10-K/A 
+filed on September 22, 2016 (the “2015 Form 10-K/A”).   
+2. SL failed to comply with the standards of the Public Company Accounting 
+Oversight Board (“PCAOB”) in connection with the above engagements when it did not:  (1) 
+identify and properly audit related party transactions; (2) obtain sufficient appropriate audit 
+evidence; (3) conduct appropriate procedures to obtain reasonable assurance that the financial 
+statements were free of material misstatements caused by fraud; (4) conduct appropriate 
+procedures upon the subsequent discovery of facts existing at the date of a previous audit report; 
+(5) conduct appropriate procedures in connection with a review of interim financial information; 
+(6) properly plan the audit and assess and respond to risks of material misstatement; (7) conduct 
+proper engagement quality reviews; (8) exercise due professional care and professional skepticism; 
+and (9) maintain an adequate system of quality control, including policies and procedures 
+regarding engagement acceptance and continuance as well as supervision, review, and approval.  
+Additionally, SL willfully4 violated Section 10A(a)(2) of the Exchange Act when it conducted the 
+2013 and 2015 Form 10-K/A Audits without including procedures that were adequately designed 
+to identify related party transactions.  Finally, SL willfully violated Rule 2-02(b)(1) of Regulation 
+S-X when it stated that the 2013, 2014, and 2015 Form 10-K/A Audits had been conducted in 
+accordance with PCAOB standards, when the audits had not been.   
+RESPONDENT 
+3. Schulman Lobel Zand Katzen Williams & Blackman, LLP a/k/a Schulman 
+Lobel LLP (“SL”) is an audit firm based in Princeton, New Jersey.  SL was registered with the 
+PCAOB during the relevant time period, but it withdrew its registration effective March 10, 
+2020.  SL served as QFOR’s auditor from April 2015 until it resigned in October 2016.  SL 
+completed audits of QFOR’s financial statements for the years ended 2013, 2014, and 2015 and 
+reviews of QFOR’s interim financial information for each quarter of 2015 and the first two 
+quarters of 2016.  SL also completed an audit of QFOR’s amended financial statements 
+contained in the 2015 Form 10-K/A.5 
+                                                 
+4  “Willfully,” for purposes of imposing relief under Section 4C(a)(3) of the Exchange Act 
+and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice, “‘means no more than that the 
+person charged with the duty knows what he is doing.’”  Wonsover v. SEC, 205 F.3d 408, 414 
+(D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)). 
+5  On September 30, 2019, the Commission instituted an Order Instituting Public 
+Administrative and Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the 
+Securities Exchange Act of 1934 and Rule 102(e) of the Commission’s Rules of Practice, 
+Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order against Marla 
+P. Manowitz, CPA, Thomas R. Vreeland, CPA, and Kenneth J. Gralak, CPA, concerning their 
+conduct in audit and review engagements for QFOR performed as employees of SL (Exchange 
+Act Rel. No. 34-87159).   
+4 
+AUDITED ENTITY 
+4. Quadrant 4 System Corp. (CIK No. 878802) was an Illinois corporation 
+headquartered in Schaumburg, Illinois, that provided software products and IT consulting and 
+software development services.  QFOR did not have any class of securities registered with the 
+Commission, but was a reporting company pursuant to Section 15(d) of the Exchange Act.  
+QFOR’s common stock was quoted on OTC Link (formerly “Pink Sheets”) operated by OTC 
+Markets Group, Inc. under the symbol “QFOR.”  On June 29, 2017, QFOR filed for bankruptcy, 
+and its remaining assets are now under the control of a liquidating trustee.  All equity interests in 
+QFOR, including its common stock, were extinguished on September 13, 2018. 
+FACTS 
+Background of QFOR’s Fraud 
+5. Between at least June 2012 and November 2016, Nandu Thondavadi 
+(“Thondavadi”) and Dhru Desai (“Desai”) perpetrated a fraudulent scheme through QFOR, a 
+public company.  Thondavadi, as CEO, and Desai, as CFO, used several fraudulent means to 
+overstate QFOR’s revenue, overstate its assets, understate its liabilities, and conceal their 
+misappropriation of at least $4.1 million.  Among other things, they caused QFOR to enter into 
+undisclosed related party transactions, misstated the terms of various acquisitions, and concealed 
+liabilities through a variety of means.  Between March 2013 and November 2016, Thondavadi and 
+Desai caused QFOR to file false and misleading Forms 10-Q, 10-K, and 8-K, which included 
+numerous material misstatements and omissions regarding QFOR’s revenue, acquisitions, assets, 
+liabilities, and related party transactions and Thondavadi’s and Desai’s misappropriation and stock 
+ownership. 
+SL’s Engagements for QFOR 
+6. On April 2, 2015, QFOR’s previous auditor resigned after discovering that QFOR 
+had issued fraudulent invoices and that unknown individuals affiliated with QFOR had returned 
+false audit confirmations to them.  SL was thereafter engaged to perform the 2014 Audit.  In June 
+2015, after being informed that QFOR’s previous auditor would not reissue its 2013 audit report 
+due to an inability to rely on management’s representations, SL was engaged to conduct the 2013 
+Audit. 
+7. SL’s engagement acceptance and planning workpapers for the 2013 and 2014 
+Audits noted that QFOR had internal control deficiencies and characterized the audits as “high-
+risk.”  SL completed the 2013 and 2014 Audits in August 2015.  SL issued an audit report that 
+contained an unqualified opinion, which was dated August 21, 2015, and incorporated in QFOR’s 
+2014 Form 10-K filed the same day. 
+8. SL performed the 2Q2016 Review and consented to the release of QFOR’s 2Q2016 
+Form 10-Q, which was filed on August 15, 2016. 
+9. SL audited QFOR’s financial statements for the year ended December 31, 2015 (the 
+“2015 Audit”).  In late August or early September 2016, QFOR told SL that QFOR intended to file 
+an amended Form 10-K for the year ended December 31, 2015, that would disclose, among other 
+5 
+things, new information about certain related party transactions.  On September 6, 2016, SL was 
+engaged to audit the amended financial statements in the 2015 Form 10-K/A, which included 
+footnote disclosures regarding certain related party transactions.  SL issued an audit report that 
+contained an unqualified opinion, which was dual-dated as of September 22, 2016, as to Notes 11 
+and 14 (which included the new disclosures regarding related party transactions) and March 28, 
+2016, as to the remainder of the financial statements, and was incorporated in QFOR’s 2015 Form 
+10-K/A filed on September 22, 2016.   
+10. SL resigned as QFOR’s auditor on October 21, 2016, citing concerns about the 
+firm’s ability to rely on management’s representations.  Thondavadi and Desai were arrested on 
+federal charges including wire fraud and certifying false financial reports on November 30, 2016, 
+and resigned from QFOR shortly thereafter.  After the arrests, QFOR filed a Form 8-K in 
+December 2016 announcing that the Board of Directors had concluded that QFOR’s financial 
+statements for the previous three years did not fairly present the financial condition of the 
+company, required restatement, and should no longer be relied upon.  No restatement occurred, and 
+QFOR has since filed for bankruptcy and been liquidated.6   
+SL Failed to Perform Procedures to Identify and Comply with Relevant Audit Standards in 
+Connection with Related Party Transactions 
+11. Section 10A(a)(2) of the Exchange Act requires that the audit of the financial 
+statements of an issuer by a registered public accounting firm shall include procedures designed to 
+identify related party transactions that are material to the financial statements or otherwise require 
+disclosure therein. 
+12. PCAOB Standard AU Section 334, Related Parties (“AU § 334”),7 which applies to 
+the 2013 and 2014 Audits, provides guidance on procedures to consider in identifying related party 
+relationships and transactions and to satisfy the auditor concerning the required disclosure of 
+related party transactions.  AU § 334.07 provides that the auditor should place “emphasis on 
+testing material transactions with parties he knows are related to the reporting entity,” and also 
+provides for specific audit procedures that may be included to determine the existence of related 
+party relationships that are not clearly evident.   
+13. AU § 334.09 requires an auditor to test related party transactions by “obtaining and 
+evaluating sufficient appropriate evidential matter” which “should extend beyond inquiry of 
+management.”  The standard also makes clear that, when necessary to fully understand a particular 
+transaction, the auditor should consider “inspect[ing] evidence in possession of the other party or 
+                                                 
+6  On June 29, 2017, the Commission filed a civil injunctive action against QFOR, 
+Thondavadi, and Desai alleging multiple violations of the securities laws.  SEC v. Quadrant 4 
+System Corp. et al., Case No. 1:17-cv-04883 (N.D. Ill. 2017).  QFOR, Thondavadi, and Desai 
+consented the entry of final judgments that included permanent injunctions against all of them, 
+officer and director bars and orders of disgorgement and prejudgment interest against 
+Thondavadi and Desai, and a civil penalty against Desai. 
+7  References to PCAOB standards refer to the standards in effect at the time of the relevant 
+conduct. 
+6 
+parties to the transaction” and “confirm[ing] or discuss[ing] significant information with 
+intermediaries, such as banks, guarantors, agents, or attorneys to obtain a better understanding.”  
+AU § 334.10.  Additionally, the auditor should consider procedures to “obtain information about 
+the financial capability of the other party or parties to the transaction” when there are “material 
+uncollected balances, guarantees, and other obligations.”  Id. 
+14. Finally, AU § 334.11 requires that, for each material related party transaction, the 
+auditor should consider whether the auditor has obtained sufficient appropriate evidential matter to 
+understand the relationship of the parties and the effects of the transaction on the financial 
+statements.  The auditor should evaluate all of the available information and be satisfied on the 
+basis of the auditor’s professional judgment that the transaction is adequately disclosed in the 
+financial statements. 
+15. PCAOB Auditing Standard No. 18, Related Parties (“AS No. 18”), which applies 
+to the 2015 Form 10-K/A Audit, sets forth procedures the auditor should perform to “obtain 
+sufficient appropriate audit evidence to determine whether related parties and relationships and 
+transactions with related parties have been properly identified, accounted for, and disclosed in the 
+financial statements.”  AS No. 18.2.  Among other things, the standard requires the auditor to 
+“identify[] and assess[] the risks of material misstatement associated with related parties,” AS No. 
+18.10; perform various procedures for each related party transaction required to be disclosed or 
+determined to be a significant risk, including evaluating the terms of the transaction and the 
+circumstances under which it was authorized, AS No. 18.12; “evaluate whether the company has 
+properly identified” its related parties and transactions with related parties, AS No. 18.14; and 
+“evaluate whether related party transactions have been properly accounted for and disclosed in the 
+financial statements,” AS No. 18.17.  
+16. AS No. 18 provides that, when evaluating whether the company has properly 
+identified related parties and related party transactions, the auditor’s responsibility requires “more 
+than assessing the process used by the company,” and “requires the auditor to perform procedures 
+to test the accuracy and completeness” of the company’s identification of related parties and 
+related party transactions.  AS No. 18.14.  The standard provides that, if the auditor identifies 
+information that indicates that previously undisclosed related parties might exist, “the auditor 
+should perform the procedures necessary to determine whether previously undisclosed 
+relationships or transactions with related parties, in fact, exist,” and these procedures “should 
+extend beyond inquiry of management.”  AS No. 18.15.  Furthermore, the standard outlines a 
+number of procedures the auditor should perform if the auditor determines that a previously 
+undisclosed related party or related party transaction does exist, including, among other things, 
+evaluating why it was previously undisclosed and how this bears on the auditor’s ability to rely on 
+management’s representations relating to other aspects of the financial statements and evaluating 
+the implications for the audit if the nondisclosure indicates that fraud or an illegal act may have 
+occurred.  AS No. 18.16. 
+17. Finally, AS No. 18 provides that, if the financial statements state that related party 
+transactions were conducted on an arm’s-length basis, the auditor should determine “whether 
+evidence supports or contradicts management’s assertion,” and express a qualified or adverse 
+opinion if the auditor “is unable to obtain sufficient appropriate audit evidence to substantiate 
+management’s assertion.”  AS No. 18.18. 
+7 
+18. SL did not perform sufficient procedures designed to identify related party 
+transactions in connection with the 2013 and 2015 Form 10-K/A Audits.  QFOR was involved in 
+transactions with certain significant shareholders, purported vendors, and customers that should 
+have been disclosed as related party transactions.  These related party entities included, among 
+others:  Global Technology Ventures Corp. (“Global Technology”); Congruent Ventures LLC and 
+Congruent Ventures Ltd. (collectively, “Congruent”); Stonegate Holdings, Inc. (“Stonegate”); Core 
+Information Technology Solutions, Inc. (“CITS”); and Surrex Solutions Corp. (“Surrex”).  In its 
+2015 Form 10-K/A, QFOR made disclosures regarding related party transactions with CITS, 
+Surrex, and a vendor owned by Stonegate.  However, the 2015 Form 10-K/A disclosures were 
+incomplete and materially misleading, and QFOR did not disclose other material related party 
+transactions with Stonegate, Global Technology, or Congruent in its 2014 Form 10-K or 2015 
+Form 10-K/A.  
+19. Prior to the 2013 Audit, SL identified Stonegate and an affiliated entity as related 
+parties of QFOR.  The engagement team also prepared and/or reviewed workpapers indicating that 
+Stonegate and an affiliated entity collectively owned 14.8% of QFOR’s common stock as of year-
+end 2013 and 13% of QFOR’s common stock as of year-end 2014.  The engagement team was 
+aware that QFOR had entered into two material transactions with Stonegate during 2013:  the 
+conversion of a $1.1 million debt to equity and the purported assignment of a legal judgment to 
+Stonegate in exchange for approximately 1.8 million shares of QFOR common stock.  These 
+transactions were not disclosed as related party transactions in the 2014 Form 10-K.  SL did not 
+identify these transactions as related party transactions and did not conduct procedures to evaluate 
+whether they were adequately disclosed.   
+20. SL’s 2013 Audit workpapers also contained documents indicating that the judgment 
+that QFOR purportedly assigned to Stonegate was jointly owed by QFOR, Thondavadi, and Desai.  
+SL did not identify this as a related party transaction, did not identify this as a significant unusual 
+transaction, did not obtain sufficient appropriate audit evidence to substantiate the transaction and 
+understand its business rationale, did not consider whether Stonegate had the capability to satisfy 
+the judgment, and did not evaluate whether the transaction was adequately disclosed. 
+21. The 2015 Form 10-K/A disclosed that QFOR’s transactions with CITS, Surrex, and 
+a significant vendor were related party transactions.  Among other things, the 2015 Form 10-K/A 
+stated that the vendor was owned by Stonegate, that Thondavadi and Desai had guaranteed certain 
+obligations of CITS, and that Thondavadi held signatory authority on CITS and Surrex bank 
+accounts.  The 2015 Form 10-K/A also stated that Thondavadi and Desai had provided 
+management and consulting services to an affiliate of CITS and received compensation for those 
+services, which was paid to Global Technology and Congruent.  Global Technology and 
+Congruent were described as inactive entities owned by Thondavadi and Desai, respectively.  The 
+related party relationships disclosed in the 2015 Form 10-K/A were all described as being 
+structured on an arm’s-length basis.    
+22. SL did not obtain sufficient appropriate audit evidence to support the disclosures 
+contained in the 2015 Form 10-K/A regarding the relationship between QFOR and Surrex and 
+CITS.  The engagement team did not obtain any documentary evidence regarding Thondavadi’s 
+signatory authority over Surrex and CITS bank accounts or the nature and terms of the consulting 
+services Thondavadi and Desai provided to the affiliate of CITS.  The engagement team requested 
+8 
+copies of Thondavadi’s and Desai’s consulting agreements and tax records regarding their 
+compensation for the purported consulting services, but Thondavadi told the engagement team that 
+QFOR did not have any such records.  The engagement team relied solely upon management 
+representations regarding the nature of the services Thondavadi and Desai performed and the 
+amounts of the payments they received in lieu of obtaining any documentary evidence.   
+23. SL also did not evaluate QFOR’s assertions that its relationships with the vendor, 
+CITS, and Surrex were structured on an arm’s-length basis.  SL’s workpapers for the 2015 Form 
+10-K/A Audit do not contain any documentation regarding the terms of the transactions.  Despite 
+failing to obtain sufficient appropriate audit evidence to substantiate these assertions, SL issued an 
+unqualified opinion on the 2015 Form 10-K/A.   
+24. Despite newly learning of previously undisclosed related party transactions, SL did 
+not evaluate whether QFOR had properly identified and disclosed its related parties and 
+relationships and transactions with related parties, as required by AS Nos. 18.14-16.  In addition to 
+the transactions that were disclosed in the 2015 Form 10-K/A, the engagement team learned of 
+other undisclosed related party transactions during the course of the 2015 Form 10-K/A Audit, 
+including a loan from Global Technology to QFOR that was issued and converted to QFOR 
+common stock during 2013.  SL’s 2015 Form 10-K/A workpapers included a copy of the 2013 
+promissory note issued to Global Technology, which included a note added by a member of the 
+engagement team reading:  “Entity owned by Nandu – related party not disclosed prior.”  The 
+engagement team did not perform any procedures to evaluate why this past related party 
+transaction was not previously disclosed or whether it should be disclosed either in the 2015 Form 
+10-K/A or through an amendment of prior filings.  Additionally, after being notified once more 
+that Stonegate was a related party of QFOR, the engagement team did not evaluate whether past 
+transactions with Stonegate should be disclosed as related party transactions. 
+25. During the 2015 Form 10-K/A Audit, SL also did not undertake any procedures, 
+beyond inquiry of management or its agents, to identify whether other previously undisclosed 
+relationships or transactions with related parties existed, as required by AS No. 18.15.  SL’s 
+workpapers for prior periods contained a number of other documents evidencing past related party 
+transactions between QFOR and Global Technology and Congruent, including documents 
+regarding the conversion of the 2013 Global Technology debt to equity, a 2015 promissory note 
+issued to Global Technology, and general ledgers listing transactions with Global Technology and 
+Congruent in 2014 and 2015.  The engagement team did not perform any procedures to determine 
+whether QFOR had previously entered into transactions with Global Technology or Congruent.   
+SL Failed to Obtain Sufficient Appropriate Audit Evidence 
+26. PCAOB Auditing Standard No. 15, Audit Evidence (“AS No. 15”), requires the 
+auditor to “plan and perform audit procedures to obtain sufficient appropriate audit evidence to 
+provide a reasonable basis for his or her opinion.”  AS No. 15.04.  To be appropriate, audit 
+evidence must be both relevant and reliable in providing support for the conclusions on which the 
+auditor’s opinion is based.  See AS No. 15.6.  The reliability of evidence depends on its nature and 
+source, and the circumstances under which it is obtained.  Evidence obtained directly by the 
+auditor and from a knowledgeable independent third party is more reliable than evidence obtained 
+directly from the company.  See AS No. 15.8. 
+9 
+27. PCAOB Standard AU Section 330, The Confirmation Process (“AU § 330”), 
+provides guidance about the audit confirmation process, including the relationship of confirmation 
+procedures to the assessment of audit risk and the performance of alternative procedures when 
+responses to confirmation requests are not received.  AU § 330.28 requires an auditor to maintain 
+control over confirmation requests and responses, which means establishing direct communication 
+between the intended recipient and the auditor to minimize the possibility that the results will be 
+biased because of interception and alteration.  When an auditor does not receive a response to 
+certain confirmations, AU § 330.31 provides that the auditor should apply alternative procedures to 
+obtain the evidence necessary to reduce audit risk to an acceptably low level.   
+28. Further, PCAOB Standard AU Section 333, Management Representations (“AU § 
+333”), states that management representations “are not a substitute for the application of those 
+auditing procedures necessary to afford a reasonable basis for an opinion regarding the financial 
+statements under audit,” AU § 333.02, and requires conflicts between management 
+representations and other audit evidence to be investigated, AU § 333.04.   
+29. PCAOB Standard AU Section 337, Inquiry of a Client’s Lawyer Concerning 
+Litigation, Claims, and Assessments (“AU § 337”), provides guidance on procedures an auditor 
+should consider for identifying and evaluating the accounting and reporting for litigation, claims, 
+and assessments.  For all material litigation, claims, and assessments, AU § 337.06 requires an 
+auditor to “request the client’s management to send a letter of inquiry to those lawyers with 
+whom management consulted concerning” such matters.  
+30. In connection with the 2013 and 2014 Audits, SL did not obtain sufficient 
+appropriate audit evidence to support SL’s unqualified opinion included in the 2014 Form 10-K, 
+particularly regarding QFOR’s reported liabilities.  Much of the deficient testing fell within audit 
+areas that SL determined were high-risk areas and identified in its planning workpapers as 
+requiring “extended procedures.”   
+31. SL did not obtain sufficient appropriate audit evidence regarding a $1.1 million 
+debt to a hedge fund (“Lender A”) that was purportedly converted to equity in 2013.  The 
+engagement team obtained extensive documentation of the convertible debenture giving rise to the 
+liability.  However, the engagement team’s testing of the purported equity conversion, which 
+occurred only weeks later and did not satisfy the terms of the convertible debenture, was 
+inadequate.  For example, the engagement team did not obtain any documentation signed by 
+Lender A consenting to or otherwise substantiating the conversion or confirming the liability had 
+been extinguished as of year-end 2013.  In reality, Lender A had not consented to convert its debt 
+to equity in 2013, and a liability of least $885,045 was still owed to Lender A as of December 31, 
+2013. 
+32. SL also did not obtain sufficient appropriate audit evidence regarding a debt to an 
+entity (“Lender B”).  In documents provided by QFOR management to the engagement team, SL 
+learned that, during 2013, QFOR had made approximately $700,000 in payments on the debt and 
+converted $2 million to equity, leaving a liability of approximately $3.1 million as of year-end 
+2013.  In reality, QFOR did not make any payments to Lender B during 2013, and the purported 
+loan payments were actually misappropriated by Thondavadi and Desai.  The engagement team did 
+not obtain any documentation signed by Lender B authorizing the purported debt conversion or 
+10 
+substantiating the balance due at year-end 2013.  The engagement team also did not conduct any 
+testing of the purported debt payments to Lender B in 2013.  For example, had the engagement 
+team traced these payments to underlying transaction support from QFOR’s bank, it would have 
+discovered that Lender B was not the true recipient of the funds.   
+33. SL did not adhere to the procedures set forth in AU § 330 in connection with the 
+testing of the Lender A and Lender B liabilities, as well as a material liability owed to an 
+individual.  After receiving no response to initial debt confirmations sent to Lender A, Lender B, 
+and the individual, the engagement team did not either follow up with a second request or apply 
+alternate procedures to reduce the audit risk to an acceptably low level, as required under AU §§ 
+330.30-31.   
+34. The 2014 Form 10-K contained material misrepresentations and omissions 
+regarding the resolution of a breach of contract suit filed by a New York-based lender (“Plaintiff 
+A”).  The 2014 Form 10-K reported a $692,000 expense for “litigation settlement” in 2013, and the 
+notes to the financial statements included a disclosure that the lawsuit was settled for 1,870,270 
+shares of QFOR stock valued at $692,000.  QFOR told SL that, rather than issuing the stock to 
+Plaintiff A, QFOR had assigned the obligation it owed Plaintiff A to Stonegate in exchange for 
+1,870,270 shares of QFOR common stock.  Though QFOR did issue the stock to Stonegate, 
+Stonegate never made any payments toward the settlement, and Plaintiff A did not consent to the 
+assignment of the liability owed to it.  Instead, QFOR, Thondavadi, Desai, and a third individual 
+entered into a settlement agreement with Plaintiff A in December 2013.  Between December 2013 
+and March 2014, QFOR paid approximately $1.8 million pursuant to the settlement agreement, 
+largely through a series of wire transfers to Plaintiff A’s lawyers (“Law Firm A”).  QFOR falsely 
+recorded many of these wire transfers as payments related to acquisitions completed earlier in 
+2013.  As of year-end 2013, the outstanding liability on the settlement agreement was $1.25 
+million, which was not reported on QFOR’s balance sheet in the 2014 Form 10-K.   
+35. SL did not obtain sufficient appropriate audit evidence regarding the liability owed 
+to Plaintiff A.  The engagement team did not obtain a copy of the legal judgment, a settlement 
+agreement or other documentation signed by Plaintiff A, or any other evidence of the size of the 
+liability owed to Plaintiff A.  It also did not obtain any evidence that Plaintiff A consented to the 
+purported assignment to Stonegate, that Stonegate had performed under the purported assignment, 
+or that the liability owed to Plaintiff A had been extinguished.  The engagement team also did not 
+identify the law firm that represented QFOR in the Plaintiff A litigation and did not request that 
+QFOR management send a letter of inquiry to that law firm. 
+36. SL did not obtain sufficient appropriate audit evidence in other areas.  While 
+performing journal entry testing for the 2014 Audit, the engagement team examined a journal entry 
+for a $445,000 payment to Law Firm A.  It did not obtain any evidence, aside from a representation 
+by management, regarding the purpose of this transaction. 
+37. Additionally, while testing earnouts associated with acquisitions that took place in 
+2013, the engagement team examined various wire transfers that were recorded as earnouts but 
+actually sent to Law Firm A in payment of the Plaintiff A settlement.  Based on the supporting 
+schedules included in the workpapers:  (1) two of the entities that received earnout payments had 
+not met the revenue targets entitling them to earnout payments; and (2) the earnout payments were 
+11 
+made piecemeal throughout the quarters, rather than in lump sum at the end of each quarter.  Both 
+of these factors should have prompted the engagement team to further scrutinize the relevant 
+payments, but it did not obtain sufficient appropriate audit evidence to support the recorded 
+earnout payments.  Many of the recorded earnout payments were made by wire transfer, and the 
+engagement team tested them by tracing them to the bank statements.  However, the bank 
+statements did not provide any information regarding the counterparty to wire transfers.  Rather 
+than obtaining wire details, the engagement team relied solely on bank statement entries reading 
+“Outgoing Wire Transfer” as evidence that the earnout payments were made.  
+38. SL did not obtain sufficient appropriate audit evidence regarding payroll tax 
+liabilities assumed in connection with an acquisition that took place in 2013.  The engagement team 
+did not obtain sufficient evidence to support the original accrual recorded for assumed payroll tax 
+liabilities, which was not consistent with the amount of assumed liabilities stated in the purported 
+asset purchase agreement.  The engagement team obtained schedules from QFOR listing purported 
+payments on the tax liabilities, but did not trace them to any transaction support.  After noting a 
+material remaining balance for the accrual as of year-end 2014, the engagement team relied solely 
+on management’s representation that this balance represented accounts payable incorrectly included 
+in the tax payable, without performing any procedures to test that assertion.  The engagement team 
+also did not obtain documentation from the taxing authorities confirming that the liabilities had been 
+extinguished.  In reality, as of year-end 2014, more than $500,000 in payroll tax liability remained 
+outstanding and was not reported as a liability in the 2014 Form 10-K. 
+39. As discussed in paragraphs 21 to 25, SL did not obtain sufficient appropriate audit 
+evidence regarding the related party transaction disclosures contained in the 2015 Form 10-K/A.  
+SL also inappropriately relied upon management’s representations, despite the engagement team’s 
+awareness that those representations conflicted with prior representations made by management 
+regarding their receipt of compensation.   
+SL Failed to Conduct Appropriate Procedures to Obtain Reasonable Assurance that the 
+Financial Statements were Free of Material Misstatements Caused by Fraud 
+40. PCAOB Standard AU Section 316, Consideration of Fraud in a Financial 
+Statement Audit (AU § 316), requires an auditor to perform procedures to address the risk of 
+fraud in a financial statement audit, including those fraud risks specifically arising from 
+management override of internal controls.  The standard requires an auditor to examine journal 
+entries “for evidence of possible material misstatement due to fraud.”  AU § 316.58.  The auditor 
+should use professional judgment in determining the nature and extent of journal entry testing, 
+but “the auditor’s procedures should include selecting from the general ledger journal entries to 
+be tested and examining support for those items.”  AU § 316.61.   
+41. Additionally, AU § 316, as in effect during the 2013 and 2014 Audits, requires an 
+auditor to evaluate significant transactions that are outside the normal course of business for the 
+entity, or that otherwise appear to be unusual.  The auditor should gain an understanding of the 
+business purpose of each such transaction and consider whether the rationale for the transaction 
+suggests that it may have been entered into for fraudulent purposes.  AU § 316.66.  When 
+evaluating the business rationale for the transaction, an auditor should consider whether the 
+12 
+transaction involves previously unidentified related parties or parties that do not have the ability to 
+support the transaction without assistance from the entity under audit.  AU § 316.67. 
+42. During the 2013 and 2014 Audits, SL did not perform appropriate procedures to 
+obtain reasonable assurance that the financial statements were free of material misstatements 
+caused by fraud.  It did not appropriately perform journal entry testing, and did not evaluate 
+significant unusual transactions, including a transaction with Stonegate, an undisclosed related 
+party. 
+43. Pursuant to PCAOB Auditing Standard No. 12, Identifying and Assessing Risks of 
+Material Misstatement (“AS No. 12”), the auditor is required to identify the risk of management 
+override of controls as a fraud risk.  AS No. 12.69.  The engagement team identified management 
+override of controls as a significant risk while planning the 2013 and 2014 Audits, yet it did not 
+properly perform journal entry testing, one of the required procedures to address this risk.  As 
+discussed in paragraph 36, the engagement team examined a journal entry for a $445,000 payment 
+to Law Firm A while performing journal entry testing for the 2014 Audit.  The only procedure the 
+engagement team performed to test this journal entry was to ask Thondavadi about the purpose of 
+the payment.  Thondavadi told the engagement team that it related to an acquisition that took place 
+in 2013, and the engagement team relied on this representation without performing any procedures 
+to verify it.  The engagement team did not obtain any additional evidence of the purpose of the 
+payment, nor did it tie the payment to other workpapers in SL’s possession testing acquisition-
+related payments.  
+44. SL also did not identify the assignment of the Plaintiff A judgment to Stonegate, 
+an entity the engagement team had identified in planning workpapers as a related party, as a 
+significant unusual transaction, and evaluate whether it may have been entered into to engage in 
+fraudulent financial reporting.  The transaction was outside the normal course of business for 
+QFOR, material, and completed near year-end 2013.  The engagement team did not obtain an 
+understanding of the substance of the transaction, particularly whether the purported assignment 
+effectively satisfied the liability owed to Plaintiff A.  The engagement team also did not identify 
+it as a transaction with a related party. 
+45. SL also did not identify purported settlements of earnout obligations that took 
+place in December 2013 as significant unusual transactions and evaluate whether they may have 
+been entered into to engage in fraudulent financial reporting or conceal misappropriation.  The 
+earnout settlements were outside the normal course of business for QFOR, material, and 
+completed as of December 31, 2013.  They had the effect of materially increasing QFOR’s 2013 
+net income while also reducing its liabilities.  The engagement team did not obtain a full 
+understanding of the transactions, including the business rationale for QFOR making substantial 
+payments to settle contingent obligations to two entities even though the acquired business units 
+had never met the revenue targets entitling them to earnout payments. 
+SL Failed to Conduct Appropriate Procedures upon the Subsequent Discovery of Facts 
+Existing at the Date of a Previous Audit Report 
+46. PCAOB Standard AU Section 561, Subsequent Discovery of Facts Existing at the 
+Date of the Auditor’s Report (“AU § 561”), sets forth procedures the auditor should follow when 
+13 
+the auditor becomes aware that facts may have existed at the date of a prior audit report that might 
+have affected the report if the auditor had been aware of such facts.  AU § 561.04 requires that, 
+when an auditor becomes aware of information that relates to financial statements upon which the 
+auditor previously issued a report, and which the auditor would have investigated if the auditor had 
+been aware of it during the audit, the auditor should, “as soon as practicable, undertake to 
+determine whether the information is reliable and whether the facts existed at the date of his 
+report.”  Upon determining that the information is reliable and existed at the date of the auditor’s 
+report, the auditor is required to undertake certain procedures, including evaluating whether the 
+information would have affected the audit report if it had been known but not reflected in the 
+financial statements, evaluating whether there are persons likely to rely on the financial statements, 
+and advising the client to make appropriate disclosure of the newly discovered facts and their 
+impact on the financial statements.  AU §§ 561.05-.06. 
+47. During the 2Q2016 Review, SL did not conduct appropriate procedures after being 
+provided with additional information relating to the assignment of the Plaintiff A liability that was 
+previously disclosed in the 2014 Form 10-K.  During the planning for the review, QFOR informed 
+the engagement team that it had cancelled the approximately 1.8 million shares previously issued 
+to Stonegate because Stonegate had not performed on the assignment.  QFOR provided the 
+engagement team with a memorandum containing extensive new material information that was 
+inconsistent with the disclosures contained in the 2014 Form 10-K related to the resolution of the 
+Plaintiff A lawsuit.  Among other things, the memorandum stated that Plaintiff A received a 
+judgment that included reimbursement of legal fees and that QFOR actually ended up paying the 
+judgment and legal fees rather than satisfying the balances due through the issuance of stock.  The 
+memorandum did not specify the amount of the legal fees or provide any information on when or 
+how QFOR paid the judgment and legal fees.  The engagement team did not perform any 
+procedures to evaluate the value of the underlying liability to Plaintiff A; to determine whether, 
+when, or how the liability to Plaintiff A had been extinguished; or to evaluate or assess the impact 
+of the newly discovered facts on prior period financial statements and disclosures.   
+48. SL also did not conduct appropriate procedures after learning that a 2013 loan from 
+Global Technology to QFOR was a related party transaction during the 2015 Form 10-K/A Audit.  
+Despite noting that the loan was a previously undisclosed related party transaction in a workpaper, 
+the engagement team did not perform any procedures to consider whether this information would 
+have affected SL’s report on the 2013 financial statements or whether the information should be 
+disclosed.   
+SL Failed to Conduct Appropriate Procedures in Connection with a Review of Interim 
+Financial Information 
+49. PCAOB Standard AU Section 722, Interim Financial Information (“AU § 722”), 
+provides that, if “the accountant becomes aware of information that leads him or her to believe that 
+the interim financial information may not be in conformity with generally accepted accounting 
+principles in all material respects, the accountant should make additional inquiries or perform other 
+procedures that the accountant considers appropriate to provide a basis for communicating whether 
+he or she is aware of any material modifications that should be made to the interim financial 
+information.”  AU § 722.22.  Additionally, “if information comes to the accountant’s attention that 
+leads him or her to question whether the interim financial information departs from generally 
+14 
+accepted accounting principles with respect to litigation, claims, or assessments,” it may be 
+appropriate to make an inquiry of the company’s legal counsel.  AU § 722.20.  
+50. SL did not conduct appropriate procedures after being provided with additional 
+information regarding the assignment of the Plaintiff A liability to Stonegate during the 2Q2016 
+Review.  After learning that Stonegate had not satisfied the Plaintiff A liability and being informed 
+that QFOR had paid it at some unspecified time, the engagement team had sufficient information 
+to question whether the interim financial information was in conformity with generally accepted 
+accounting principles (“GAAP”) in all material respects.  The engagement team did not make 
+additional inquiries or perform procedures to determine whether, when, and how the liability to 
+Plaintiff A had been extinguished, and thus did not have a sufficient basis to communicate whether 
+it was aware of any material modifications that should be made to the interim financial 
+information. 
+SL Failed to Properly Plan the Audit and Assess and Respond to Risks of Material 
+Misstatement 
+51. PCAOB Auditing Standard No. 9, Audit Planning (“AS No. 9”), requires the 
+auditor to properly plan the audit.  The standard provides that planning is “a continual and iterative 
+process,” AS No. 9.5, and requires the auditor to modify the audit strategy and plan as necessary if 
+circumstances change significantly during the course of the audit, including due to the discovery of 
+a previously unidentified risk of material misstatement, AS No. 9.15.   
+52. PCAOB Auditing Standard No. 12, Identifying and Assessing Risks of Material 
+Misstatement (“AS No. 12”), requires the auditor to “perform risk assessment procedures that are 
+sufficient to provide a reasonable basis for identifying and assessing the risks of material 
+misstatement, whether due to error or fraud.”  AS No. 12.4.  The standard provides that risk 
+assessment should continue throughout the audit, and that the auditor should “revise the risk 
+assessment and modify planned audit procedures or perform additional procedures in response to 
+the revised risk assessments” when the auditor obtains evidence “that contradicts the audit 
+evidence on which the auditor originally based his or her risk assessment.”  AS No. 12.74. 
+53. PCAOB Auditing Standard No. 13, The Auditor’s Responses to the Risks of 
+Material Misstatement (“AS No. 13”), requires the auditor when responding to the assessed risks 
+of material misstatement, particularly fraud risks, to apply professional skepticism in gathering and 
+evaluating audit evidence.  Examples include:  (a) modifying the planned audit procedures to 
+obtain more reliable evidence regarding relevant assertions, and (b) obtaining sufficient appropriate 
+evidence to corroborate management’s explanations or representations concerning important 
+matters.  AS No. 13.7. 
+54. SL did not properly plan the 2015 Form 10-K/A Audit or perform sufficient risk 
+assessment procedures.  The engagement team should have recognized that the newly disclosed 
+related party transactions constituted a significant change in circumstances from the 2015 Audit 
+and revealed previously unidentified risks of material misstatement.  Additionally, the engagement 
+team was aware that the three newly disclosed related parties were QFOR’s most significant 
+vendor and QFOR’s second and third largest customers.  The engagement team was also aware 
+that some of the information provided by management during the 2015 Form 10-K/A Audit, 
+15 
+particularly regarding management’s receipt of compensation for consulting services to an affiliate 
+of CITS, was inconsistent with prior management representations.  Despite the inconsistencies in 
+management’s representations and the significance of the newly disclosed related parties to 
+QFOR’s business, the engagement team did not engage in any new risk assessment or planning 
+activities in connection with the 2015 Form 10-K/A Audit. 
+SL Failed to Conduct Proper Engagement Quality Reviews 
+55. PCAOB Audit Standard 7, Engagement Quality Review (“AS No. 7”), requires an 
+engagement quality reviewer (“EQR”) conducting a review of an engagement to “evaluate the 
+significant judgments made by the engagement team and the related conclusions reached in 
+forming the overall conclusion on the engagement and in preparing the engagement report.”  AS 
+No. 7.2.  For engagement quality reviews of both audits and reviews of interim financial 
+information, the EQR should “evaluate” significant judgments as to planning, including 
+consideration of “risks identified in connection with the firm’s client acceptance and retention 
+process” and the company’s “recent significant activities.”  AS Nos. 7.9-10 (audits), 7.14-15 
+(reviews).  Additionally, the EQR should “evaluate whether the engagement documentation” 
+reviewed in connection with required procedures “[s]upports the conclusions reached by the 
+engagement team with respect to the matters reviewed.”  AS Nos. 7.11 (audits), 7.16 (reviews).   
+56. If the EQR becomes aware of a significant engagement deficiency, including that 
+the engagement team reached an inappropriate overall conclusion on the subject matter of the 
+engagement, he or she cannot provide concurring approval of issuance.  AS Nos. 7.12 (audits), 
+7.17 (reviews).  For an audit, a significant engagement deficiency includes the failure to obtain 
+sufficient appropriate evidence in accordance with PCAOB standards.  AS No. 7.12.  For a review 
+of interim financial information, a significant engagement deficiency includes a failure to perform 
+interim review procedures necessary in the circumstances of the engagement.  AS No. 7.17.   
+57. SL did not perform an adequate engagement quality review in connection with the 
+2Q2016 Review.  The cancellation of the shares issued to Stonegate in connection with the 
+Plaintiff A lawsuit was identified as a recent significant activity, and the EQR reviewed the 
+workpapers related to that transaction.  However, he did not recognize that the workpapers did not 
+support the conclusions reached by the engagement team regarding that transaction or that the 
+engagement team had not performed necessary procedures after receiving information that should 
+have led them to believe that the interim financial information may not have been presented in 
+conformity with GAAP. 
+58. SL also did not perform an adequate engagement quality review in connection with 
+the 2015 Form 10-K/A Audit.  First, the engagement team did not perform any planning or risk 
+assessment specific to the 2015 Form 10-K/A Audit, and the EQR did not review any of the 
+planning or risk assessment documentation associated with the 2015 Audit.  Therefore, the EQR 
+did not evaluate the significant judgments related to engagement planning or the engagement 
+team’s assessment of, and audit responses to, significant risks, as required by AS No. 7.10.   
+59. Additionally, the EQR provided concurring approval of the issuance of the audit 
+report on the 2015 Form 10-K/A Audit despite the fact that, based on the workpapers he reviewed, 
+he should have been aware that a significant engagement deficiency existed—namely, the failure 
+16 
+to obtain sufficient appropriate audit evidence supporting the accuracy and completeness of the 
+company’s disclosures regarding related party transactions.  The EQR reviewed nearly all of the 
+workpapers related to the testing of the new disclosures regarding related party transactions, 
+including the copy of the 2013 promissory note to Global Technology.  However, the EQR did not 
+recognize that the workpapers did not support the audit team’s conclusions that QFOR’s related 
+party transactions were adequately tested and disclosed.   
+SL Failed to Exercise Due Professional Care and Professional Skepticism 
+60. PCAOB Standard AU Section 230, Due Professional Care in the Performance of 
+Work (“AU § 230”), requires an auditor to exercise due professional care throughout the audit.  
+Under this standard, an auditor “should possess ‘the degree of skill commonly possessed’ by other 
+auditors and should exercise it with ‘reasonable care and diligence.’”  AU § 230.05.  Due 
+professional care also requires that the auditor exercise professional skepticism, which is “an 
+attitude that includes a questioning mind and a critical assessment of audit evidence.”  AU 
+§ 230.07.  An auditor is required to “consider the competency and sufficiency of the evidence,” 
+AU § 230.08, and “should not be satisfied with less than persuasive evidence because of a belief 
+that management is honest,” AU § 230.09. 
+61. SL did not exercise due professional care and professional skepticism in connection 
+with the numerous audit failures described above during the 2013 Audit, 2014 Audit, 2Q2016 
+Review, and 2015 Form 10-K/A Audit.  
+62. SL also did not exercise due professional care while performing the search for 
+unrecorded liabilities during the 2013 Audit.  Nine out of twenty-six payments that fell within the 
+testing parameters were erroneously excluded from testing.  The excluded payments included three 
+of the Plaintiff A settlement payments (including a $445,000 payment to Law Firm A), as well as a 
+settlement payment for another undisclosed lawsuit.   
+SL’s Policies and Procedures were Deficient 
+63. PCAOB Standard QC Section 20, System of Quality Control for a CPA Firm’s 
+Accounting and Auditing Practice (“QC § 20”), requires a CPA firm to have a system of quality 
+control for its auditing practice.  The standard requires the firm to adopt policies and procedures 
+that provide the firm with reasonable assurance that “the likelihood of association with a client 
+whose management lacks integrity is minimized,” QC § 20.14; “the firm . . . appropriately 
+considers the risks associated with providing professional services in the particular circumstances,” 
+QC § 20.15; and “the work performed by engagement personnel meets applicable professional 
+standards, regulatory requirements, and the firm’s standards of quality,” QC § 20.17.  Firm policies 
+and procedures should also provide reasonable assurance that the policies and procedures 
+established for the elements of quality control described in the standard are “suitably designed and 
+are being effectively applied.”  QC § 20.20; see also AU § 161.  SL failed to adhere to QC § 20 in 
+several respects.   
+64. In 2014, SL hired a new Director of Quality Control in response to a peer review 
+that found that SL’s system of quality control was not suitably designed or sufficiently complied 
+with to provide the firm with reasonable assurance of performing and/or reporting in conformity 
+17 
+with applicable professional standards in all material respects.  The Director of Quality Control, 
+along with SL’s Managing Partner, was responsible for administering and monitoring SL’s system 
+of quality control.  However, the Director of Quality Control had limited experience conducting 
+public company audits, and SL’s Managing Partner had no public company audit experience.  SL’s 
+Director of Quality Control and Managing Partner lacked the experience and expertise necessary to 
+provide reasonable assurance that SL complied with the requirements of QC § 20. 
+65. SL’s policies and procedures regarding engagement acceptance and continuance 
+were deficient because they placed the ultimate authority for decisions on engagement acceptance 
+and resignation, as well as engagement staffing, with personnel who lacked the experience and 
+expertise necessary to make those decisions.   
+66. SL failed to adopt and implement adequate policies and procedures regarding audit 
+planning and risk assessment.  Specifically, SL’s quality control document lacked policies and 
+procedures addressing the need to engage in planning and risk assessment procedures throughout 
+the course of an engagement or to modify engagement strategy to respond to changes in risk 
+assessment and previously unidentified risks of material misstatement.   
+67. SL failed to adopt and implement adequate policies and procedures governing 
+supervision, review, and approval.  SL’s quality control document did not provide guidance on 
+supervision and review that addressed engagements staffed by two co-equal principals, as was the 
+case with most of the QFOR engagements.  This contributed to a lack of clear lines of 
+responsibility for the overall conduct of the engagements and an overly deferential review by the 
+co-engagement principals of each other’s work.   
+68. SL also failed to adequately monitor the design and application of its system of 
+quality control.  In the exercise of his monitoring functions, the Director of Quality Control 
+reviewed the workpaper binder at the conclusion of each attest engagement to provide reasonable 
+assurance that it included all workpapers required by the firm’s quality control document.  He 
+knew or should have known that the engagement team had not performed the engagement 
+acceptance and continuance, planning, and risk assessment procedures required by the firm’s 
+quality control document in connection with the 2015 Form 10-K/A Audit, yet he took no action. 
+69. Additionally, in the exercise of his monitoring functions, the Director of Quality 
+Control, for every audit engagement, reviewed and maintained copies of workpapers that, pursuant 
+to the firm’s quality control document, the engagement partner or engagement principal was 
+required to sign to document his or her approval of the release of an audit report.  These 
+workpapers were incomplete for each of the QFOR audit engagements.  The Director of Quality 
+Control knew or should have known that the engagement team had not documented the 
+engagement principal’s approval of the release of the audit report for any of the QFOR audits, as 
+required by the firm’s quality control document, yet he took no action. 
+VIOLATIONS 
+70. Section 10A(a)(2) of the Exchange Act requires each audit to include procedures 
+designed to identify related party transactions that are material to the financial statements or 
+otherwise require disclosure therein.  No showing of scienter is necessary to establish a violation of 
+18 
+Section 10A of the Exchange Act.  As a result of the conduct described above, SL willfully 
+violated Section 10A(a)(2) of the Exchange Act.   
+71. Rule 2-02(b)(1) of Regulation S-X requires an accountant’s report to state “whether 
+the audit was made in accordance with generally accepted auditing standards” (“GAAS”).  
+“[R]eferences in Commission rules and staff guidance and in the federal securities laws to GAAS 
+or to specific standards under GAAS, as they relate to issuers, should be understood to mean the 
+standards of the PCAOB plus any applicable rules of the Commission.”  See SEC Release No. 34-
+49708 (May 14, 2004).  No showing of scienter is necessary to establish a violation of Rule 2-
+02(b)(1) of Regulation S-X.  As a result of the conduct described above, SL willfully violated 
+Regulation S-X Rule 2-02(b)(1) when SL issued audit reports stating that it had conducted its 
+audits in accordance with PCAOB standards when it had not.   
+72. Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s 
+Rules of Practice provide, in part, that the Commission may deny, temporarily or permanently, the 
+privilege of appearing or practicing before the Commission to any person who is found by the 
+Commission “[t]o have willfully violated, or willfully aided and abetted the violation of, any 
+provision of the Federal securities laws or the rules and regulations thereunder.”  Through the 
+conduct described above, SL willfully violated the federal securities laws and rules and regulations 
+thereunder within the meaning of Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of 
+the Commission’s Rules of Practice. 
+73. Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s 
+Rules of Practice provide, in part, that the Commission may deny, temporarily or permanently, the 
+privilege of appearing or practicing before the Commission to any person who is found by the 
+Commission to have engaged in improper professional conduct.  With respect to persons licensed 
+to practice as accountants, “improper professional conduct” includes “intentional or knowing 
+conduct, including reckless conduct that results in a violation of applicable professional standards.”  
+Rule 102(e)(1)(iv)(A).  In addition, “improper professional conduct” includes either of the 
+following two types of negligent conduct:  (1) a single instance of highly unreasonable conduct 
+that results in a violation of applicable professional standards in circumstances in which an 
+accountant knows, or should know, that heightened scrutiny is warranted; or (2) repeated instances 
+of unreasonable conduct, each resulting in a violation of applicable professional standards, that 
+indicate a lack of competence to practice before the Commission.  Rule 102(e)(1)(iv)(B).  Through 
+the conduct described above, SL engaged in “improper professional conduct” within the meaning 
+of Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s Rules of 
+Practice.  
+FINDINGS 
+74. Based on the foregoing, the Commission finds that SL willfully violated Section 
+10A(a)(2) of the Exchange Act and Rule 2-02(b)(1) of Regulation S-X. 
+75. Based on the foregoing, the Commission finds that SL engaged in improper 
+professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of 
+the Commission’s Rules of Practice. 
+19 
+UNDERTAKINGS 
+76. SL has resigned from all audit engagements for issuer clients and has withdrawn 
+its PCAOB registration. 
+77. Acceptance of New Clients.   
+a. SL has undertaken not to accept any audit engagement from any new client who is:  
+(1) an issuer as that term is defined in Section 2(a)(7) of the Sarbanes-Oxley Act 
+of 2002; (2) registered with the Commission; or (3) seeking an audit for the 
+purpose of registering securities with the Commission from the date of entry of 
+this order.   
+b. If SL wishes to accept any audit engagement from any new client described in 
+paragraph 77.a), SL undertakes that, before it accepts such engagements, it will:  (1) 
+certify that it is registered with the PCAOB in accordance with the Sarbanes-
+Oxley Act of 2002, and such registration continues to be effective; (2) comply 
+with the undertakings discussed in paragraphs 78 through 82 below; and (3) provide 
+the Division of Enforcement with written certification of such compliance by an 
+independent consultant, as set forth in paragraph 79.e) below.  
+78. Independent Consultant.  If SL wishes to accept any audit engagement from any 
+new client described in paragraph 77.a): 
+a. SL shall retain the services of an independent consultant (“Independent 
+Consultant”) not unacceptable to the Division of Enforcement of the Commission 
+(“Division of Enforcement”), to review and evaluate SL’s policies and procedures 
+regarding:  (1) client and engagement acceptance and client retention; (2) staffing 
+and supervision of engagement personnel; (3) audit planning; (4) risk assessment; 
+(5) the exercise of due professional care and professional skepticism; (6) 
+obtaining sufficient appropriate audit evidence, including from independent 
+sources, directly by the auditor; (7) the identification of related parties and related 
+party transactions and the examination and evaluation of such transctions and the 
+appropriate disclosures thereof; (8) the evaluation of and reliance upon 
+management representations; (9) the confirmation process, including obtaining 
+and evaluating evidence from third parties and determining whether further 
+testing is required; (10) the consideration of fraud in a financial statement audit, 
+including review and testing of journal entries; (11) identifying and evaluating the 
+accounting and reporting for litigation, claims, and assessments; (12) appropriate 
+procedures upon the subsequent discovery of facts existing at the date of a 
+previous audit report; (13) performing engagement quality reviews; and (14) 
+adequate audit documentation, including work paper sign-off. 
+b. SL shall provide to the Commission staff a copy of the engagement letter 
+detailing the scope of the Independent Consultant’s responsibilities.  The 
+Independent Consultant’s compensation and expenses shall be borne exclusively 
+by SL. 
+20 
+c. SL shall cooperate fully with the Independent Consultant and shall provide 
+reasonable access to firm personnel, information, and records as the Independent 
+Consultant may reasonably request for the Independent Consultant’s review and 
+evaluation described herein and the reports specified in paragraph 79 below. 
+d. To ensure the independence of the Independent Consultant, SL:  (1) shall not have 
+the authority to terminate the Independent Consultant or substitute another 
+independent compliance consultant for the initial Independent Consultant, without 
+the prior written approval of the Commission staff; and (2) shall compensate the 
+Independent Consultant and persons engaged to assist the Independent Consultant 
+for services rendered pursuant to this Order at their reasonable and customary 
+rates.  
+e. SL shall require the Independent Consultant to enter into an agreement that 
+provides that for the period of engagement and for a period of two years from 
+completion of the engagement, the Independent Consultant shall not enter into any 
+employment, consultant, attorney-client, auditing or other professional relationship 
+with SL, or any of its present or former affiliates, directors, officers, employees, or 
+agents acting in their capacity. The agreement will also provide that the 
+Independent 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 Independent 
+Consultant in performance of his/her duties under this Order shall not, without prior 
+written consent of the Division of Enforcement’s Chicago office, enter into any 
+employment, consultant, attorney-client, auditing, or other professional relationship 
+with SL 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.  
+f. The reports by the Independent Consultant will likely include confidential 
+financial, proprietary, competitive business or commercial information.  Public 
+disclosure of the reports could discourage cooperation, impede pending or 
+potential government investigations or undermine the objectives of the reporting 
+requirement.  For these reasons, among others, the reports and the contents 
+thereof are intended to remain and shall remain non-public, except (1) pursuant to 
+court order, (2) as agreed to by the parties in writing, (3) to the extent that the 
+Commission determines in its sole discretion that disclosure would be in 
+furtherance of the Commission’s discharge of its duties and responsibilities, or (4) 
+is otherwise required by law. 
+79. Independent Consultant Reports and Certifications.  
+a. Within five months of the Independent Consultant being retained, SL shall require 
+the Independent Consultant to issue a detailed written report (“Report”) to SL:  
+(1) describing the Independent Consultant’s review and evaluation of the areas 
+identified in paragraph 78.a) above; and (2) making recommendations, where 
+appropriate, reasonably designed to ensure that audits conducted by SL comply 
+with Commission regulations and with PCAOB standards and rules.  SL shall 
+21 
+require the Independent Consultant to provide a copy of the Report to the 
+Commission staff when the Report is issued.  
+b. SL shall adopt, implement, and thereafter maintain all recommendations made by 
+the Independent Consultant in the Report; provided, however, that within thirty 
+days of issuance of the Report, SL may advise the Independent Consultant and the 
+Division of Enforcement in writing of any recommendation that it considers to be 
+unnecessary, unduly burdensome, or impractical.  With respect to any such 
+recommendation, SL need not adopt that recommendation at that time but shall 
+propose in writing to the Independent Consultant and the Division of Enforcement 
+an alternative policy, procedure, or system designed to achieve the same objective 
+or purpose.  As to any of the Independent Consultant’s recommendations about 
+which SL and the Independent Consultant do not agree, SL shall attempt in good 
+faith to reach agreement with the Independent Consultant within sixty days of the 
+date of the Report.  In the event that SL and the Independent Consultant are 
+unable to agree on an alternative proposal, SL shall abide by the determinations of 
+the Independent Consultant and adopt those recommendations deemed 
+appropriate by the Independent Consultant. 
+c. Within sixty days of issuance of the Report, but not sooner than thirty days after a 
+copy of the Report is provided to the Commission staff, SL shall certify to the 
+Commission staff in writing that it has adopted and has implemented or will 
+implement all recommendations of the Independent Consultant (“Interim 
+Certification of Compliance”).  SL shall provide a copy of the Interim 
+Certification of Compliance to the Commission staff.  
+d. Within six months of the issuance of the Report, SL shall require the Independent 
+Consultant to:  (1) test whether SL has implemented and enforced its policies and 
+procedures concerning the areas specified in paragraph 78.a) above; (2) assess the 
+effectiveness of those policies and procedures; and (3) test whether SL’s staff has 
+completed the training specified in paragraph 80 below.  SL shall require the 
+Independent Consultant to issue a written final report summarizing the results of 
+the Independent Consultant’s test and assessment (“Final Report”) and to provide 
+a copy of the Final Report to the Commission Staff.   
+e. Upon issuance of the Final Report, if the Independent Consultant determines that 
+the undertakings discussed herein have been completed to the satisfaction of the 
+Independent Consultant, SL shall require the Independent Consultant to certify in 
+writing that the undertakings have been so completed (“Independent Consultant 
+Certification”) and provide a copy of this certification to the Commission staff.  
+SL’s undertaking to not accept any new clients described in paragraph 77 above 
+shall continue until the Independent Consultant has issued the Independent 
+Consultant Certification.  
+80. Training.  If SL wishes to accept any audit engagement from any new client 
+described in paragraph 77.a), SL shall require each audit and attest professional to complete 
+successfully:  (a) a minimum of 24 hours of audit-related training; and (b) a minimum of 8 hours 
+22 
+of fraud-detection training.  The audit-related training requirement will cover the topics specified 
+in paragraph 78.a) above, with no less than four hours being devoted to related party 
+identification and testing.  The audit-related training requirement may be fulfilled by completing 
+course(s) conducted in accordance with the applicable state boards of accountancy.  The fraud-
+detection training requirement will include training in techniques in detecting and responding to 
+possible fraud in the course of public company audits by audit clients or by employees, officers, 
+or directors of audit clients. 
+ 
+81. Within sixty days from the date of completion of the undertakings, SL shall 
+certify, in writing, compliance with the undertakings set forth above (“Final Certification of 
+Compliance”).  The Final Certification of Compliance shall identify the undertakings, provide 
+written evidence of compliance in the form of a narrative, and be supported by exhibits sufficient 
+to demonstrate compliance.  The Commission staff may make reasonable requests for further 
+evidence of compliance, and Respondent agrees to provide such evidence.   
+82. The engagement letter, Report, Interim Certification of Compliance, Final Report, 
+Independent Consultant Certification, Final Certification of Compliance, and any related 
+correspondence or other documents shall be submitted to Amy S. Cotter, Division of 
+Enforcement, Securities and Exchange Commission, 175 W. Jackson Blvd., Ste. 1450, Chicago, 
+IL 60604, with a copy to the Office of Chief Counsel of the Division of Enforcement.  
+83. For good cause shown, the Commission staff may extend any of the procedural 
+dates relating to the undertakings.  Deadlines for procedural dates shall be counted in calendar 
+days, except that if the last day falls on a weekend or federal holiday, the next business day shall 
+be considered to be the last day.  
+84. SL agrees that if the Division of Enforcement believes that SL has not satisfied 
+these undertakings, it may petition the Commission to reopen the matter to determine whether 
+additional sanctions are appropriate. 
+85. In determining whether to accept the Offer, the Commission has considered these 
+undertakings. 
+IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Respondent SL shall cease and desist from committing or causing any violations and 
+any future violations of Section 10A(a)(2) of the Exchange Act and Rule 2-02(b)(1) of Regulation 
+S-X. 
+ 
+ B. Respondent SL is censured.   
+ 
+23 
+ C. Respondent SL shall comply with the undertakings enumerated in paragraphs 77 to 
+84 of Section III above. 
+ 
+D. Respondent SL shall pay disgorgement of $24,500.00, prejudgment interest of 
+$4,010.29, and a civil money penalty of $70,000.00, to the Securities and Exchange Commission.  
+The Commission may distribute civil money penalties collected in this proceeding if, in its 
+discretion, the Commission orders the establishment of a Fair Fund pursuant to 15 U.S.C. § 7246, 
+Section 308(a) of the Sarbanes-Oxley Act of 2002.  The Commission will hold funds paid pursuant 
+to this paragraph in an account at the United States Treasury pending a decision whether the 
+Commission, in its discretion, will seek to distribute funds or transfer them to the general fund of 
+the United States Treasury, subject to Section 21F(g)(3).  Payment shall be made in the following 
+installments:  $20,000 to be paid within 21 days of the entry of this Order; $20,000 to be paid 
+within 90 days of the entry of this Order; $20,000 to be paid within 180 days of the entry of this 
+Order; $20,000 to be paid within 270 days of the entry of this Order; and the remaining balance to 
+be paid within 364 days of the entry of this Order.  Payments shall be applied first to post-order 
+interest, which accrues pursuant to SEC Rule of Practice 600 as to disgorgement and prejudgment 
+interest and pursuant to 31 U.S.C. § 3717 as to the civil money penalty.  Prior to making the final 
+payment set forth herein, Respondent shall contact the staff of the Commission for the amount 
+due.  If Respondent fails to make any payment by the date agreed and/or in the amount agreed 
+according to the schedule set forth above, all outstanding payments under this Order, including 
+post-order interest, minus any payments made, shall become due and payable immediately at the 
+discretion of the staff of the Commission without further application to the Commission. 
+ 
+Payment must be made in one of the following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Schulman Lobel Zand Katzen Williams & Blackman, LLP a/k/a Schulman Lobel LLP as a 
+Respondent in these proceedings, and the file number of these proceedings; a copy of the cover 
+letter and check or money order must be sent to Paul A. Montoya, Associate Regional Director, 
+24 
+Division of Enforcement, Securities and Exchange Commission, 175 West Jackson Boulevard, 
+Suite 1450, Chicago, Illinois 60604. 
+ 
+ E.  Regardless of whether the Commission in its discretion orders the creation of a 
+Fair Fund for the penalties ordered in this proceeding, amounts ordered to be paid as civil money 
+penalties pursuant to this Order shall be treated as penalties paid to the government for all 
+purposes, including all tax purposes.  To preserve the deterrent effect of the civil penalty, 
+Respondent agrees that in any Related Investor Action, it shall not argue that it is entitled to, nor 
+shall it benefit by, offset or reduction of any award of compensatory damages by the amount of any 
+part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”).  If the court in 
+any Related Investor Action grants such a Penalty Offset, Respondent agrees that it shall, within 30 
+days after entry of a final order granting the Penalty Offset, notify the Commission’s counsel in 
+this action and pay the amount of the Penalty Offset to the Securities and Exchange Commission.  
+Such a payment shall not be deemed an additional civil penalty and shall not be deemed to change 
+the amount of the civil penalty imposed in this proceeding.  For purposes of this paragraph, a 
+“Related Investor Action” means a private damages action brought against Respondent by or on 
+behalf of one or more investors based on substantially the same facts as alleged in the Order 
+instituted by the Commission in this proceeding. 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 
+ 
+ 
+ 

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+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 88659 / April 16, 2020 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 4123 / April 16, 2020 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-17112 
+ 
+In the Matter of  
+Miranda Suen, CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+RESPONSIBLE FOR THE PREPARATION OR 
+REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+TO BE FILED WITH THE COMMISSION 
+ 
+On June 7, 2016, Miranda Suen, CPA (“Suen”) was suspended from appearing or 
+practicing before the Commission as an accountant as a result of settled public administrative 
+proceedings instituted by the Commission against her pursuant to Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice.1  This order is issued in response to Suen’s application for 
+reinstatement to appear and practice before the Commission as an accountant responsible for the 
+preparation or review of financial statements required to be filed with the Commission. 
+The Commission found that Suen served as the engagement manager during Frazer Frost 
+LLP’s third quarter 2010 review and 2011 year-end audit of China Valves Technology, Inc. 
+(“CVVT”).  In 2010, CVVT misled investors about its acquisition of Watts Valve (Changsha) 
+Co., Ltd and, in 2011, materially overstated income and understated liabilities incurred by 
+another subsidiary, Shanghai Pudong Hanwei Valve Co., Ltd., in its financial statements.  Suen, 
+and others, failed to conduct the review and audit during the time in which these misstatements 
+occurred in accordance with Public Company Accounting Oversight Board (“PCAOB”) auditing 
+standards and the firm failed to comply with the documentation requirements of Rule 2-06 of 
+Regulation S-X.  As a result, she engaged in improper professional conduct and was also a cause 
+of Frazer Frost’s violation of Rule 2-06 of Regulation S-X. 
+ 
+In her capacity as a preparer or reviewer, or as a person responsible for the preparation or 
+review, of financial statements of a public company to be filed with the Commission, Suen 
+                                                
+1 See Accounting and Auditing Enforcement Release No. 3781 dated June 7, 2016.  Suen was permitted, pursuant to 
+the order, to apply for reinstatement after one year upon making certain showings. 
+ 
+ 2 
+attests that she will undertake to have her work reviewed by the independent audit committee of 
+any company for which she works, or in some other manner acceptable to the Commission, 
+while practicing before the Commission in this capacity.  Suen is not, at this time, seeking to 
+appear or practice before the Commission as an independent accountant.  If she should wish to 
+resume appearing and practicing before the Commission as an independent accountant, she will 
+be required to submit an application to the Commission showing that she has complied and will 
+comply with the terms of the original suspension order in this regard.  Therefore, Suen’s 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension order. 
+ 
+Suen is currently subject to probation under the California Board of Accountancy that is 
+scheduled to end in October 2020. Failure to abide by the terms of her probation could result in 
+the revocation of Suen’s CPA license pending notice and an opportunity to be heard by the 
+California Board of Accountancy.  Suen has attested that she will notify the Commission if she is 
+found to have violated the terms of the probation. She also has attested that she understands that 
+the revocation of her CPA license could result in the revocation of her reinstatement to appear 
+and practice before the Commission as an accountant. 
+ 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”2  This “good cause” determination is 
+necessarily highly fact specific. 
+ 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Suen, it appears that she has complied with the terms of the June 7, 2016 order suspending her 
+from appearing or practicing before the Commission as an accountant, that no information has 
+come to the attention of the Commission relating to her character, integrity, professional conduct 
+or qualifications to practice before the Commission that would be a basis for adverse action 
+against her pursuant to Rule 102(e) of the Commission's Rules of Practice, and that Suen, by 
+undertaking to have her work reviewed by the independent audit committee of any company for 
+which she works, or in some other manner acceptable to the Commission, in her practice before 
+the Commission as a preparer or reviewer of financial statements required to be filed with the 
+Commission, has shown good cause for reinstatement.  Therefore, it is accordingly, 
+ 
+ 
+ 
+ 
+ 
+                                                
+2 Rule 102(e)(5)(i) provides: 
+ 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1) or (e)(3) 
+of this rule may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a hearing; 
+however, the suspension or disqualification shall continue unless and until the applicant has been reinstated by the 
+Commission for good cause shown.”  17 C.F.R. § 201.102(e)(5)(i). 
+ 
+ 
+ 3 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission’s Rules of Practice that 
+Miranda Suen, CPA is hereby reinstated to appear and practice before the Commission as an 
+accountant responsible for the preparation or review of financial statements required to be filed 
+with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+Vanessa A. Countryman  
+Secretary  

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+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88679 / April 17, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4124 / April 17, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19751 
+ 
+ 
+In the Matter of 
+ 
+Eni S.p.A., 
+ 
+Respondent. 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER  
+  
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the 
+Securities Exchange Act of 1934 (“Exchange Act”), against Eni S.p.A. (“Eni” or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting 
+Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, 
+Making Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.   
+ 
+ 
+  
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+Summary 
+ 
+1. Between 2007 and 2010, Saipem S.p.A. (“Saipem”), a subsidiary controlled by 
+Eni S.p.A. (“Eni”), which at the time held a 43% interest in Saipem, entered into four sham 
+contracts with an intermediary to assist in obtaining contracts awarded by Algeria’s state owned 
+oil company.  Saipem conducted little or no due diligence before entering into the contracts, 
+received no legitimate services from the intermediary, and falsely characterized its payments to 
+the intermediary as lawful “brokerage fees” in its books and records, which were consolidated 
+into Eni’s during the relevant period.  As a consequence, Eni, an Italian multinational oil and 
+gas company whose American Depositary Receipts (“ADRs”) are listed on the New York Stock 
+Exchange, violated the books and records and internal accounting controls provisions of the 
+Foreign Corrupt Practices Act (“FCPA”). 
+ 
+2. Executive A, who served as Saipem’s CFO from 1996 to 2008, participated in 
+Saipem’s approval of the intermediary contracts, despite being aware of Saipem’s lack of due 
+diligence, and facilitated the payments to the intermediary, despite being aware of the lack of 
+services rendered by the intermediary.  Executive A was later hired to be the CFO of Eni in 
+August 2008, and continued to facilitate Saipem’s payments to the intermediary while at Eni. 
+ 
+3. Saipem paid approximately €198 million to the intermediary and was awarded at 
+least seven contracts from the Algerian state-owned oil company.  The intermediary directed a 
+portion of the money it received from Saipem to Algerian government officials or their 
+designees. 
+ 
+4. As a result of Saipem’s and Executive A’s conduct, Eni’s consolidated financial 
+statements failed to accurately record the true nature of Saipem’s transactions with the 
+intermediary in Eni’s books and records.  Instead, in violation of the books and records 
+provisions of Section 13(b)(2)(A) of the Exchange Act, Eni—based on Saipem’s own 
+characterization of its intermediary payments—indicated in its filings with the Commission 
+that those payments were lawful “brokerage fees.”   
+ 
+5. In contravention of Sections 13(b)(2)(B) and 13(b)(6) of the Exchange Act, 
+because Eni’s CFO was aware of and participated in Saipem’s conduct, Eni failed to proceed 
+in good faith to use its influence to cause Saipem to devise and maintain a system of internal 
+accounting controls consistent with Section 13(b)(2)(B) of the Exchange Act. 
+ 
+6. During the relevant period, Saipem’s practice was to annually distribute to its 
+                                                 
+1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not 
+binding on any other person or entity in this or any other proceeding.   
+ 
+ 
+  
+shareholders approximately one-third of its profits, so Eni, with its 43% minority-controlling 
+interest, benefitted from the profits derived from Saipem’s contracts in Algeria.  As a 43% 
+shareholder of Saipem, Eni also benefitted from the fact that Saipem took a tax deduction on 
+the fees it paid to the intermediary, despite not receiving legitimate services from the 
+intermediary and thus not incurring a legitimate business expense.     
+ 
+7. In September 2018, an Italian trial court found Saipem, Executive A, and others 
+guilty of the Italian crime of international corruption for the payments from Saipem through an 
+intermediary to Algerian officials.  Eni, its former CEO, and a senior Eni executive were 
+acquitted of the same and related charges by the same court.  The court ordered Saipem to 
+forfeit approximately €198 million, which the court variously described as “the crime’s 
+profit,” “the amount of the bribe paid by Saipem,” “the quantum paid for the acquisition of the 
+contracts and, as such, the proceeds of the crime” and “commissions” paid to the intermediary.  
+The court also ordered Saipem to pay a €400,000 fine.  Executive A received a 49-month 
+prison sentence.  On January 15, 2020, the Milan Court of Appeals affirmed the trial court’s 
+acquittal of Eni and its officers but overruled the trial court and acquitted the remaining 
+defendants, including Saipem and Executive A, of all charges.  This recent ruling may be 
+further appealed to the Supreme Court of Italy. 
+ 
+Respondent 
+ 
+8. Eni S.p.A. (“Eni”) is an Italian company headquartered in Rome, engaged in the 
+oil and gas, electricity generation, petrochemical, oilfield services and engineering industries.  
+Eni’s American Depositary Receipts (“ADRs”) are listed on the New York Stock Exchange.  
+Since 1995, Eni’s ADRs have been registered with the Commission pursuant to Section 12(b) 
+of the Exchange Act.  In July 2010, in settlement of an action brought by the SEC, Eni and its 
+then- wholly-owned subsidiary, Snamprogetti Netherlands, B.V. (“Snamprogetti”), consented to 
+a judgment entered by the U.S. District Court for the Southern District of Texas that 
+permanently enjoined Eni from violating the books and records and internal accounting controls 
+provisions of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and permanently 
+enjoined Snamprogetti from violating the anti-bribery, books and records, and internal 
+accounting control provisions of the FCPA. SEC v. Eni, S.p.A., No. 10-cv-2414 (S.D. Tex. July 
+20, 2010).  That settlement was based on the conduct of certain Snamprogetti employees who 
+participated in a joint venture known as TSKJ to construct liquefied natural gas facilities in 
+Bonny Island, Nigeria.  No employee of Eni was alleged to have participated in the TSKJ 
+misconduct.  Pursuant to the consent judgment, Eni and Snamprogetti jointly and severally 
+disgorged $125 million of ill-gotten gains.  Snamprogetti was reorganized in 2008 to become a 
+wholly-owned subsidiary of Saipem and then later was merged into and made a part of Saipem. 
+ 
+Facts 
+ 
+Saipem’s Use of the Intermediary 
+                                                      
+ 
+9. In early 2006, Saipem’s management came to understand from the Algerian 
+owner of the intermediary, who was well-connected in Algerian politics, that, in order to 
+ 
+  
+obtain business in Algeria, Saipem would need to hire the intermediary.  In meetings with 
+Saipem’s management, the Algerian energy minister at the time referred to the owner of the 
+intermediary as his personal secretary and someone he considered like a “son.”  Following 
+these conversations, Saipem and certain of its subsidiaries entered into at least four sham 
+contracts with the intermediary and paid the intermediary pursuant to invoices for services 
+that were never rendered. 
+ 
+10. The agreements provided that the intermediary would help Saipem identify and 
+evaluate business opportunities, assist with bidding processes, develop strategies for procuring 
+contracts, and provide advice and assistance in connection with the performance of such 
+contracts.  The intermediary never rendered any legitimate services to Saipem.  In fact, the 
+intermediary was wholly unequipped to provide the contemplated consulting services in the 
+technically complex energy design sector, having no employees or offices in Algeria and only 
+a “virtual office” in Geneva, Switzerland staffed by one individual.   
+ 
+11. Saipem paid approximately €198 million to the intermediary.  The intermediary 
+directed at least a portion of that money through offshore shell entities to Algerian officials or 
+their designees, including the Energy Minister at the time.   
+ 
+12. Algeria’s state-owned oil company awarded at least seven projects to Saipem 
+between 2007 and 2009.  Saipem deducted the intermediary payments from its taxable 
+corporate income in Italy. 
+ 
+13. Executive A, Saipem’s then-CFO, was aware of and participated in Saipem’s 
+intermediary payments.  Executive A supervised the inadequate “due diligence” conducted on 
+the intermediary, negotiated the intermediary fees, bypassed contracting procedures at Saipem, 
+and approved certain of the contracts as a Director of certain Saipem subsidiaries.   
+ 
+Eni Failed to Maintain Accurate Books and Records 
+ 
+14. During the relevant period of 2007 to 2010, Eni consolidated Saipem’s financial 
+statements into its own.  Thus, Saipem’s transactions were reflected in Eni’s consolidated 
+financial statements, including the approximately €198 million in payments to the 
+intermediary that Saipem falsely recorded as legitimate “brokerage fees.”  By virtue of its 
+consolidation of Saipem’s financial statements, Eni included the false line item for “brokerage 
+fees” in its financial statements that it filed with the Commission in its annual reports on Form 
+20-F for the years 2007 through 2010. 
+ 
+15. As Eni’s CFO at the time, Executive A knew that the payments to the 
+intermediary were mischaracterized as legitimate “brokerage fees” in Eni’s financial 
+statements, despite no legitimate services being rendered by the intermediary.  Saipem claimed 
+the intermediary payments as a legitimate business expense and obtained an approximately 
+$57 million tax benefit as a result.  That inaccurate expense accounting was also reflected in 
+Eni’s financial statements by virtue of its consolidation of Saipem’s financial statements.  
+Moreover, approximately $19,750,000 of the unwarranted tax benefit obtained by Saipem also 
+flowed to Eni as a result of its 43% interest in Saipem during the time when Executive A was 
+ 
+  
+Eni’s CFO.   
+ 
+Eni Failed to Exercise Good Faith to Use Its Influence to Cause Saipem to Design and 
+Maintain Sufficient Internal Accounting Controls 
+ 
+16. Eni, as the controlling minority shareholder, required Saipem to maintain its 
+own internal controls policies, including adopting Eni’s directives of transparency, 
+traceability, and anti-bribery compliance.  However, because of the conduct of Executive A 
+and others at Saipem, Saipem’s internal accounting controls were not adequately 
+implemented and were ineffective.   
+ 
+17. Eni’s subsidiary Saipem conducted no substantive review of the intermediary 
+contracts at Saipem.  For example, Saipem’s legal department conducted a pre-review of the 
+sham contracts prior to anyone signing them, but these contracts had no names inserted, not 
+even the name of the intermediary.  Accordingly, Saipem’s legal department did not conduct 
+any review of the intermediary’s business or reputation.  Although Saipem had its own internal 
+audit department, its audits performed on the intermediary contracts were either inadequate or 
+perfunctory, such as simply matching invoices to payment amounts.  Saipem’s intermediary 
+contracts were not within the scope of Eni’s internal audit function because Saipem had its own 
+internal audit department. 
+ 
+18. Executive A, as Saipem’s CFO at the time, along with other senior officers, 
+bypassed contracting and procurement controls to enter into contracts with the intermediary, 
+including falsifying and backdating documents concerning the intermediary contracts in Board 
+notes and approvals.  Saipem also made payments to the intermediary on at least one occasion 
+without approval from the appropriate senior officer until nearly a year after the payment had 
+been made.  These actions demonstrate that Saipem’s internal accounting controls were 
+inadequate and insufficient. 
+ 
+19. In August 2008, Executive A was hired to be the CFO of Eni.  At Eni, he 
+remained involved in Saipem’s intermediary contracts by communicating with the 
+intermediary and its owner and associates, sending emails concerning the intermediary, and 
+facilitating Saipem’s ongoing payments to the intermediary.  For example, in early 2009, an 
+associate of the intermediary emailed Executive A, Eni’s CFO at the time, for assistance in 
+getting an invoice paid by Saipem.  In response, in May 2009, Executive A sent an email 
+from his Eni email account to a Saipem manager requesting that Saipem pay the invoice. 
+ 
+20. While at Eni, Executive A continued to conceal Saipem’s sham intermediary 
+contracts from, among others, his colleagues at Eni.  For example, in August 2009, he received 
+an email from a Saipem accounting employee that the semi-annual intermediary fees reported 
+to Eni for 2009—which Executive A knew to be payments to the intermediary for services that 
+were not rendered—amounted to €63 million rather than the €22 million that was previously 
+reported, due to an “incorrect allocation” at Saipem. Eni corrected its interim financial 
+statements because of this discrepancy, yet Executive A did not disclose the true nature of 
+those “intermediary fees” to anyone else at Eni.  To avoid further scrutiny, he did not request 
+ 
+  
+any inquiry or review of that accounting discrepancy.  Similarly, he did not request any inquiry 
+or review as to why Saipem’s “intermediary fees” increased four-fold from 2007 to 2008. 
+ 
+21. After becoming CFO of Eni, Executive A continued to override and undermine 
+Saipem’s internal accounting controls by exerting his influence over Saipem and requesting 
+that it prepay an invoice from the intermediary that was not due yet. Executive A also 
+circumvented Saipem’s anti-bribery internal controls by emailing the intermediary’s 
+“strawman” owner and also meeting with the intermediary’s true owner. 
+ 
+22. In late 2012, Eni became aware that Saipem had entered into four agreements 
+with the intermediary without conducting adequate due diligence.  Eni also learned that 
+Executive A had continued to involve himself in Saipem’s payments to the intermediary. 
+Immediately upon discovering those facts, Eni separated Executive A from the company. 
+ 
+23. Section 13(b)(6) of the Exchange Act provides that when an issuer that holds 50 
+per centum or less of the voting power with respect to a domestic or foreign firm, the 
+provisions of Section 13(b)(2) of the Exchange Act require only that the issuer proceed in good 
+faith to use its influence, to the extent reasonable under the issuer’s circumstances, to cause 
+such domestic or foreign firm to devise and maintain a system of internal accounting controls 
+consistent with Section 13(b)(2) of the Exchange Act. Such circumstances include the relative 
+degree of the issuer’s ownership of the domestic or foreign firm and the laws and practices 
+governing the business operations of the country in which such firm is located.  An issuer 
+which demonstrates good faith efforts to use such influence shall be conclusively presumed to 
+have complied with the requirements of Section 13(b)(2) of the Exchange Act. 
+ 
+24. Here, however, because Saipem’s accounting for intermediary fees was 
+inaccurate, and because Executive A participated in the approval of and payments to the 
+intermediary while at Saipem and continued to take certain actions to facilitate payments to the 
+intermediary while CFO of Eni, Eni failed to proceed in good faith to cause Saipem to devise 
+and maintain sufficient internal accounting controls.  As the principal finance officer of Eni, 
+Executive A could not have been proceeding in good faith to cause Saipem to devise and 
+maintain sufficient internal accounting controls while simultaneously being aware of, and 
+participating in, conduct at Saipem that undermined those controls.  Because its CFO was not 
+acting in good faith, Eni cannot rely on the provisions of Section 13(b)(6) of the Exchange Act. 
+ 
+Eni’s Remedial Efforts 
+ 
+25. In determining to accept the Offer, the Commission considered remedial acts 
+promptly undertaken by Eni and cooperation afforded the Commission staff, including 
+compiling financial data and analysis relating to the transactions at issue, making substantive 
+presentations on key topics, and providing translations of key documents and foreign 
+proceedings. 
+ 
+Violations 
+ 
+26. As a result of the conduct described above, Eni violated Section 13(b)(2)(A) of 
+ 
+  
+the Exchange Act, which requires reporting companies to make and keep books, records, and 
+accounts which, in reasonable detail, accurately and fairly reflect their transactions and 
+dispositions of their assets. 
+ 
+27. In contravention of Section 13(b)(6) of the Exchange Act, Eni did not proceed in 
+good faith to use its influence, to the extent reasonable under Eni’s circumstances, to cause 
+Saipem to devise and maintain a sufficient system of internal accounting controls consistent 
+with Section 13(b)(2) of the Exchange Act.  As a result of the conduct described above, Eni 
+violated Section 13(b)(2)(B) of the Exchange Act. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Eni’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent Eni cease and desist 
+from committing or causing any violations and any future violations of Sections 13(b)(2)(A) and 
+13(b)(2)(B).   
+ 
+ B. Respondent Eni shall, within 14 days of the entry of this Order, pay disgorgement 
+of $19,750,000 and prejudgment interest of $4,750,000 to the Securities and Exchange 
+Commission for transfer to the general fund of the United States Treasury, subject to Exchange 
+Act Section 21F(g)(3).  If timely payment is not made, additional interest shall accrue pursuant 
+to SEC Rule of Practice 600.  Payment must be made in one of the following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Eni as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
+ 
+  
+the cover letter and check or money order must be sent to Melissa R. Hodgman, Associate 
+Director, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549-5553.   
+ 
+ By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 
+  

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+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88686 / April 17, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4125 / April 17, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19756 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+BRIAN ROBERT SODI, CPA, 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC  
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+ 
+ 
+ 
+ 
+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 
+Brian Robert Sodi, CPA (“Respondent”) pursuant to Rule 102(e)(3) of the Commission’s Rules 
+of Practice.1 
+ 
+ 
+                                                
+1 Rule 102(e)(3) provides, in relevant part, that: 
+ 
+The Commission … may, by order, temporarily suspend from practicing before it any … accountant … 
+who has been by name: permanently enjoined by any court of competent jurisdiction, by reason of his or 
+her misconduct in an action brought by the Commission, from violating … any provision of the Federal 
+securities laws or of the rules and regulations thereunder … 
+ 2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, Respondent admits the Commission’s 
+jurisdiction over him and the subject matter of these proceedings, and the findings contained in 
+paragraphs III. 1, 2 and 4 below, and consents to the entry of this Order Instituting Public 
+Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of Practice, 
+Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below. 
+ 
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+1. Respondent Sodi, 48 years old and a resident of Boca Raton, Florida, was licensed 
+as a CPA by the State of Florida in 1995. In or about 1998, Sodi allowed his Florida CPA license 
+to lapse. Between 1998 and 2017, Sodi was owner and principal of various penny stock 
+promotion publishing houses, including Capital Financial Media LLC (“CFM”) and List Data 
+Solutions LLC (“LDS”). 
+ 
+2. On April 16, 2020, a final judgment was entered by consent against Sodi, 
+permanently enjoining him from future violations of Sections 5, 17(a) and 17(b) of the Securities 
+Act of 1933 (“Securities Act”), and Sections 10(b) and 13(d) of the Exchange Act and Rules 
+10b-5 and 13d-1 thereunder, in the civil action entitled Securities and Exchange Commission v. 
+Brian Robert Sodi, et al., Civil Action No. 5:18-cv-00313-MHH, in the United States District 
+Court for the Northern District of Alabama (“SEC v. Sodi”).  
+ 
+3. The Commission’s complaint (the “SEC Complaint”) in SEC v. Sodi alleged that, 
+on at least two occasions during 2013, in connection with offerings of two different penny stocks 
+quoted for trading on U.S. markets, Sodi engaged in “scalping” by secretly acquiring shares 
+and/or interests in shares of the companies, and then promoting both companies to investors 
+through his penny stock platform publishing houses, including CFM and LDS, without 
+disclosing his ownership of/interest in the shares or his plans to sell them/share in profits from 
+their sale, and then selling/participating in the selling of both companies’ shares, following the 
+promotions’ dissemination, into the share price and trading volume increases triggered by said 
+promotions, and ultimately realizing his share of the two stocks’ sales proceeds through circuitous 
+repatriation. The SEC Complaint also alleged that, as to one of the penny stocks, Sodi sold 
+unregistered securities, failed to properly disclose the consideration received for the promotions, 
+and failed to comply with the beneficial ownership reporting requirements. 
+ 
+4. On May 20, 2019, Sodi pled guilty to securities fraud in violation of Title 15 
+United States Code, Section(s) 77q(a), 77x before the United States District Court for the 
+ 3 
+Northern District of Alabama, in United States v. Brian R. Sodi, Crim. No. 5:18-cr-56-KOB-
+HNJ.  
+ 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest 
+to impose the sanctions agreed to in Respondent Sodi’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately that, pursuant to Rule 
+102(e)(3)(i)(A) of the Commission’s Rules of Practice, Sodi is suspended from appearing or 
+practicing before the Commission as an accountant.  
+ 
+ By the Commission. 
+ 
+ 
+       Vanessa A. Countryman 
+       Secretary 

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+ 
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+INVESTMENT ADVISERS ACT OF 1940 
+Release No. 5484 / April 22, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4126 / April 22, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19763 
+ 
+ 
+ 
+In the Matter of 
+ 
+N. SCOTT GILLIS, CPA, 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING  
+ADMINISTRATIVE PROCEEDINGS 
+PURSUANT TO SECTION 203(f) OF THE 
+INVESTMENT ADVISERS ACT OF 1940 
+AND RULE 102(e) OF THE 
+COMMISSION’S RULES OF PRACTICE, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS 
+ 
+ 
+ 
+ 
+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 N. Scott 
+Gillis (“Gillis” or “Respondent”) pursuant to Section 203(f) of the Investment Advisers Act of 
+1940 (“Advisers Act”) and Rule 102(e)(3)(i) of the Commission’s Rules of Practice.1  
+  
+                                                
+1  Rule 102(e)(3)(j) provides, in relevant part, that: 
+ 
+ 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 . . . 
+permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought 
+by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws 
+or of the rules and regulations thereunder. 
+ 2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.2. below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Administrative Proceedings Pursuant to Section 
+203(f) of the Investment Advisers Act of 1940 and Rule 102(e) of the Commission’s Rules of 
+Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below. 
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that: 
+ 
+1. Gillis was a certified public accountant licensed to practice in the State of Georgia 
+until his license lapsed at the end of 2017.  Gillis was Chief Financial Officer and Chief Operating 
+Officer of Aequitas Management, LLC (“Aequitas Management”), an Oregon limited liability 
+company formed in 2007 with a principal place of business in Lake Oswego, Oregon.  Aequitas 
+Management is the parent company of a number of entities, including Aequitas Investment 
+Management, LLC (“AIM”), an Oregon limited liability company formed in 2006 with a principal 
+place of business in Lake Oswego, Oregon.  AIM was the investment adviser to a number of 
+Aequitas funds that raised monies from investors.  From 2007 to 2016, AIM was registered as an 
+investment adviser with the Commission.  Gillis, age 66, resides in Lake Oswego, Oregon.   
+ 
+2. On April 13, 2020, a final judgment was entered by consent against Gillis, 
+permanently enjoining him from future violations of Sections 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), 206(2) and 206(4) of the Advisers Act and Rule 
+206(4)-8 thereunder, in the civil action entitled Securities and Exchange Commission v. Aequitas 
+Management LLC, et al., Civil Action Number 3:16-CV-00438-JR, in the United States District 
+Court for the District of Oregon.  
+ 
+3. The Commission’s complaint alleged that, in connection with the sale of securities, 
+Gillis engaged in a scheme to defraud and aided and abetted the making of materially false and 
+misleading statements to investors regarding the financial condition of the Aequitas companies, the 
+use of investor funds, and the collateral that backed the securities.   
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent Gillis’ Offer. 
+ 
+ 3 
+ Accordingly, it is hereby ORDERED pursuant to Section 203(f) of the Advisers Act and 
+Rule 102(e)(3) of the Commission’s Rules of Practice, effective immediately, that: 
+ 
+ A. Respondent Gillis be, and hereby is barred from association with any broker, dealer, 
+investment adviser, municipal securities dealer, municipal advisor, transfer agent, or nationally 
+recognized statistical rating organization.  
+ 
+ B. Any reapplication for association by the Respondent will be subject to the 
+applicable laws and regulations governing the reentry process, and reentry may be conditioned 
+upon a number of factors, including, but not limited to, the satisfaction of any or all of the 
+following:  (a) any disgorgement ordered against the Respondent, whether or not the Commission 
+has fully or partially waived payment of such disgorgement; (b) any arbitration award related to the 
+conduct that served as the basis for the Commission order; (c) any self-regulatory organization 
+arbitration award to a customer, whether or not related to the conduct that served as the basis for 
+the Commission order; and (d) any restitution order by a self-regulatory organization, whether or 
+not related to the conduct that served as the basis for the Commission order. 
+ 
+ C. Gillis is suspended from appearing or practicing before the Commission as an 
+accountant. 
+ 
+  By the Commission.  
+ 
+ 
+Vanessa A. Countryman 
+Secretary 
+ 
+ 

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 10775 / April 22, 2020 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88720 / April 22, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 4127 / April 22, 2020  
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19758 
+ 
+ 
+In the Matter of 
+ 
+BRIAN L. FERDINAND, 
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 8A OF THE SECURITIES ACT 
+OF 1933 AND SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 1934, 
+MAKING FINDINGS, AND IMPOSING A 
+CEASE-AND-DESIST ORDER  
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that 
+cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the 
+Securities Act of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 
+1934 (“Exchange Act”), against Brian L. Ferdinand (“Ferdinand” or “Respondent”).   
+ 
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the 
+findings herein, except as to the Commission’s jurisdiction over him and the subject matter of 
+these proceedings, which are admitted, and except as provided herein in Section V, Respondent 
+consents to the entry of this Order Instituting Cease-And-Desist Proceedings Pursuant to Section 
+8A of the Securities Act and Section 21C of the Exchange Act, Making Findings, and Imposing a 
+Cease-And-Desist Order (“Order”), as set forth below. 
+ 
+  
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+ 
+SUMMARY 
+ 
+1. These proceedings involve Liquid Holdings Group, Inc.’s (“Liquid”) disclosures in its 
+periodic filings and secondary public offering Form S-1 regarding its reliance on loans and 
+investments from Ferdinand and Liquid’s largest shareholder (“Shareholder A”) to provide a 
+substantial portion of the money QuantX Management LLP (“QuantX”)—Liquid’s largest 
+customer and a related party—paid to Liquid in software subscription fees.  When QuantX 
+needed to raise capital in 2013, Ferdinand and Shareholder A provided additional capital to 
+QuantX to pay its quarterly software subscription fees to Liquid.  Ferdinand knew that QuantX 
+could not have paid the fees it owed to Liquid without this money.  Liquid did not disclose these 
+facts in the Form 10-Q for the third quarter of 2013 or the Form 10-K for 2013.  In addition, 
+Liquid’s Form 10-Q for the third quarter of 2013, the Form 10-K for 2013, and the Form S-1 
+filed on April 9, 2014 stated that QuantX represented 69 percent or more of Liquid’s revenue 
+during the relevant periods but failed to disclose that Liquid was reliant on Ferdinand and 
+Shareholder A to provide QuantX with additional money to pay its software subscription fees to 
+Liquid.  As a result, Liquid’s disclosures regarding its reliance on QuantX were materially 
+misleading.  During the relevant period, Ferdinand was a member of its Board of Directors and 
+Liquid’s Head of Corporate Strategy. He was also a co-owner of QuantX, and was 
+knowledgeable about its financial condition at all times during the relevant period.  
+ 
+2. During the relevant period, in his role as a board member, Ferdinand reviewed the 
+Form 10-Q for the third quarter of 2013 and signed the Form 10-K for 2013 and the initial Form S-
+1 for Liquid’s secondary public offering. 
+ 
+3. Ferdinand also failed to timely file new Forms 4 on two occasions in 2014, and to file 
+amendments to  Schedule 13D with the Commission following five material changes to his 
+ownership of Liquid shares of common stock in 2014 and 2015. 
+ 
+4. As a result of the conduct described herein, Ferdinand was a cause of Liquid’s 
+violations of Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 
+promulgated thereunder and Section 17(a)(2) of the Securities Act; and violated Sections 
+13(d)(2) and 16(a) of the Exchange Act and Rules 13d-2(a) and 16a-3 promulgated thereunder. 
+ 
+RESPONDENT 
+ 
+5. Brian L. Ferdinand, age 42, resides in Syosset, New York.  Ferdinand was a founder 
+of Liquid and was Liquid’s second-largest shareholder until May 2014.  From July 2013 through 
+April 18, 2014, Ferdinand served as a member of Liquid’s Board of Directors and was Head of  
+  
+                                                
+1  The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other 
+person or entity in this or any other proceeding.  
+ 3 
+Corporate Strategy.  At all times during the relevant period, Ferdinand, through entities 
+controlled by him, had a membership interest in QuantX.   
+ 
+RELATED ENTITIES 
+ 
+6. Liquid Holdings Group Inc. was a Delaware corporation that was headquartered in 
+New York City.  Liquid’s common shares were registered pursuant to Section 12(b) of the 
+Exchange Act and were quoted on the NASDAQ until the stock was delisted in September 2015.  
+Liquid developed and sold software technology to the financial services industry.  It filed for 
+bankruptcy Chapter 11 protection in January 2016.  Its bankruptcy was converted to Chapter 7 in 
+February 2016.  Liquid is currently controlled by a court-appointed bankruptcy trustee and is no 
+longer operating. 
+ 
+7. QuantX Management LLP was a regulated UK Limited Liability Partnership with 
+its main offices in London, and offices in New York City.  QuantX was a partner-funded trading 
+firm that allocated capital to traders.  In Liquid’s Form S-1 and S-1/A for its initial public 
+offering, QuantX was disclosed as a related party to Liquid, owned in part by entities controlled 
+by Ferdinand and Shareholder A. QuantX ceased operations in December 2014.   
+ 
+FACTS 
+ 
+8. Liquid developed and sold software technology to the financial services industry.  Its 
+main product (the “Liquid Platform”) was comprised of three pieces of software, each of which 
+was referred to as a “unit.”  Beginning on June 1, 2013, Liquid earned all of its revenue from 
+licensing fees paid by software subscribers (“customers”) on a monthly or quarterly basis 
+(“software revenue”). 
+ 
+9. During the third quarter of 2013 through the second quarter of 2014 (the “relevant 
+period”), Liquid’s largest customer in terms of revenue and unit subscriptions was QuantX.  
+QuantX operated as a trading firm that traded for its own account using the Liquid Platform.   
+ 
+10. In addition to trading in its own accounts, QuantX recruited small hedge funds and 
+individual traders (“QuantX Traders”).  QuantX provided trading capital to the QuantX Traders 
+(“allocation of trading capital”).  QuantX required the QuantX Traders to subscribe to, and pay 
+Liquid for, at least one unit of the Liquid Platform.  QuantX was to receive a share of the 
+QuantX Traders’ trading profits generated from the capital allocated by QuantX. 
+ 
+Ferdinand’s and Shareholder A’s Loans and Investments 
+ 
+11. In early 2013, Ferdinand sought to expand QuantX’s trading operations by recruiting 
+additional QuantX Traders and allocating greater amounts of capital to them.  However, QuantX 
+lacked sufficient capital to fund the allocations.  Ferdinand asked Shareholder A to loan QuantX 
+approximately $7.5 million in February 2013, which he did.  QuantX used some of Shareholder 
+A’s loan to pay a portion of the software subscription fees that QuantX owed to Liquid during 
+the first nine months of Liquid’s 2013 fiscal year. 
+ 
+ 4 
+12. In the third and fourth quarters of 2013, QuantX’s and the QuantX Traders’ trading 
+was not generating consistent and sufficient profits to support QuantX’s expansion.  
+Additionally, QuantX owned hundreds of thousands of Liquid shares that it used as collateral 
+with its prime broker.  The combination of Liquid’s falling share price and trading losses resulted 
+in margin calls from QuantX’s prime broker in the third and fourth quarters of 2013.  These 
+margin calls increased in size and frequency over these two quarters.  QuantX had to reduce its 
+holdings and the size of its allocations of trading capital to QuantX Traders to meet or partially 
+meet the calls.  During the third and fourth quarters of 2013, QuantX was not generating 
+sufficient profits to make all of its allocations of trading capital, and also pay, among other 
+corporate obligations, the software subscription fees it owed Liquid.  
+ 
+13. In early October, Ferdinand asked Shareholder A to invest an additional $4 million in 
+QuantX, which he did.  On October 11, 2013, $391,147 of this investment was transferred to 
+Liquid to pay QuantX’s outstanding software subscription fees for the third quarter, which 
+totaled $556,312.  This investment enabled QuantX to pay, among other corporate obligations, 
+the software subscription fees that it owed to Liquid for this period. 
+ 
+14. Approximately half of Liquid’s revenue for the first nine months of 2013 originated 
+from Shareholder A’s 2013 loans to, and investments in, QuantX.  
+ 
+15. During the fourth quarter of 2013, QuantX continued to receive margin calls, to have 
+uneven trading profits, and increased capital allocations to the additional traders it brought on.  
+By November 2013, Ferdinand knew or should have known that QuantX would not be able to 
+pay its quarterly software subscription fees to Liquid in full.   
+ 
+16. In November and early December 2013, Ferdinand loaned QuantX approximately $1 
+million.  On December 30, 2013 approximately $473,500 of the proceeds from this loan were 
+transferred to Liquid to pay QuantX’s October and November 2013 invoices, which totaled 
+$751,710.  This loan enabled QuantX to pay, among other corporate obligations, the software 
+subscription fees that it owed to Liquid for this period. 
+ 
+17. In 2013, Liquid was reliant on loans and investments from Ferdinand and Shareholder 
+A to QuantX to fund approximately 70 percent of QuantX’s software subscription fees that it 
+paid to Liquid.   
+ 
+Liquid’s Disclosures for the Third Quarter of 2013 and Fiscal Year 2013 
+ 
+18. In its Form 10-Q for the third quarter of 2013, Liquid reported third quarter software 
+revenue of $732,388.  Liquid also reported $2,016,159 in software revenue for the nine months 
+ended September 30, 2013 and stated that “QuantX represented . . . 69% of our software 
+licensing revenues” during the first nine months of 2013.  
+ 
+19. In its Form 10-K for 2013, Liquid reported that it had total software revenues of 
+$909,491 in the fourth quarter. It also reported having earned $2,925,650 in software revenue in  
+  
+ 5 
+2013 and that “QuantX represented . . . 72% [$2,119,720] of our software services revenues” that 
+year.   
+ 
+20. The representations in paragraphs 18 and 19 were materially misleading.  Liquid 
+failed to disclose in its Form 10-Q for the third quarter of 2013 its reliance on Shareholder A’s 
+additional loans and investments in 2013 to enable QuantX to pay 55 percent of its software 
+subscription fees to Liquid for that quarter.  Approximately 50 percent of Liquid’s software 
+revenue for the first nine months of 2013 originated from Shareholder A’s 2013 loans to, and 
+investments in, QuantX.  Liquid failed to disclose in its Form 10-K its reliance on Ferdinand to 
+loan QuantX the additional money that comprised approximately 63 percent of QuantX’s fourth 
+quarter fees to Liquid, which also accounted for more than half of Liquid’s software revenue 
+during the fourth quarter, and its reliance on Ferdinand and Shareholder A to provide QuantX 
+with the money that comprised approximately 70 percent of Liquid’s software revenue for the 
+2013 fiscal year. 
+ 
+21. Ferdinand knew or should have known that Liquid was reliant on Shareholder A and 
+Ferdinand to invest in, or loan money to, QuantX to enable QuantX to pay a substantial amount 
+of its fees to Liquid in the first nine months of 2013, including the third quarter of 2013, and for 
+the fourth quarter of 2013.  Ferdinand reviewed the Form 10-Q for the third quarter of 2013 and 
+signed the Form 10-K in his role as a board member.   
+ 
+Liquid’s Disclosures in Connection with the May 2014 Public Offering 
+ 
+22. Liquid held a secondary public offering on May 15, 2014 and raised a net of $40.6 
+million.  On April 8, 2014, Ferdinand, along with Liquid’s CEO, CFO, and Liquid’s board, 
+signed the Form S-1 for the offering, which was filed with the Commission on April 9, 2014.  
+Ferdinand resigned from both his director and officer positions at Liquid on April 18, 2014. 
+Liquid subsequently filed three Forms S-1/A after Ferdinand’s resignation and the May 15, 2014 
+offering. 
+ 
+23. In its Form S-1 and Forms S-1/A, Liquid stated that for 2013, “a total of $2,119,720 . 
+. . in software services revenues were recognized by us from QuantX” and that “QuantX 
+represented . . . 72% of our software services revenues.”  Liquid also stated in its Forms S-1 that 
+it had total software revenues of $909,491 in the fourth quarter of 2013.  These representations 
+were materially misleading because Liquid failed to disclose its reliance on Shareholder A and 
+Ferdinand to loan to, or invest additional money in, QuantX to enable it to pay a substantial 
+portion of these software revenues, as described above.   
+ 
+QuantX Ceases Operations and Liquid Files for Bankruptcy 
+ 
+24. In December 2014, QuantX ceased operations because of its financial difficulties.  On 
+December 23, 2014, Liquid announced that it had ended its relationship with QuantX.  By the 
+close of trading on December 24, 2014, Liquid’s share price had dropped 46% from the prior 
+day’s closing price.  Liquid filed for Chapter 11 bankruptcy protection in January 2016, which 
+was converted to Chapter 7 in February 2016.  Liquid is currently controlled by a court-
+appointed bankruptcy trustee and is no longer operating. 
+ 6 
+ 
+Ferdinand’s Personal Security Reporting Violations  
+ 
+25. Section 13(d) of the Exchange Act requires reporting on a Schedule 13D by any 
+person who acquires beneficial ownership of more than 5% of any class of securities registered 
+pursuant to Section 12 of the Exchange Act.  Section 13(d)(2) and Rule 13d-2(a) promulgated 
+thereunder require a filer to promptly amend Schedule 13D when there are material changes or 
+developments in the information previously reported.  A disposition of 1% or more of the 
+issuer’s securities is per se material under the rule.  The failure to timely file a required report, 
+even if inadvertent, constitutes a violation.  Any delay in filing beyond the date the filing 
+reasonably can be made may not be considered prompt.  Strict liability is sufficient to establish a 
+violation of Section 13(d)(2) and Rule 13d-2(a). 
+ 
+26. Section 16(a) of the Exchange Act and the rules promulgated thereunder require 
+officers and directors and beneficial owners (“insiders”) of more than 10% of any class of any 
+equity security registered pursuant to Section 12 to file Forms 3, 4 and 5.  Under Rule 16a-3, to 
+keep this information current, insiders must file Form 4 reports disclosing transactions resulting 
+in a change in beneficial ownership within two business days of the execution date.  Strict 
+liability is sufficient to establish a violation of Section 16(a) and Rule 16a-3. 
+  
+27. Ferdinand filed his initial Schedule 13D on August 12, 2013 and subsequently filed 
+four amendments on March 6, 2014, July 15, 2014, December 11, 2014, and July 8, 2015.  
+Ferdinand filed his initial Form 4 on July 31, 2013, and subsequently made two additional Form 
+4 filings between on August 1, 2013 and March 4, 2014.   
+ 
+28. Ferdinand was subject to the reporting requirements of Exchange Section 13(d) 
+during all relevant periods and was subject to the reporting requirements of Exchange Act 
+Section 16(a) in March 2014. 
+ 
+29. On March 3, 2014, Ferdinand sold a put option to Shareholder A for 535,000 with a 
+$5.50 strike price.  This transaction was material because it involved 2.1% of Liquid’s current 
+outstanding common stock.  Ferdinand was required to report this transaction on Form 4 and 
+under Item 6 in an amended Schedule 13D because it was a material transaction, but never did. 
+ 
+30. On March 23, 2014, Ferdinand and Shareholder A provided a put option to another 
+Liquid shareholder (“Shareholder B”).  Under this option, Shareholder B could sell up to one 
+million shares to Ferdinand and Shareholder A if Shareholder B incurred any losses on Liquid 
+shares that Shareholder B purchased in the public market at a price below $5.51 between March 
+23 and April 15, 2014.  This transaction was material because it involved 4% of Liquid’s current 
+outstanding common stock.  Ferdinand was required to report this transaction on a Form 4, and 
+under Item 6 in an amended Schedule 13D because it was a material change to prior disclosures, 
+but never did.  
+ 
+31. On May 20, 2014, Ferdinand gifted 1.012 million shares of Liquid common stock to a 
+family trust, which took ownership and control of the shares.  This transaction constituted a 
+material change in beneficial ownership because it involved 1.7% of Liquid’s current 
+ 7 
+outstanding common stock.  Ferdinand did not report this transaction on an amended Schedule 
+13D until July 15, 2014, by which time 56 days had passed. 
+ 
+32. On September 15, 2014, Ferdinand sold a call option for 1.012 million shares of 
+Liquid common stock to Shareholder B.  This transaction was material because it involved 1.7% 
+of Liquid’s current outstanding common stock.  Ferdinand never reported this transaction under 
+Item 6 on an amended Schedule 13D, as he was required to do. 
+ 
+33. On March 13, 2015, Ferdinand transferred 2.056 million shares of Liquid common 
+stock to Shareholder B.  This transaction was material because it involved 3% of Liquid’s current 
+outstanding common stock and therefore materially changed the amount of beneficial ownership 
+previously reported by Ferdinand.  Ferdinand did not report this material change in an amended 
+Schedule 13D until July 8, 2015, by which time 117 days had passed. 
+ 
+VIOLATIONS 
+ 
+34. As a result of the conduct described above, Ferdinand was a cause of Liquid’s 
+violations of Section 17(a)(2) of the Securities Act, which prohibits, directly or indirectly, in the 
+offer or sale of securities, obtaining money or property by means of any untrue statement of a 
+material fact or any omission to state a material fact necessary to make the statements made, in 
+light of the circumstances under which they were made, not misleading.  Negligence is sufficient 
+to establish liability for causing a primary violation that does not require scienter.  In 
+administrative proceedings, the Commission may impose sanctions upon any person who is, was, 
+or would be a cause of a violation, due to an act or omission the person knew or should have 
+known would contribute to such violation.     
+ 
+35. As a result of the conduct described above, Ferdinand was a cause of Liquid’s 
+violations of Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 
+promulgated thereunder, which require every issuer of a security registered pursuant to Section 
+12 of the Exchange Act to file with the Commission information, documents, and annual and 
+quarterly reports as the Commission may require, and mandate that periodic reports contain such 
+further material information as may be necessary to make the required statements not misleading.  
+These reports must be complete and accurate in all material respects.  See SEC v. Savoy 
+Industries, Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978).  Negligence is sufficient to establish 
+liability for causing a primary violation that does not require scienter.  In administrative 
+proceedings, the Commission may impose sanctions upon any person who is, was, or would be a 
+cause of a violation, due to an act or omission the person knew or should have known would 
+contribute to such violation. 
+ 
+36. As a result of the conduct described above, Ferdinand violated Section 13(d)(2) of the 
+Exchange Act and Rule 13d-2(a) promulgated thereunder, which require that a Schedule 13D 
+must be promptly amended when there are material changes or developments in the information 
+previously reported.   
+ 
+37. As a result of the conduct described above, Ferdinand violated Section 16(a) of the 
+Exchange Act and Rule 16a-3 promulgated thereunder, which require every person who is the 
+ 8 
+beneficial owner of more than 10 percent of any class of any equity security registered pursuant 
+to Section 12 of the Exchange Act, and any officer or director of the issuer of any such security, 
+to file initial statements of holdings and to keep such information current by reporting 
+subsequent transactions with the Commission within two business days.   
+ 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+A. Pursuant to Section 8A of the Securities Act, Respondent cease and desist from 
+committing or causing any violations and any future violations of Section 17(a)(2) of the 
+Securities Act. 
+ 
+B. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 
+committing or causing any violations and any future violations of Sections 13(a), 13(d)(2), and 
+16(a) of the Exchange Act and Rules 13a-1, 13a-13, 12b-20, 13d-2, and 16a-3 promulgated 
+thereunder. 
+ 
+C. Respondent shall pay a civil money penalty of $115,000 to the Securities and Exchange 
+Commission for transfer to the general fund of the United States Treasury, subject to Exchange Act 
+Section 21F(g)(3).  Payment shall be made in the following installments: $25,000 within 30 days 
+of the entry of this Order and $90,000 within 120 days of the entry of this Order. Payments shall be 
+applied first to post order interest, which accrues pursuant to 31 U.S.C. §3717. Prior to making the 
+final payment set forth herein, Respondent shall contact the staff of the Commission for the amount 
+due. If Respondent fails to make any payment by the date agreed and/or in the amount agreed 
+according to the schedule set forth above, all outstanding payments under this Order, including 
+post-order interest, minus any payments made, shall become due and payable immediately at the 
+discretion of the staff of the Commission without further application to the Commission. 
+ 
+Payment must be made in one of the following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+ 9 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Brian L. Ferdinand as Respondent in these proceedings, and the file number of these 
+proceedings; a copy of the cover letter and check or money order must be sent to Steven L. 
+Klawans, Assistant Director, Division of Enforcement, Securities and Exchange Commission, 
+175 W. Jackson Boulevard, Suite 1450, Chicago, IL 60604. 
+ 
+D. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
+be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, he shall not argue that he is entitled to, nor shall he benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such 
+a Penalty Offset, Respondent agrees that he shall, within 30 days after entry of a final order 
+granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount of 
+the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
+deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
+penalty imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” 
+means a private damages action brought against Respondent by or on behalf of one or more 
+investors based on substantially the same facts as alleged in the Order instituted by the 
+Commission in this proceeding. 
+ 
+ 
+V. 
+ 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in 
+Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and 
+admitted by Respondent, and further, any debt for disgorgement, prejudgment interest, civil 
+penalty or other amounts due by Respondent under this Order or any other judgment, order, 
+consent order, decree or settlement agreement entered in connection with this proceeding, is a 
+debt for the violation by Respondent of the federal securities laws or any regulation or order 
+issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. 
+§523(a)(19). 
+ 
+ By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88723 / April 22, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4128 / April 22, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19759 
+ 
+ 
+In the Matter of 
+ 
+KENNETH D. SHIFRIN, 
+CPA 
+ 
+Respondent. 
+ORDER INSTITUTING CEASE-AND- 
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE- 
+AND-DESIST ORDER 
+ 
+I. 
+ 
+The Securities and Exchange Commission (“Commission”) deems it appropriate that cease- 
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Kenneth D. Shifrin (“Shifrin” or “Respondent”). 
+ 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over Respondent and the subject matter of these 
+proceedings, which are admitted, and except as provided herein in Section V, Respondent consents 
+to the entry of this Order Instituting Cease-And-Desist Proceedings Pursuant to Section 21C of the 
+Exchange Act, Making Findings, and Imposing a Cease-And-Desist Order (“Order”), as set forth 
+below. 
+ 
+III. 
+ 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+                                                      
+1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+2  
+                   SUMMARY 
+ 
+1. These proceedings involve Liquid Holdings Group, Inc.’s (“Liquid”) materially 
+misleading disclosures in its periodic filings regarding the nature and growth of its customer 
+base.  During the third quarter of 2013 through the second quarter of 2014, Liquid represented 
+that its ability to expand its customer base was an indicator of the growth of its business.  Liquid 
+also stated in its Form 10-K for 2013 and its quarterly filings for the first and second quarters of 
+2014 that QuantX Management LLP (“QuantX”), its largest customer and a related party, and 
+Liquid’s affiliated customers, accounted for a small percentage of its customers.  During the 
+relevant period, however, Liquid’s customer base consisted almost entirely of customers that 
+were referred to Liquid by QuantX and provided with trading capital by QuantX (the “QuantX 
+Traders”). Liquid did not disclose in its periodic filings that virtually all of its customers were 
+QuantX Traders.   
+ 
+2. Shifrin, Liquid’s CFO, reviewed and signed the SEC filings described above.   
+ 
+3. As a result of the conduct described herein, Shifrin was a cause of Liquid’s 
+violations of the reporting provisions of Exchange Act Section 13(a) and Rules 13a-1, 13a-13, 
+and 12b-20 promulgated thereunder. 
+ 
+RESPONDENT 
+ 
+4. Kenneth D. Shifrin, age 62, resides in New Jersey.  Shifrin served as Liquid’s Chief 
+Financial Officer from September 2012 through October 2014.  As Liquid’s CFO, Shifrin 
+reviewed the drafts of Liquid’s periodic reports filed with the Commission and then signed the 
+final versions.  Shifrin was licensed as a Certified Public Accountant in New York.  That 
+license lapsed in January 2015.  
+ 
+RELATED ENTITIES 
+ 
+5. Liquid Holdings Group Inc. was a Delaware corporation that was headquartered 
+in New York City. Liquid’s common shares were registered pursuant to Section 12(b) of the 
+Exchange Act and were quoted on the NASDAQ until the stock was delisted in September 
+2015. Liquid developed and sold software technology to the financial services industry. It filed 
+for bankruptcy Chapter 11 protection in January 2016. Its bankruptcy was converted to 
+Chapter 7 in February 2016.  Liquid is currently controlled by a court-appointed bankruptcy 
+trustee and is no longer operating. 
+ 
+6. QuantX Management LLP was a regulated UK Limited Liability Partnership with 
+its main offices in London, and offices in New York City.  QuantX was a partner-funded trading 
+firm that allocated capital to traders.  In Liquid’s Form S-1 and S-1/A for its initial public 
+offering, QuantX was disclosed as a related party to Liquid. QuantX ceased operations in 
+December 2014. 
+ 
+ 
+3  
+FACTS 
+ 
+7. Liquid developed and sold software technology to the financial services industry. 
+Its main product (the “Liquid Platform”) was comprised of three pieces of software, each of 
+which was referred to as a “unit.” Beginning on June 1, 2013, Liquid earned all of its revenue 
+from licensing fees paid by software subscribers (“customers”) on a monthly or quarterly 
+basis (“software revenue”). 
+ 
+8. During the third quarter of 2013 through the second quarter of 2014 (the 
+“relevant period”), Liquid’s largest customer in terms of revenue and unit subscriptions 
+was QuantX. QuantX operated as a trading firm that traded for its own account using the 
+Liquid Platform. 
+ 
+9. In addition to trading in its own accounts, QuantX recruited small hedge funds and 
+individual traders (“QuantX Traders”) to trade using the Liquid Platform.  QuantX provided 
+trading capital to the QuantX Traders (“allocation of trading capital”) and required the QuantX 
+Traders to subscribe to, and pay Liquid for, at least one unit of the Liquid Platform. QuantX was 
+to receive a share of the QuantX Traders’ trading profits generated from the capital allocated by 
+QuantX.  
+ 
+10. From the third quarter of 2013 through at least the second quarter of 2014, Liquid 
+did not successfully and independently recruit more than two customers.  During the relevant 
+period, virtually all of Liquid’s new customers were QuantX Traders.   
+ 
+11. In the third quarter of 2013, 27 out of 27 Liquid customers were QuantX and 
+QuantX Traders; in the fourth quarter of 2013, 48 out of 48 Liquid customers were QuantX and 
+QuantX Traders; in the first quarter of 2014, 74 out of 76 Liquid customers were QuantX and 
+QuantX Traders; and in the second quarter of 2014, 95 out of 97 Liquid customers were QuantX 
+and QuantX Traders.   
+ 
+12. Shifrin knew that virtually all of Liquid’s customers aside from QuantX were 
+QuantX Traders. He regularly received and reviewed spreadsheets prepared by his staff which 
+contained Liquid’s current customer roster and the units to which each customer subscribed, 
+and which identified QuantX and QuantX Traders.  Shifrin knew that QuantX was allocating 
+capital to the QuantX Traders and knew that QuantX required the QuantX Traders to subscribe 
+to the Liquid Platform. 
+ 
+Liquid Made Misleading Disclosures Regarding the  
+Nature and Growth of its Customers Base 
+ 
+13. In its periodic filings from the third quarter of 2013 through the second quarter of 
+2014, Liquid reported increasing numbers of customers at the end of each quarter, and in these 
+same filings, with the exception of the Form 10-Q for the third quarter of 2013, Liquid stated, 
+“[o]ur ability to expand our customer base is an indicator of our market penetration and the 
+growth of our business.” 
+4  
+ 
+14. In its Form 10-K for the period ended December 31, 2013, Liquid stated that “QuantX 
+and our affiliated customers accounted for . . . 10% of our customers.”  Liquid’s Form 10-Q for 
+the first quarter of 2014 stated that “QuantX and our affiliated customers accounted for . . . 7% of 
+our customers.”  Its Form 10-Q for the second quarter of 2014 stated that “QuantX and our 
+affiliated customers accounted for . . . 3% of our customers.” 
+ 
+15. Liquid publicly disclosed that QuantX “markets [Liquid] to its own members, thereby 
+providing [Liquid] with a source of customer referrals,” and that most of Liquid’s customers were 
+“generated as a result of pre-existing relationships of these customers with our founders and 
+entities related to them,” which included QuantX.   
+ 
+16. However, Liquid did not disclose in these public filings that virtually all of its 
+customers were QuantX Traders.  Specifically, Liquid did not disclose in these filings that 90% 
+to 97% of Liquid’s customer base was made up of QuantX Traders or that the QuantX Traders 
+received allocations of capital from QuantX and subscribed to, and paid Liquid for, the Liquid 
+Platform.  As a result, Liquid’s disclosures were materially misleading. 
+ 
+17. Shifrin reviewed and signed the SEC filings described above. 
+ 
+QuantX Ceases Operations and Liquid Files for Bankruptcy 
+ 
+18. In December 2014, QuantX ceased operations because of its financial difficulties.  
+On December 23, 2014, Liquid announced that it had ended its relationship with QuantX.  By 
+the close of trading on December 24, 2014, Liquid’s share price had dropped 46% from the prior 
+day’s closing price.  By January 2015, Liquid had lost virtually all of the QuantX Traders as 
+customers.  Liquid filed for Chapter 11 bankruptcy protection in January 2016, which was 
+converted to Chapter 7 in February 2016. Liquid is currently controlled by a court-appointed 
+bankruptcy trustee and is no longer operating.   
+ 
+VIOLATIONS 
+ 
+19. As a result of the conduct described above, Shifrin was a cause of Liquid’s 
+violations of Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 
+promulgated thereunder, which require every issuer of a security registered pursuant to Section 
+12 of the Exchange Act file with the Commission information, documents, and annual and 
+quarterly reports as the Commission may require.  These reports must be complete and accurate 
+in all material respects.  See SEC v. Savoy Industries, Inc., 587 F.2d 1149, 1165 (D.C. Cir. 
+1978).  No showing of scienter is necessary to establish a violation of Section 13(a) or Rules 
+13a-1, 13a-13, or 12b-20.  See SEC v. Savoy Indus., Inc., 587 F.2d at 1167.  In administrative 
+proceedings, the Commission may impose sanctions upon any person who is, was, or would be 
+a cause of a violation, due to an act or omission the person knew or should have known would 
+contribute to such violation. 
+ 
+  
+5  
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent’s Offer. 
+ 
+Accordingly, it is hereby ORDERED that: 
+ 
+A. Pursuant to Section 21C of the Exchange Act, Respondent Shifrin cease and 
+desist from committing or causing any violations and any future violations of Section 13(a) of 
+the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 promulgated thereunder. 
+ 
+B. Respondent Shifrin shall pay a civil money penalty of $25,000 to the Securities 
+and Exchange Commission for transfer to the general fund of the United States Treasury, 
+subject to Exchange Act Section 21F(g)(3).  Payment shall be made in the following 
+installments: $5,000 within 30 days of the entry of this Order; $10,000 within 180 days of the 
+entry of this Order; and an additional $10,000 within one year of the entry of this Order. 
+Payments shall be applied first to post order interest, which accrues pursuant to 31 U.S.C. 
+§3717. Prior to making the final payment set forth herein, Respondent shall contact the staff of 
+the Commission for the amount due. If Respondent fails to make any payment by the date 
+agreed and/or in the amount agreed according to the schedule set forth above, all outstanding 
+payments under this Order, including post-order interest, minus any payments made, shall 
+become due and payable immediately at the discretion of the staff of the Commission without 
+further application to the Commission. 
+ 
+Payment must be made in one of the following ways: 
+ 
+(1) Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request; 
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; 
+or 
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to: 
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-
+341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+6  
+Payments by check or money order must be accompanied by a cover letter identifying Kenneth L. 
+Shifrin as Respondent in these proceedings, and the file number of these proceedings; a copy of the cover 
+letter and check or money order must be sent to Steven L. Klawans, Assistant Director, Division of 
+Enforcement, Securities and Exchange Commission, 175 W. Jackson Boulevard, Suite 1450, Chicago, IL 
+60604. 
+ 
+C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall 
+be treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, he shall not argue that he is entitled to, nor shall he benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action ("Penalty Offset").  If the court in any Related Investor Action grants such 
+a Penalty Offset, Respondent agrees that he shall, within 30 days after entry of a final order 
+granting the Penalty Offset, notify the Commission's counsel in this action and pay the amount 
+of the Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be 
+deemed an additional civil penalty and shall not be deemed to change the amount of the civil 
+penalty imposed in this proceeding.  For purposes of this paragraph, a "Related Investor Action" 
+means a private damages action brought against Respondent by or on behalf of one or more 
+investors based on substantially the same facts as alleged in the Order instituted by the 
+Commission in this proceeding. 
+ 
+V. 
+ 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in 
+Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and 
+admitted by Respondent, and further, any debt for disgorgement, prejudgment interest, civil 
+penalty or other amounts due by Respondent under this Order or any other judgment, order, 
+consent order, decree or settlement agreement entered in connection with this proceeding, is a 
+debt for the violation by Respondent of the federal securities laws or any regulation or order 
+issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. 
+§523(a)(19). 
+ 
+ 
+By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 

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+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88724 / April 22, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4129 / April 22, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19760 
+ 
+ 
+In the Matter of 
+ 
+BRIAN M. STORMS 
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT 
+TO SECTION 21C OF THE 
+SECURITIES EXCHANGE ACT OF 
+1934, MAKING FINDINGS, AND 
+IMPOSING A CEASE-AND-DESIST 
+ORDER  
+ 
+I. 
+ 
+The Securities and Exchange Commission (“Commission”) deems it appropriate 
+that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of 
+the Securities Exchange Act of 1934 (“Exchange Act”), against Brian M. Storms (“Storms” 
+or “Respondent”). 
+ 
+ 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondent has submitted an 
+Offer of Settlement (the “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, and without admitting or denying 
+the findings herein, except as to the Commission’s jurisdiction over him and the subject 
+matter of these proceedings, which are admitted, and except as provided herein in Section 
+V, Respondent consents to the entry of this Order Instituting Cease-And-Desist 
+Proceedings Pursuant to Section 21C of the Exchange Act of 1934, Making Findings, and 
+Imposing a Cease-And-Desist Order (“Order”), as set forth below. 
+ 
+  
+2  
+III. 
+ 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+ 
+SUMMARY 
+ 
+1. These proceedings involve Liquid Holdings Group, Inc.’s (“Liquid”) materially 
+misleading disclosures in its periodic filings regarding the nature and growth of its customer 
+base and its reliance on its largest customer, QuantX Management LLP ("QuantX"). During the 
+third quarter of 2013 through the second quarter of 2014, Liquid represented that its ability to 
+expand its customer base was an indicator of the growth of its business.  Liquid also stated in 
+its Form 10-K for 2013 and its quarterly filings for the first and second quarters of 2014 that 
+QuantX, its largest customer and a related party, and Liquid’s affiliated customers, accounted 
+for a small percentage of its customers.  During the relevant period, however, Liquid’s 
+customer base consisted almost entirely of customers that were referred to Liquid by QuantX 
+and provided with trading capital by QuantX (the “QuantX Traders”).  Liquid did not disclose 
+in its periodic filings that virtually all of its customers were QuantX Traders   
+ 
+2. Liquid’s largest shareholder (“Shareholder A”) loaned millions to QuantX to 
+enable it to pay its software subscription fees to Liquid for the second quarter of 2014.  
+Liquid’s Form 10-Q for the second quarter of 2014 stated that QuantX represented 63 percent 
+of Liquid’s software revenue for that quarter but failed to disclose that Liquid was reliant on 
+Shareholder A to provide QuantX with the money to pay its software subscription fees to 
+Liquid that quarter. 
+ 
+3. Storms, Liquid’s CEO, reviewed the SEC filings described above, and 
+signed and/or certified them. 
+ 
+4. As a result of the conduct described herein, Storms was a cause of Liquid’s 
+violations of the reporting provisions of Exchange Act Section 13(a) and Rules 13a-1, 
+13a-13, and 12b-20 promulgated thereunder. 
+ 
+RESPONDENT 
+ 
+5. Brian M. Storms, age 65, resides in New Jersey.  Storms served as Liquid’s 
+Chief Executive Officer from December 2012 through February 2015, a member of the 
+Board of Directors from December 2012 through September 2015, and as Chairman of the 
+Board from July 2013 until December 2013.  Storms reviewed Liquid’s periodic reports filed 
+with the Commission and signed and/or certified them as the principal officer of Liquid. 
+  
+                                                            
+1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+3  
+RELATED ENTITIES AND INDIVIDUAL 
+ 
+6. Liquid Holdings Group Inc. was a Delaware corporation that was 
+headquartered in New York City.  Liquid’s common shares were registered pursuant to 
+Section 12(b) of the Exchange Act and were quoted on the NASDAQ until the stock was 
+delisted in September 2015.  Liquid developed and sold software technology to the financial 
+services industry.  It filed for bankruptcy Chapter 11 protection in January 2016.  Its 
+bankruptcy was converted to Chapter 7 in February 2016.  Liquid is currently controlled by a 
+court-appointed bankruptcy trustee and is no longer operating. 
+ 
+7. QuantX Management LLP was a regulated UK Limited Liability Partnership 
+with its main offices in London, and offices in New York City.  QuantX was a partner-
+funded trading firm that allocated capital to traders.  In Liquid’s Form S-1 and S-1/A for its 
+initial public offering, QuantX was disclosed as a related party to Liquid, owned in part by 
+entities controlled by Ferdinand and Shareholder A.  QuantX ceased operations in December 
+2014. 
+ 
+8. Brian L. Ferdinand (“Ferdinand”), age 42, resides in Syosset, New York.  
+Ferdinand was a founder of Liquid and was Liquid’s second-largest shareholder until May 
+2014.  From July 2013 through April 18, 2014, Ferdinand served as a member of Liquid’s 
+Board of Directors and was Head of Corporate Strategy.  At all times during the relevant 
+period, Ferdinand, through entities controlled by him, had a membership interest in QuantX.   
+ 
+FACTS 
+ 
+9. Liquid developed and sold software technology to the financial services 
+industry.  Its main product (the “Liquid Platform”) was comprised of three pieces of 
+software, each of which was referred to as a “unit.”  Beginning in June 1, 2013, Liquid 
+earned all of its revenue from licensing fees paid by software subscribers (“customers”) on 
+a monthly or quarterly basis (“software revenue”). 
+ 
+10. During the third quarter of 2013 through the second quarter of 2014 (the 
+“relevant period”), Liquid’s largest customer in terms of revenue and unit subscriptions 
+was QuantX.  QuantX operated as a trading firm that traded for its own account using 
+the Liquid Platform. 
+ 
+11. In addition to trading in its own accounts, QuantX recruited small hedge funds 
+and individual traders (“QuantX Traders”) to trade using the Liquid Platform.  QuantX 
+provided trading capital to the QuantX Traders (“allocation of trading capital”) and required 
+the QuantX Traders to subscribe to, and pay Liquid for, at least one unit of the Liquid 
+Platform. QuantX was to receive a share of the QuantX Traders’ trading profits generated 
+from the capital allocated by QuantX. 
+  
+4  
+12. Storms knew the facts described above in paragraphs 9 through 11.  Storms 
+repeatedly expressed concerns to Liquid personnel about Liquid’s continued reliance on 
+QuantX for customers.  He knew that virtually all of Liquid’s customers aside from QuantX 
+were QuantX Traders.  Storms also knew that QuantX was allocating capital to the QuantX 
+Traders and required the QuantX Traders to subscribe to the Liquid Platform. 
+ 
+13. From the third quarter of 2013 through at least the second quarter of 2014, 
+Liquid did not successfully and independently recruit more than two customers.  During the 
+relevant period, virtually all of Liquid’s new customers were QuantX Traders.  Specifically, 
+in the third quarter of 2013, 27 out of 27 Liquid customers were QuantX and QuantX 
+Traders; in the fourth quarter of 2013, 48 out of 48 Liquid customers were QuantX and 
+QuantX Traders; in the first quarter of 2014, 74 out of 76 Liquid customers were QuantX 
+and QuantX Traders; and in the second quarter of 2014, 95 out of 97 Liquid customers 
+were QuantX and QuantX Traders. 
+ 
+Liquid Made Misleading Disclosures Regarding 
+the Nature and Growth of Its Customer Base 
+ 
+14. In its periodic filings from the third quarter of 2013 through the second 
+quarter of 2014, Liquid reported increasing numbers of customers at the end of each 
+quarter, and in these same filings, with the exception of the Form 10-Q for the third quarter 
+of 2013, Liquid stated, “[o]ur ability to expand our customer base is an indicator of our 
+market penetration and the growth of our business.” 
+ 
+15. In its Form 10-K for the period ended December 31, 2013, Liquid stated that 
+“QuantX and our affiliated customers accounted for . . . 10% of our customers.”  Liquid’s 
+Form 10-Q for the first quarter of 2014 stated that “QuantX and our affiliated customers 
+accounted for . . . 7% of our customers.”  Its Form 10-Q for the second quarter of 2014 
+stated that “QuantX and our affiliated customers accounted for . . . 3% of our customers.” 
+ 
+16. Liquid publicly disclosed that QuantX “markets [Liquid] to its own 
+members, thereby providing [Liquid] with a source of customer referrals,” and that most of 
+Liquid’s customers were “generated as a result of pre-existing relationships of these 
+customers with our founders and entities related to them,” which included QuantX.  
+ 
+17. However, Liquid did not disclose in these public filings that virtually all of 
+the customers were QuantX Traders.  Specifically, Liquid did not disclose in these filings 
+that 90% to 97% of Liquid’s customer base was made up of QuantX Traders or that the 
+QuantX Traders received allocations of capital from QuantX and subscribed to, and paid 
+Liquid for, the Liquid Platform.  As a result, Liquid’s disclosures were materially 
+misleading. 
+ 
+18. Storms reviewed the SEC filings described above, and signed and/or 
+certified them.   
+5  
+Shareholder A’s Loan 
+ 
+19. During the first half of 2014, QuantX continually experienced financial 
+problems.  QuantX’s and the QuantX Traders’ trading, which were QuantX’s only sources 
+of revenue, was generally unprofitable.  As a result, QuantX received little to no revenue 
+from its operations.  Additionally, the decline in Liquid’s share price during the second 
+quarter of 2014 impacted the value of the hundreds of thousands of Liquid shares that 
+QuantX owned and pledged as collateral with its prime broker.  The combination of 
+QuantX’s trading losses and Liquid’s falling share price resulted in daily margin calls from 
+QuantX’s prime broker during the second quarter.  In turn, QuantX reduced its securities 
+holdings and its allocations to the QuantX Traders, further constraining its ability to 
+generate trading profits. 
+ 
+20. Storms learned of QuantX’s financial difficulties on June 16 and 17, 2014 
+and learned that Shareholder A was asked to make a $2.2 million loan to QuantX.  Once it 
+received the loan from Shareholder A, QuantX paid approximately $1.4 million to Liquid.  
+Of that amount, $959,370 was used to pay all of QuantX’s second quarter of 2014 software 
+bill.  The $959,370 payment comprised 62 percent of Liquid’s software revenue for the 
+quarter.  Without Shareholder A’s loan, QuantX would not have been able to pay Liquid 
+any of the software subscription fees that it owed to Liquid for that quarter. 
+ 
+21. Storms knew that QuantX used the loan from Shareholder A to pay all of its 
+software subscription fees to Liquid for that quarter.   
+ 
+Liquid’s Disclosures for the Second Quarter of 2014 
+ 
+22. In its Form 10-Q for the second quarter of 2014, Liquid reported $1,541,537 
+in software revenue for the second quarter of 2014, and that “QuantX . . . accounted for 
+63% of our software services revenue,” but this was materially misleading because Liquid 
+failed to disclose its reliance on Shareholder A for all of the funds QuantX used to pay its 
+second quarter of 2014 bill. 
+ 
+23. Storms reviewed and certified the Form 10-Q for the second quarter of 2014.     
+ 
+QuantX Ceases Operations and Liquid Files for Bankruptcy 
+ 
+24. In December 2014, QuantX ceased operations because of its financial 
+difficulties.  On December 23, 2014, Liquid announced that it had ended its relationship 
+with QuantX.  By the close of trading on December 24, 2014, Liquid’s share price had 
+dropped 46% from the prior day’s closing price.  By January 2015, Liquid had lost virtually 
+all of the QuantX Traders as customers.  Liquid filed for Chapter 11 bankruptcy protection 
+in January 2016, which was converted to Chapter 7 in February 2016.  Liquid is currently 
+controlled by a court-appointed bankruptcy trustee and is no longer operating.   
+ 
+6  
+VIOLATIONS 
+ 
+25. As a result of the conduct described above, Storms was a cause of Liquid’s 
+violations of Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13, and 12b-20 
+promulgated thereunder, which require every issuer of a security registered pursuant to 
+Section 12 of the Exchange Act to file with the Commission information, documents, and 
+annual and quarterly reports as the Commission may require.  These reports must be 
+complete and accurate in all material respects.  See SEC v. Savoy Industries, Inc., 587 F.2d 
+1149, 1165 (D.C. Cir. 1978).  No showing of scienter is necessary to establish a violation of 
+Section 13(a) or Rules 13a-1, 13a-13, or 12b-20.  See SEC v. Savoy Indus., Inc., 587 F.2d at 
+1167.  In administrative proceedings, the Commission may impose sanctions upon any 
+person who is, was, or would be a cause of a violation, due to an act or omission the person 
+knew or should have known would contribute to such violation. 
+ 
+ 
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondent’s Offer. 
+ 
+Accordingly, it is hereby ORDERED that: 
+ 
+A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist 
+from committing or causing any violations and any future violations of Section 13(a) of the 
+Exchange Act and Rules 13a-1, 13a-13, and 12b-20 promulgated thereunder. 
+ 
+B. Respondent Storms shall, within 30 days of the entry of this Order, pay a 
+civil money penalty in the amount of $40,000 to the Securities and Exchange Commission 
+for transfer to the general fund of the United States Treasury, subject to Exchange Act 
+Section 21F(g)(3). If timely payment is not made, additional interest shall accrue pursuant 
+to 31 U.S.C. §3717. 
+ 
+Payment must be made in one of the following ways: 
+ 
+(1) Respondent may transmit payment electronically to the Commission, 
+which will provide detailed ACH transfer/Fedwire instructions upon 
+request; 
+ 
+(2) Respondent may make direct payment from a bank account via 
+Pay.gov through the SEC website at 
+http://www.sec.gov/about/offices/ofm.htm; or 
+  
+7  
+(3) Respondent may pay by certified check, bank cashier’s check, or 
+United States postal money order, made payable to the Securities 
+and Exchange Commission and hand-delivered or mailed to: 
+ 
+Enterprise Services Center 
+Accounts Receivable 
+Branch HQ Bldg., Room 
+181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter 
+identifying Brian M. Storms as Respondent in these proceedings, and the file number of 
+these proceedings; a copy of the cover letter and check or money order must be sent to 
+Steven L. Klawans, Assistant Director, Division of Enforcement, Securities and Exchange 
+Commission, 175 W. Jackson Boulevard, Suite 1450, Chicago, IL 60604. 
+ 
+C. Amounts ordered to be paid as civil money penalties pursuant to this Order 
+shall be treated as penalties paid to the government for all purposes, including all tax 
+purposes.  To preserve the deterrent effect of the civil penalty, Respondent agrees that in any 
+Related Investor Action, he shall not argue that he is entitled to, nor shall he benefit by, 
+offset or reduction of any award of compensatory damages by the amount of any part of 
+Respondent’s payment of a civil penalty in this action (“Penalty Offset”).  If the court in any 
+Related Investor Action grants such a Penalty Offset, Respondent agrees that he shall, within 
+30 days after entry of a final order granting the Penalty Offset, notify the Commission's 
+counsel in this action and pay the amount of the Penalty Offset to the Securities and 
+Exchange Commission.  Such a payment shall not be deemed an additional civil penalty and 
+shall not be deemed to change the amount of the civil penalty imposed in this proceeding.  
+For purposes of this paragraph, a “Related Investor Action” means a private damages action 
+brought against Respondent by or on behalf of one or more investors based on substantially 
+the same facts as alleged in the Order instituted by the Commission in this proceeding. 
+ 
+  
+8  
+V. 
+ 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in 
+Section 523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and 
+admitted by Respondent, and further, any debt for disgorgement, prejudgment interest, civil 
+penalty or other amounts due by Respondent under this Order or any other judgment, order, 
+consent order, decree or settlement agreement entered in connection with this proceeding, is 
+a debt for the violation by Respondent of the federal securities laws or any regulation or 
+order issued under such laws, as set forth in Section 523(a)(19) of the Bankruptcy Code, 11 
+U.S.C. §523(a)(19). 
+ 
+By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman  
+Secretary 

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+UNITED STATES OF AMERICA  
+Before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934  
+Release No. 88731 / April 22, 2020 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 4130 / April 22, 2020 
+ADMINISTRATIVE PROCEEDING  
+File No. 3-16212; 3-17180 
+ 
+In the Matter of  
+Elliot R. Berman, CPA  
+ 
+: 
+: 
+: 
+: 
+: 
+: 
+ORDER GRANTING APPLICATION FOR 
+REINSTATEMENT TO APPEAR AND PRACTICE 
+BEFORE THE COMMISSION AS AN ACCOUNTANT 
+RESPONSIBLE FOR THE PREPARATION OR 
+REVIEW OF FINANCIAL STATEMENTS REQUIRED 
+TO BE FILED WITH THE COMMISSION 
+ 
+On October 24, 2014, the Commission issued an order denying Elliot R. Berman, CPA 
+(“Berman”) the privilege of appearing or practicing before the Commission as an accountant as a 
+result of settled administrative proceedings instituted by the Commission against him pursuant to 
+Rules 102(e)(1)(ii) and 102(e)(1)(iii) of the Commission’s Rules of Practice.1  On January 3, 
+2017, the Commission issued a second order denying Berman the privilege of appearing or 
+practicing before the Commission as an accountant as a result of separate settled administrative 
+proceedings instituted by the Commission against him pursuant to Rules 102(e)(1)(ii) and (iii) of 
+the Commission’s Rules of Practice.2  This order is issued in response to Berman’s application 
+for reinstatement to appear and practice before the Commission as an accountant responsible for 
+the preparation or review of financial statements required to be filed with the Commission. 
+With respect to the 2014 order, the Commission found that Berman willfully violated 
+Section 10A(j) of the Securities Exchange Act of 1934, willfully aided and abetted and caused 
+violations of Rule 2-02 of Regulation S-X, caused violations of Section 13(a) of the Exchange 
+Act and Rule 13a-1 thereunder, and engaged in improper professional conduct.  The 
+Commission’s findings related to Berman’s putative appointment of an unqualified person as 
+lead partner of an audit engagement while Berman continued to provide the services of a lead 
+partner for the same engagement for more than five consecutive years.   
+                                                 
+1 See Accounting and Auditing Enforcement Release No. 3592 dated October 24, 2014.  Berman was permitted, 
+pursuant to the order, to apply for reinstatement after one year upon making certain showings. 
+ 
+2 See Exchange Act Release No.79723 January 3, 2017.  Berman was permitted, pursuant to that order, to apply for 
+reinstatement after two years upon making certain showings. 
+ 
+ 2 
+With respect to the 2017 order, the Commission found that Berman willfully aided and 
+abetted and caused violations of Rule 2-02(b)(1) of Regulation S-X, Section 13(a) of the 
+Exchange Act, and Rule 13a-1 thereunder and engaged in improper professional conduct.  The 
+Commission’s findings related to Berman’s failures to adhere to Public Company Accounting 
+Oversight Board audit standards with respect to the 2010 and 2011 audits of MusclePharm 
+Corporation by Berman & Company, P.A., while also causing Berman & Company, P.A. to lack 
+independence from MusclePharm Corporation during the same period. 
+In his capacity as a preparer or reviewer, or as a person responsible for the preparation or 
+review, of financial statements of a public company to be filed with the Commission, Berman 
+attests that he will undertake to have his work reviewed by the independent audit committee of 
+any company for which he works, or in some other manner acceptable to the Commission, while 
+practicing before the Commission in this capacity.  Berman is not, at this time, seeking to appear 
+or practice before the Commission as an independent accountant.  If he should wish to resume 
+appearing and practicing before the Commission as an independent accountant, he will be 
+required to submit an application to the Commission showing that he has complied and will 
+comply with the terms of the original suspension orders in this regard.  Therefore, Berman’s 
+suspension from practice before the Commission as an independent accountant continues in 
+effect until the Commission determines that a sufficient showing has been made in this regard in 
+accordance with the terms of the original suspension orders. 
+ 
+Rule 102(e)(5) of the Commission’s Rules of Practice governs applications for 
+reinstatement, and provides that the Commission may reinstate the privilege to appear and 
+practice before the Commission “for good cause shown.”3  This “good cause” determination is 
+necessarily highly fact specific. 
+ 
+On the basis of information supplied, representations made, and undertakings agreed to 
+by Berman, it appears that he has complied with the terms of the October 24, 2014 and January 
+3, 2017 orders denying him the privilege of appearing or practicing before the Commission as an 
+accountant, that no information has come to the attention of the Commission relating to his 
+character, integrity, professional conduct or qualifications to practice before the Commission that 
+would be a basis for adverse action against him pursuant to Rule 102(e) of the Commission's 
+Rules of Practice, and that Berman, by undertaking to have his work reviewed by the 
+independent audit committee of any company for which he works, or in some other manner 
+acceptable to the Commission, in his practice before the Commission as a preparer or reviewer of 
+financial statements required to be filed with the Commission, has shown good cause for 
+reinstatement.  Therefore, it is accordingly, 
+ 
+ 
+                                                 
+3 Rule 102(e)(5)(i) provides: 
+ 
+“An application for reinstatement of a person permanently suspended or disqualified under paragraph (e)(1)  or (e)(3) 
+of this rule may be made at any time, and the applicant may, in the Commission’s discretion, be afforded a hearing; 
+however, the suspension or disqualification shall continue unless and until the applicant has been reinstated by the 
+Commission for good cause shown.”  17 C.F.R. § 201.102(e)(5)(i). 
+ 
+ 
+ 3 
+ORDERED pursuant to Rule 102(e)(5)(i) of the Commission’s Rules of Practice that 
+Elliot R. Berman, CPA is hereby reinstated to appear and practice before the Commission as an 
+accountant responsible for the preparation or review of financial statements required to be filed 
+with the Commission. 
+ 
+By the Commission. 
+ 
+ 
+Vanessa A. Countryman  
+Secretary  

raw/aaer/2020/AAER-4131.txt

@@ -0,0 +1,898 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88739 / April 24, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4131 / April 24, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19767 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+PLS, CPA, A 
+PROFESSIONAL 
+CORPORATION, 
+a/k/a PLS CPAs, 
+CHANG G. PARK, 
+CPA, a/k/a 
+CHANGGEUN 
+PARK, JOSEPH 
+YONGYUN LEE, 
+CPA, a/k/a YONG 
+YUN LEE, and 
+JUCHI LEE, CPA, 
+a/k/a JUCHI LEE 
+FERNANDEZ, JU-
+CHI LEE, JU CHI 
+LEE, SUE LEE 
+ 
+Respondents. 
+ 
+ 
+ 
+ 
+CORRECTED ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 AND RULE 102(e) 
+OF THE COMMISSION’S RULES OF 
+PRACTICE AND NOTICE OF HEARING 
+   
+ 
+ 
+2 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that public 
+administrative and cease-and-desist proceedings be, and hereby are, instituted pursuant to Sections 
+4C1 and 21C of the Securities Exchange Act of 1934 (“Exchange Act”) and Rule 102(e)(1)(ii) and 
+102(e)(1)(iii)2 of the Commission’s Rules of Practice against PLS, CPA, a Professional 
+Corporation, a/k/a PLS CPAs; Chang G. Park, CPA, a/k/a Changgeun Park; Joseph Yongyun Lee, 
+CPA, a/k/a Yong Yun Lee; and Juchi Lee, CPA, a/k/a Juchi Lee Fernandez, Ju-chi Lee, Ju Chi 
+Lee, Sue Lee (collectively, “Respondents”). 
+ 
+II. 
+ 
+ After an investigation, the Division of Enforcement alleges that: 
+ 
+A. RESPONDENTS 
+ 
+1. PLS, CPA, A Professional Corporation (a/k/a “PLS CPAs”) (“PLS”), a California 
+corporation, is a PCAOB-registered public accounting firm based in San Diego, California.  PLS 
+was incorporated in November 2009, and is co-owned by Park, Joseph Lee, and a third individual.  
+Park, Joseph Lee, and Juchi Lee are PLS’s only individuals who perform audit services 
+(collectively, the “individual auditors”). 
+ 
+2. Chang G. Park (a/k/a Changgeun Park) (“Park”), age 60, resides in San Diego, 
+California.  Park is a certified public accountant licensed in California.  Park is the founder of 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ The Commission may censure any person, or deny, temporarily or permanently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . (1) not to possess the requisite qualifications 
+to represent others; (2) to be lacking in character or integrity, or to have engaged 
+in unethical or improper professional conduct; or (3) to have willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or 
+the rules and regulations issued thereunder. 
+ 
+2  Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ The Commission may . . . deny, temporarily or permanently, the privilege of 
+appearing or practicing before it . . . to any person who is found . . . to have 
+engaged in unethical or improper professional conduct. 
+ 
+   Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ The Commission may . . . 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 any provision of 
+the Federal securities laws or the rules and regulations thereunder. 
+ 
+3 
+Chang G. Park, C.P.A., A Professional Corporation, which later reincorporated as PLS.  Since 
+November 2009, Park has been the managing partner and 55% co-owner of PLS, and one of the 
+firm’s three auditors. 
+ 
+3. Joseph Yongyun Lee (a/k/a Yong Yun Lee) (“Joseph Lee”), age 57, resides in San 
+Diego, California.  Joseph Lee is a certified public accountant licensed in California.  Joseph Lee 
+joined Chang G. Park, C.P.A. as an accountant in December 2003.  Since November 2009, 
+Joseph Lee has been a partner, 25% co-owner, and the CFO of PLS, where he is one of the firm’s 
+three auditors. 
+ 
+4. Juchi Lee (a/k/a Juchi Lee Fernandez, Ju-chi Lee, Ju Chi Lee, Sue Lee) 
+(“Juchi Lee”), age 47, resides in San Diego, California.  Juchi Lee is a certified public accountant 
+licensed in California.  Juchi Lee joined Chang G. Park, C.P.A. as a senior auditor in October 
+2007.  Since November 2009, Juchi Lee has been one of the three auditors at PLS. 
+ 
+B. OTHER RELEVANT ENTITIES 
+ 
+5. Interactive Multi-Media Auction Corporation (n/k/a Stop Sleep Go Inc.) 
+(“IMMA”), CIK# 0001565430, is a British Virgin Islands corporation with its principal place of 
+business in the United Kingdom, and has common stock registered pursuant to Section 12(g) of the 
+Exchange Act.  IMMA was formerly headquartered in Hong Kong, and its stock was quoted on 
+OTC Link under the ticker symbol “IMMA.”  In December 2016, IMMA entered into a business 
+combination with another company and changed its name to “Stop Sleep Go Inc.”  Its stock 
+currently is quoted on the OTC Link under the ticker symbol “SSGOF.”   
+ 
+6. IMMA has not filed any annual or quarterly periodic reports with the Commission 
+since 2016.  The Commission filed an injunctive action against IMMA, SEC v. McDiarmid et al., 
+Case 2:17-cv-07201 (C.D. Cal.), and, on November 19, 2018, obtained a default judgment 
+enjoining IMMA from violations of the antifraud provisions of the Securities Act and the 
+Exchange Act.  SEC v. McDiarmid et al., 2018 WL 6062313 (C.D. Cal. Nov. 19, 2018).  PLS 
+issued audit reports for IMMA’s Forms 10-K for the fiscal years ended October 31, 2014 and 
+October 31, 2015, and resigned as IMMA’s auditor on October 13, 2016. 
+ 
+7. IMK Group, Inc. (“IMKG”), CIK# 0001321710, is a Delaware corporation with its 
+principal place of business in Seoul, South Korea.  IMKG had common stock registered pursuant 
+to Section 12(g) of the Exchange Act, which was quoted on OTC Link under the ticker symbol 
+“IMKG.” 
+ 
+8. IMKG has not filed any periodic reports with the Commission since 2016.  The 
+Commission suspended trading in IMKG from September 25, 2017 through October 6, 2017 (In 
+the Matter of IMK Group, Inc., et al., Exchange Act Release No. 81691 (September 22, 2017)), 
+then revoked the registration of each class of registered securities of IMKG, effective April 16, 
+2019, for failure to file timely periodic reports with the Commission.  In the Matter of IMK Group, 
+Inc., et al., Exchange Act Release No. 85648 (April 15, 2019).  PLS issued an audit report for 
+IMKG’s Form 10-K for the fiscal year ended February 28, 2015. 
+4 
+ 
+9. RadTek, Inc. (“RDTK”), CIK# 0001487252, is a Nevada corporation with its 
+principal place of business in Louisville, Kentucky, and has common stock registered pursuant to 
+Section 12(g) of the Exchange Act which trades on the OTC Grey Market under the ticker symbol 
+“RDTK.”   
+ 
+10. RadTek has not filed any periodic reports with the Commission since 2016.  The 
+Commission suspended trading in RDTK from August 28, 2019 through September 11, 2019 for 
+failure to file timely periodic reports with the Commission and failure to maintain a valid address 
+on file with the Commission.  In the Matter of LD Holdings, Inc., et al., Exchange Act Release No. 
+86780 (August 27, 2019).  PLS issued audit reports for RDTK’s Forms 10-K for the fiscal years 
+ended December 31, 2013, December 31, 2014, and December 31, 2015. 
+ 
+11. Therapeutic Solutions International, Inc. (“TSOI”), CIK# 0001419051, is a Nevada 
+corporation with its principal place of business in Oceanside, California, and has common stock 
+registered pursuant to Section 12(g) of the Exchange Act which is quoted on OTC Link under the 
+ticker symbol “TSOI.”  PLS issued audit reports for TSOI’s Forms 10-K for the fiscal years ended 
+December 31, 2013, December 31, 2014, and December 31, 2015, and resigned as TSOI’s auditor 
+on or around October 31, 2016. 
+ 
+12. Each of the Respondents signed a tolling agreement with the Commission that 
+tolled and suspended the running of any applicable statute of limitations for the period beginning 
+on January 13, 2020 through July 13, 2020. 
+ 
+C. RESPONDENTS’ IMPROPER PROFESSIONAL CONDUCT  
+ 
+1. Respondents’ Audit Practice 
+ 
+13. In or around 2001, Park founded an audit firm, initially named Chang G. Park, 
+C.P.A.  In November 2009, the firm was re-incorporated as PLS.   
+ 
+14. PLS currently provides audit and review services to microcap issuers, development 
+stage companies, and shell companies.  Park, Joseph Lee, and Juchi Lee are the three individual 
+auditors who conduct PLS’s audits and reviews of public company financial statements. 
+ 
+15. PLS has never used any proprietary auditing software.  The individual auditors use 
+downloads of commercially available electronic audit templates to document audits.  The 
+individual auditors complete these templates electronically and/or print out hard copies to fill out 
+manually. 
+ 
+16. The individual auditors either save their electronic work papers on PLS’s 
+networked storage drive, or they save them in electronic client folders on their PLS computers 
+which are copied to PLS’s networked storage drive.  Hard copies are printed out and assembled in 
+audit binders for the auditors’ review and signature; the resulting audit binders are then stored in 
+the individual auditors’ offices. 
+5 
+ 
+17. Joseph Lee and Juchi Lee are generally responsible for preparing PLS’s audit 
+documentation and assembling and storing the audit binders.  Park generally reviews the audit 
+binders assembled by Joseph Lee or Juchi Lee. 
+ 
+18. As managing partner of the firm, Park manages the relationship of the firm with its 
+clients, while Joseph Lee and Juchi Lee perform most of the audit and review work.  When matters 
+arise during a client’s audit, all three individual auditors typically meet to discuss the audit. 
+ 
+19. As of early 2016, PLS was providing audit and review services to approximately 
+thirty clients, including IMMA, IMKG, RDTK, and TSOI. 
+ 
+2. The July 2016 Commission Subpoena and the November 2016 PCAOB 
+Inspection 
+ 
+20. On July 5, 2016, the Commission issued an administrative subpoena for documents 
+to PLS (the “July 2016 Commission Subpoena”).  The subpoena included requests for IMMA audit 
+work papers created during, or concerning, the time period from September 30, 2014, to July 5, 
+2016. 
+ 
+21. PLS produced IMMA audit work papers in response to the July 2016 Commission 
+Subpoena.  Juchi Lee was responsible for gathering and producing PLS’s documents in response to 
+the subpoena. 
+ 
+22. On April 1, 2016, the PCAOB informed PLS that it would conduct an inspection 
+of PLS during the week of November 7, 2016 (the “November 2016 PCAOB inspection”). 
+ 
+23. On April 12, 2016, a representative of the PCAOB emailed Park, cc’ing Joseph 
+Lee and Juchi Lee, requesting that PLS complete and return, prior to the inspection, an attached 
+“issuer information form.”  The issuer information form required PLS to specify, among other 
+information, the engagement partner (“EP”) and engagement quality reviewer (“EQR”) assigned 
+to its client issuers.   
+ 
+24. Park asked Joseph Lee and Juchi Lee to fill out the issuer information form, for 
+Park’s review.   
+ 
+25. PLS sent the completed issuer information form back to the PCAOB on October 
+12, 2016.  PLS subsequently amended the issuer information form to reflect the termination of its 
+auditor relationship with TSOI, sending a final version to the PCAOB on October 31, 2016.  The 
+final version of the issuer information form PLS provided to the PCAOB included information 
+for twenty-nine issuers. 
+  
+6 
+26. The final version of the issuer information form PLS provided to the PCAOB 
+identified the individual auditors’ roles on audits for issuers IMMA, IMKG, RDTK and TSOI as 
+follows: 
+ 
+Issuer EP EQR 
+IMMA Juchi Lee Park 
+IMKG Park Juchi Lee 
+RDTK Park Juchi Lee 
+TSOI Joseph Lee Juchi Lee 
+ 
+27. Park instructed Joseph Lee and Juchi Lee to review PLS’s clients’ audit binders in 
+preparation for the inspection. 
+ 
+28. Before the November 2016 PCAOB inspection was scheduled to begin, the 
+PCAOB informed PLS that it would review the audit work papers for IMKG, RDTK and TSOI 
+during the inspection. 
+ 
+29. After learning which issuers were selected for the inspection, Park instructed 
+Joseph Lee and Juchi Lee to review the audit binders for those issuers again. 
+ 
+30. The PCAOB conducted its inspection of PLS from November 7, 2016 to 
+November 11, 2016. 
+ 
+3. Respondents Failed to Prepare and Retain Required Audit Documentation, 
+and Inappropriately Modified Audit Documentation, in Violation of PCAOB 
+Auditing Standard No. 33 
+ 
+31. Respondents violated PCAOB Auditing Standard No. 3, Audit Documentation 
+(“AS 3”), in that they:  failed to timely prepare required audit documentation; failed to document 
+the addition of documents to the work papers after the documentation completion date; and drafted 
+back-dated, fraudulent work papers to create the appearance of having proper contemporaneous 
+work papers. 
+ 
+32. AS 3 establishes general requirements for documentation the auditor should prepare 
+and retain in connection with engagements conducted pursuant to the standards of the PCAOB.  
+AS 3.1, AS 3.4.  Audit documentation is the written record of the basis for the auditor’s 
+conclusions that provides the support for the auditor’s representations, whether those 
+representations are contained in the auditor’s report or otherwise.  AS 3.2.  Audit documentation 
+also facilitates the planning, performance, and supervision of the engagement, and is the basis for 
+the review of the quality of the work because it provides the reviewer with written documentation 
+of the evidence supporting the auditor’s significant conclusions.  Id. 
+                                                 
+3  PCAOB Auditing Standard No. 3 was renumbered from AS 3 to AS 1215, effective December 
+31, 2016; references herein are to the numbering in effect at the time of the alleged conduct. 
+ 
+7 
+ 
+33. Among other things, audit documentation includes records of the planning and 
+performance of the work, the procedures performed, evidence obtained, and conclusions reached 
+by the auditor.  AS 3.2.  The auditor also must identify all significant findings or issues in an 
+engagement completion document.  AS 3.13. 
+ 
+34. The report release date is the date the auditor grants permission to use the auditor’s 
+report in connection with the issuance of the company’s financial statements.  AS 3.14.  Prior to 
+the report release date, the auditor must have completed all necessary auditing procedures and 
+obtained sufficient evidence to support the representations in the auditor’s report.  AS 3.15.  A 
+complete and final set of audit documentation should be assembled for retention as of a date not 
+more than 45 days after the report release date (the “documentation completion date”).  Id. 
+ 
+35. Circumstances may require additions to audit documentation after the report release 
+date.  AS 3.16.  Audit documentation must not be deleted or discarded after the documentation 
+completion date, however, information may be added.  Id.  Any documentation added must 
+indicate the date the information was added, the name of the person who prepared the additional 
+documentation, and the reason for adding it.  Id. 
+ 
+36. Because PLS did not use automated auditing software, it was up to the individual 
+auditors themselves to keep track of what audit work had been performed, and when, and to ensure 
+that the audit documentation for each audit was completed by the 45-day documentation 
+completion date, as required by AS 3.15. 
+ 
+37. The individual auditors were aware that PLS commonly lacked a complete audit 
+binder for its clients’ audits.   
+ 
+a. Park noticed missing work papers when reviewing audits; reprimanded Joseph Lee 
+for missing documentation; and told Juchi Lee that Joseph Lee’s work papers were 
+incomplete. 
+ 
+b. Juchi Lee acknowledged that prior to the November 2016 PCAOB inspection, the 
+individual auditors were less “serious” about complying with the audit 
+documentation completion period, which she understood to be “45 days or 60 
+days.” 
+ 
+c. Joseph Lee admitted that he was unaware of the 45 day audit documentation 
+completion period before the November 2016 PCAOB inspection. 
+ 
+38. PLS and the individual auditors inappropriately added documents to audit work 
+papers after the audit report had been released and the applicable documentation completion date 
+had passed, without disclosing the date that these documents were added, or other information 
+required under AS 3.16.  In certain instances, the individual auditors identified documents that 
+were missing from the audit work papers, then intentionally prepared and backdated those 
+documents in order to make it appear as though those documents had been prepared and included 
+8 
+in the audit work papers on or before the date of the corresponding PLS audit report.  
+PLS subsequently produced backdated documents in response to the July 2016 Commission 
+Subpoena and/or the November 2016 PCAOB inspection. 
+ 
+39. PLS and the individual auditors knew or were reckless in not knowing that they 
+inappropriately added documents to audit work papers and backdated audit work papers. 
+ 
+a. IMMA Audits – Fiscal Years Ended October 31, 2014 and 2015 
+ 
+40. PLS performed the audit for IMMA’s fiscal year ended October 31, 2014 (the 
+“IMMA 2014 audit”).  IMMA filed the PLS audit report, dated February 12, 2014,4 with its Form 
+10-K on February 12, 2015.  The audit report stated that PLS had conducted the audit in 
+accordance with PCAOB standards.  The applicable documentation completion date was March 
+29, 2015. 
+ 
+41. PLS also performed the audit for IMMA’s fiscal year ended October 31, 2015 (the 
+“IMMA 2015 audit”).  IMMA filed the PLS audit report, dated February 10, 2016, with its Form 
+10-K on February 10, 2016.  The audit report stated that PLS had conducted the audit in 
+accordance with PCAOB standards.   The applicable documentation completion date was 
+March 26, 2016. 
+ 
+42. The issuer information form that PLS provided to the PCAOB in connection with 
+the November 2016 PCAOB inspection described Juchi Lee as the EP for IMMA, and Park as the 
+EQR. 
+ 
+43. Juchi Lee was the lead auditor for the IMMA 2014 audit and the IMMA 2015 audit.  
+Park reviewed the audit binders for these audits.  Each of them knew or were reckless in not 
+knowing that the IMMA 2014 audit and the IMMA 2015 audit had not actually been conducted in 
+accordance with PCAOB standards. 
+ 
+44. The July 2016 Commission Subpoena required PLS to produce IMMA audit work 
+papers for the time period from September 30, 2014, to July 5, 2016, which included both the 
+IMMA 2014 audit and the IMMA 2015 audit.  After PLS received the July 2016 Commission 
+Subpoena on or around July 5, 2016, Juchi Lee prepared and backdated documents for both the 
+IMMA 2014 audit and the IMMA 2015 audit. 
+ 
+45. Specifically, after PLS received the July 2016 Commission Subpoena on or around 
+July 5, 2016, Juchi Lee prepared an audit form entitled “Inquiries of Management/Directors about 
+the Risks of Fraud” for the IMMA 2014 audit.  Juchi Lee admitted that she had searched the 
+IMMA 2015 audit work papers for that audit’s version of the same form; hand copied the 
+                                                 
+4  The February 12, 2014 date on the PLS audit report appears to have been a typo, as the report 
+was for the fiscal year ended October 31, 2014, and was filed with IMMA’s Form 10-K on 
+February 12, 2015. 
+ 
+9 
+responses from that version onto a blank form, which she then signed and backdated to make it 
+look like it had been prepared in 2015; and produced the backdated form to the Commission along 
+with the IMMA 2014 audit work papers. 
+ 
+46. Or around July 21, 2016, Juchi Lee also prepared an “Engagement Acceptance and 
+Continuance” form for the IMMA 2014 audit and backdated this document to December 1, 2014, 
+approximately two months before the date of the corresponding PLS audit report, which was 
+February 12, 2015.  This document, which was filled out electronically prior to printing, included 
+the names of both Juchi Lee (as “Lead Partner”) and Park (as “Concurring Partner”) next to the 
+date December 1, 2014.  Juchi Lee admitted that she had created this document after reviewing the 
+audit work papers in July 2016. 
+ 
+47. On or around July 27, 2016, Juchi Lee prepared a form entitled “Engagement 
+Completion Document” for the IMMA 2015 audit and backdated this document to February 10, 
+2016, the date of the corresponding PLS audit report.  The hard copy version of this form included 
+handwritten signatures from both Juchi Lee and Park, which also were backdated to February 10, 
+2016.  Park admitted that his signature on this document was backdated. 
+ 
+b. IMKG Audit – Fiscal Year Ended February 28, 2015 
+ 
+48. PLS performed the audit for IMKG’s fiscal year ended February 28, 2015 (the 
+“IMKG 2015 audit”).  IMKG filed the PLS audit report, dated July 29, 2015, with its Form 10-K 
+on July 29, 2015.  The audit report stated that PLS had conducted the audit in accordance with 
+PCAOB standards.  The applicable documentation completion date was September 12, 2015. 
+ 
+49. The issuer information form that PLS provided to the PCAOB in connection with 
+the November 2016 PCAOB inspection listed Park as the engagement partner for IMKG, and 
+Juchi Lee as the EQR. 
+ 
+50. However, Park and Joseph Lee each admitted that they went together to Korea to 
+conduct field work for the audit.  Joseph Lee prepared most of the audit work papers for IMKG, 
+which Park reviewed.  Each of them knew or were reckless in not knowing that the IMKG 2015 
+audit had not actually been conducted in accordance with PCAOB standards. 
+ 
+51. The PCAOB reviewed audit work papers for the IMKG 2015 audit in connection 
+with the November 2016 PCAOB inspection. 
+ 
+52. Both Park and Joseph Lee admitted that in October 2016, in the course of 
+preparing for the November 2016 PCAOB inspection, they had become aware that Joseph Lee 
+had failed to obtain all of the documents necessary for the IMKG 2015 audit. 
+ 
+53. With Park’s knowledge, Joseph Lee emailed IMKG’s former owner and outside 
+consultants to request board minutes, bank reconciliations, and other documents, in an attempt to 
+complete the audit binder before the PCAOB inspection. 
+ 
+10 
+54. Joseph Lee also prepared and backdated documents for the IMKG 2015 audit in 
+preparation for the November 2016 PCAOB inspection.  PLS produced backdated documents for 
+the IMKG 2015 audit to the PCAOB in connection with the November 2016 PCAOB inspection. 
+ 
+55. On or around October 12, 2016, Joseph Lee prepared a document entitled “Audit 
+Program for General Planning Procedures” for the IMKG 2015 audit.  Joseph Lee admitted that 
+he had created this document after the audit report date, in preparation for the November 2016 
+PCAOB inspection. 
+ 
+56. On or around October 12 or 13, 2016, Joseph Lee also prepared a form entitled 
+“Engagement Completion Document” for the IMKG 2015 audit, and backdated it to July 29, 
+2015, the date of the corresponding PLS audit report.  This document, which was filled out 
+electronically prior to printing, included the names of Joseph Lee (as “Engagement Manager”), 
+Park (as “Engagement Partner”), and Juchi Lee (as “Concurring Partner/Engagement Quality 
+Reviewer”) next to the date July 29, 2015.  Joseph Lee admitted that this document had not been 
+prepared before the audit report was issued, and that he had backdated this document to the audit 
+report date. 
+ 
+57. On or around October 14, 2016, Joseph Lee prepared a “Risk Assessment 
+Summary Form” for the IMKG 2015 audit, and backdated it to July 9, 2015, a few weeks prior to 
+the date of the corresponding PLS audit report.  Joseph Lee admitted that he had created this 
+document after the audit report date, in preparation for the November 2016 PCAOB inspection. 
+ 
+c. RDTK Audit – Fiscal Year Ended December 31, 2015 
+ 
+58. PLS performed the audit for RDTK’s fiscal year ended December 31, 2015 (the 
+“RDTK 2015 audit”).  RDTK filed the PLS audit report, dated April 27, 2016, with its Form 10-
+K on April 27, 2016.  The audit report stated that PLS had conducted the audit in accordance 
+with PCAOB standards.  The applicable documentation completion date was June 11, 2016. 
+ 
+59. RDTK filed an amended Form 10-K for its fiscal year 2015 on August 24, 2016.  
+The Amended RDTK Form 10-K included a PLS audit report that was amended as to one note 
+only; that report was dual dated related to the one note for August 22, 2016.  The audit report 
+stated that PLS had conducted the audit in accordance with PCAOB standards.
+  The applicable 
+documentation completion date was October 6, 2016. 
+ 
+60. The issuer information form that PLS provided to the PCAOB in advance of the 
+November 2016 PCAOB inspection listed Park as the engagement partner for RDTK, and 
+Juchi Lee as EQR. 
+ 
+61. However, Park and Joseph Lee conducted the fieldwork for RDTK.  Joseph Lee 
+prepared most of the audit work papers for RDTK, which Park reviewed.  Each of them knew or 
+were reckless in not knowing that the RDTK 2015 audit had not actually been conducted in 
+accordance with PCAOB standards. 
+ 
+11 
+62. The PCAOB reviewed audit work papers for the RDTK 2015 audit in connection 
+with the November 2016 PCAOB inspection. 
+ 
+63. Joseph Lee admitted that he had contacted RDTK after the audit report was 
+released to request supporting documentation that was missing from the audit binders. 
+ 
+64. Joseph Lee also prepared and backdated documents for the RDTK 2015 audit in 
+preparation for the November 2016 PCAOB inspection.  PLS produced backdated documents for 
+the RDTK 2015 audit to the PCAOB in connection with the November 2016 PCAOB inspection. 
+ 
+65. On or around October 18, 2016, Joseph Lee prepared a document entitled “Audit 
+Program for General Planning Procedures” for the RDTK 2015 audit.  Joseph Lee admitted that 
+he had noticed this document was missing from the audit work papers and that he had created 
+this document in preparation for the November 2016 PCAOB inspection. 
+ 
+66. On or around October 19, 2016, Joseph Lee also prepared a “Supervision, Review 
+and Approval Form” for the RDTK 2015 audit and backdated it to April 27, 2016, the date of the 
+original PLS audit report.  This document, which was filled out electronically prior to printing, 
+included the typed “signatures” of Joseph Lee (under the “Detailed Review” section supposed to 
+be “performed by the staff in charge of the field work”), Park (as “Engagement Partner”), and 
+Juchi Lee (as “Engagement Quality Reviewer”) next to the date April 27, 2016.  Joseph Lee 
+admitted that he had created this document in preparation for the November 2016 PCAOB 
+inspection.  Park also admitted that this document was created in October 2016 to supplement the 
+audit work papers, and backdated. 
+ 
+67. In addition, on or around October 19, 2016, Joseph Lee prepared an “Engagement 
+Completion Document” for the RDTK 2015 audit, and backdated it to April 27, 2016, the 
+original report release date.  This document, which was filled out electronically prior to printing, 
+included the names of Joseph Lee (as “Engagement Manager”), Park (as “Engagement Partner”), 
+and Juchi Lee (as “Concurring Partner/Engagement Quality Reviewer”) next to the date April 27, 
+2016.  Joseph Lee admitted that he had created this document in October 2016 in preparation for 
+the November 2016 PCAOB inspection.  Park also admitted that this document was created in 
+October 2016 to supplement the audit work papers, and backdated. 
+ 
+d. TSOI Audit – Fiscal Year Ended December 31, 2014 
+ 
+68. PLS performed the audit for TSOI’s fiscal year ended December 31, 2014 (the 
+“TSOI 2014 audit”).  TSOI filed the PLS audit report, dated June 15, 2016, with its Form 10-K 
+on June 16, 2016.  The audit report stated that PLS had conducted the audit in accordance with 
+PCAOB standards.  The applicable documentation completion date was July 30, 2016. 
+ 
+69. The issuer information form that PLS provided to the PCAOB in connection with 
+the November 2016 PCAOB inspection listed Joseph Lee as the engagement partner for TSOI, 
+and Juchi Lee as the EQR. 
+ 
+12 
+70. However, Joseph Lee performed the substantive audit work for TSOI, including 
+preparation of the audit binder, and Park served as the reviewer.  Each of them knew or were 
+reckless in not knowing that the TSOI 2014 audit had not actually been conducted in accordance 
+with PCAOB standards. 
+ 
+71. Juchi Lee did not perform an engagement quality review for TSOI.  In fact, Juchi 
+Lee admitted that she had not performed engagement quality reviews for IMKG, RDTK, or 
+TSOI, even though the issuer information form that PLS provided to the PCAOB in advance of 
+the November 2016 PCAOB inspection listed her as the EQR for each of these issuers. 
+ 
+72. The PCAOB reviewed audit work papers for the TSOI 2014 audit in connection 
+with the November 2016 PCAOB inspection. 
+ 
+73. Joseph Lee admitted that he did not fill out audit documentation forms for the 
+TSOI 2014 audit until the fall of 2016, when he was reviewing audit binders in preparation for 
+the November 2016 PCAOB inspection. 
+ 
+74. Joseph Lee prepared and backdated documents for the TSOI 2014 audit in 
+preparation for the November 2016 PCAOB inspection.  PLS produced backdated documents for 
+the TSOI 2014 audit to the PCAOB in connection with the November 2016 PCAOB inspection. 
+ 
+75. Sometime between October 24 and November 1, 2016, Joseph Lee prepared a 
+document entitled “Audit Program for General Planning Procedures” for the TSOI 2014 audit.  
+Joseph Lee admitted that he had created this document several months after the TSOI 2014 Form 
+10-K had been filed, in preparation for the November 2016 PCAOB inspection. 
+ 
+76. Sometime between October 24 and November 1, 2016, Joseph Lee also prepared 
+a document entitled “Risk Assessment Summary Form” for the TSOI 2014 audit.  This 
+document, which was filled out electronically prior to printing, included the names of Joseph Lee 
+and Juchi Lee next to the date January 7, 2016, which was several months prior to the date of the 
+corresponding PLS audit report. 
+ 
+77. In addition, on or around October 31 or November 1, 2016, Joseph Lee prepared a 
+“Supervision, Review and Approval Form” for the TSOI 2014 audit.  This document, which was 
+filled out electronically prior to printing, included the names of Joseph Lee (as “Engagement 
+Partner”) and Juchi Lee (as “Engagement Quality Reviewer”) next to the date June 15, 2016, the 
+date of the corresponding PLS audit report. 
+ 
+  
+13 
+4. Respondents Failed to Obtain or Perform Engagement Quality Reviews in 
+Violation of PCAOB Auditing Standard No. 75 
+ 
+78. Respondents violated PCAOB Auditing Standard No. 7, Engagement Quality 
+Review (“AS 7”), by failing to obtain or perform adequate engagement quality reviews in 
+connection with PLS’s clients’ audits. 
+ 
+79. AS 7 requires an engagement quality review and concurring approval of issuance 
+for each audit engagement conducted pursuant to the standards of the PCAOB.  AS 7.1.  The 
+objective of the EQR is to perform an evaluation of the significant judgments made by the 
+engagement team and the related conclusions reached in forming the overall conclusion on the 
+engagement and in preparing the engagement report, if a report is to be issued, in order to 
+determine whether to provide concurring approval of issuance.  AS 7.2.  To evaluate such 
+judgments and conclusions, the EQR to the extent necessary should hold discussions with the 
+engagement partner and other members of the engagement team, and review documentation.  
+AS 7.9. 
+ 
+80. The EQR must be an associated person of a registered public accounting firm.  
+AS 7.3.  An EQR from the firm that issues the engagement report must be a partner or another 
+individual in an equivalent position.  Id.  The EQR may also be an individual from outside the 
+firm.  Id.  To maintain objectivity, the EQR and others who assist the EQR should not make 
+decisions on behalf of the engagement team or assume any of the responsibilities of the 
+engagement team.  AS 7.7. 
+ 
+81. In an audit, the EQR should evaluate, among other things, the significant 
+judgments that relate to engagement planning, including consideration of the firm’s recent 
+engagement experience with the company and risks identified in connection with the firm’s 
+client acceptance and retention process.  AS 7.10.  The EQR also should evaluate the 
+engagement team’s assessment of, and audit responses to, significant risks identified by the 
+engagement team, including fraud risks, and other significant risks identified by the EQR.  Id.  
+The EQR’s review of documentation should specifically include the engagement completion 
+document.  Id. 
+ 
+82. Additionally, in an audit, the EQR should evaluate whether the engagement 
+documentation that he or she reviewed indicates that the engagement team responded 
+appropriately to significant risks, and supports the conclusions reached by the engagement team 
+with respect to the matters reviewed.  AS 7.11.  The EQR may provide concurring approval of 
+issuance only if, after performing with due professional care the review required by AS 7, he or 
+she is not aware of a significant engagement deficiency, such as a failure by the engagement 
+team to obtain sufficient appropriate evidence in accordance with the standards of the PCAOB.  
+                                                 
+5  PCAOB Auditing Standard No. 7 was renumbered from AS 7 to AS 1220, effective December 
+31, 2016; references herein are to the numbering in effect at the time of the alleged conduct. 
+ 
+14 
+AS 7.12.  The audit firm may grant permission to the client to use the engagement report only 
+after the EQR provides concurring approval of issuance.  AS 7.13. 
+ 
+83. The issuer information form that PLS provided to the PCAOB in advance of the 
+November 2016 PCAOB inspection represented that Park was the EQR for IMMA, and Juchi 
+Lee was the EQR for IMKG, RDTK, and TSOI.  PLS, however, was not actually staffing its 
+audits in this manner. 
+ 
+84. PLS and the individual auditors violated AS 7 by failing to obtain or perform 
+adequate engagement quality reviews, in accordance with the requirements of AS 7, for the 
+IMMA 2014 audit; the IMMA 2015 audit; the IMKG 2015 audit; the RDTK 2015 audit; and the 
+TSOI 2014 audit. 
+ 
+85. Juchi Lee, the purported EQR for the IMKG 2015 audit, the RDTK 2015 audit, 
+and the TSOI 2014 audit, admitted that she had not performed engagement quality reviews for 
+IMKG, RDTK, or TSOI.  She also admitted that she had not even known that she was supposed 
+to be EQR for these issuers until October 2016, when Park tasked her and Joseph Lee with the 
+job of completing the issuer information form for the PCAOB in connection with the 
+November 2016 PCAOB inspection. 
+ 
+86. Moreover, given the audit documentation deficiencies described above, PLS and 
+the individual auditors could not have obtained or performed engagement quality reviews, in 
+accordance with the requirements of AS 7, for the IMMA 2014 audit, the IMMA 2015 audit, 
+the IMKG 2015 audit, the RDTK 2015 audit, or the TSOI 2014 audit.  The documents that were 
+inappropriately added to audit work papers, after the audit report had been released and the 
+applicable documentation completion date had passed, included engagement acceptance, audit 
+planning, risk assessment, engagement completion, and other documents that an EQR 
+performing an engagement quality review pursuant to the standards of AS 7 should have 
+reviewed before providing approval for the audit report to be released. 
+ 
+87. Respondents knew or were reckless in not knowing that they had failed to obtain 
+or perform engagement quality reviews, in accordance with the requirements of AS 7, for the 
+IMMA 2014 audit; the IMMA 2015 audit; the IMKG 2015 audit; the RDTK 2015 audit; and the 
+TSOI 2014 audit. 
+ 
+5. Respondents Failed to Exercise Due Professional Care in Violation of 
+PCAOB Interim Auditing Standard No. 2306 
+ 
+88. Respondents violated PCAOB Interim Auditing Standard No. 230, 
+Due Professional Care in the Performance of Work (“AU 230”), by failing to exercise due 
+                                                 
+6  PCAOB Interim Auditing Standard No. 230 was renumbered from AU 230 to AS 1015, 
+effective December 31, 2016; references herein are to the numbering in effect at the time of the 
+alleged conduct. 
+ 
+15 
+professional care in connection with the IMMA 2014 audit; the IMMA 2015 audit; the IMKG 
+2015 audit; the RDTK 2015 audit; and the TSOI 2014 audit.  Namely, Respondents failed to 
+prepare and retain required audit documentation and produced backdated documents to the 
+PCAOB and the Commission, and they failed to obtain and perform engagement quality 
+reviews. 
+ 
+89. AU 230 requires an auditor to exercise due professional care in the planning and 
+performance of the audit and the preparation of the report.  AU 230.01 - 230.02.  Due 
+professional care imposes a responsibility upon each professional within an independent 
+auditor’s organization to observe the standards of field work and reporting.  AU 230.02. 
+ 
+90. The matter of due professional care concerns what the independent auditor does 
+and how well he or she does it.  AU 230.04.  An auditor should possess “the degree of skill 
+commonly possessed” by other auditors and should exercise it with “reasonable care and 
+diligence” (that is, with due professional care).  AU 230.05.  The engagement partner should 
+know, at a minimum, the relevant professional accounting and auditing standards and should be 
+knowledgeable about the client.  AU 230.06. 
+ 
+91. Due professional care requires the auditor to exercise professional skepticism.  
+AU 230.07.  Professional skepticism is an attitude that includes a questioning mind and a 
+critical assessment of audit evidence.  Id.  The auditor uses the knowledge, skill, and ability 
+called for by the profession of public accounting to diligently perform, in good faith and with 
+integrity, the gathering and objective evaluation of evidence.  Id.  Gathering and objectively 
+evaluating audit evidence requires the auditor to consider the competency and sufficiency of the 
+evidence.  AU 230.08.  Since evidence is gathered and evaluated throughout the audit, 
+professional skepticism should be exercised throughout the audit process.  Id. 
+ 
+92. PLS and the individual auditors failed to exercise due professional care in 
+connection with the audit documentation for the IMMA 2014 audit; the IMMA 2015 audit; the 
+IMKG 2015 audit; the RDTK 2015 audit; and the TSOI 2014 audit. 
+ 
+93. As described above, PLS and the auditors failed to prepare and retain required 
+audit documentation for these audits, as required by AS 3.  Although all three of the individual 
+auditors were aware that PLS had a problem with missing work papers, they did not take any 
+action to remedy this problem until the July 2016 Commission Subpoena and the announcement 
+of the November 2016 PCAOB inspection threatened to expose their audit deficiencies. 
+ 
+94. Even then, Respondents did not follow the requirements for adding audit 
+documentation set forth in AS 3.16, but intentionally attempted to conceal their actions from the 
+Commission and the PCAOB by retroactively completing and backdating documents, which 
+PLS then produced to the Commission or the PCAOB. 
+ 
+95. PLS and the individual auditors also failed to exercise due professional care in 
+connection with engagement quality reviews for the IMMA 2014 audit; the IMMA 2015 audit; 
+the IMKG 2015 audit; the RDTK 2015 audit; and the TSOI 2014 audit.  PLS and the individual 
+16 
+auditors issued audit reports and provided information to the PCAOB, representing that 
+engagement quality reviews had been obtained or performed for each of these audits, when in 
+fact they had failed to obtain or perform engagement quality review, in accordance with the 
+requirements of AS 7, for each of these audits. 
+ 
+96. Respondents knew or were reckless in not knowing that they failed to exercise 
+due professional care in connection with the IMMA 2014 audit; the IMMA 2015 audit; the 
+IMKG 2015 audit; the RDTK 2015 audit; and the TSOI 2014 audit. 
+ 
+6. Respondents Willfully Violated PCAOB Rules 3500T and 4006 
+ 
+97. PCAOB Rule 3500T, Interim Ethics and Independence Standards (“Rule 
+3500T”), requires a registered public accounting firm and its associated persons to comply with 
+AICPA’s Code of Professional Conduct Rule 102 in connection with the preparation or issuance 
+of any audit report.  Rule 3500T(a).
+7   
+ 
+98. AICPA’s Code of Professional Conduct Rule 102, Integrity and Objectivity 
+(“AICPA Rule 102”) mandates that “in the performance of any professional service, a member 
+shall maintain objectivity and integrity.”  AICPA Rule 102.01.  The AICPA Code of 
+Professional Conduct defines “professional services” as including “all services requiring 
+accountancy or related skills performed by a member for a client, an employer, or on a volunteer 
+basis.  These services include, but are not limited to accounting, audit and other attest services, 
+tax, bookkeeping, management consulting, financial management, corporate governance, 
+personal financial planning, business valuation, litigation support, educational, and those services 
+for which standards are promulgated by bodies designated by [the AICPA Council].”  AICPA 
+Code of Professional Conduct § 0.400.40. 
+ 
+99. PLS and the individual auditors willfully violated Rule 3500T because they failed 
+to act with integrity in connection with the preparation and issuance of the audit reports for the 
+IMMA 2014 audit; the IMMA 2015 audit; the IMKG 2015 audit; the RDTK 2015 audit; and the 
+TSOI 2014 audit.   
+ 
+100. PLS and the individual auditors further demonstrated a lack of integrity by taking 
+affirmative steps to conceal their auditing deficiencies from us and the PCAOB, including the 
+preparation and backdating of additional audit documentation which was subsequently produced 
+to us and/or the PCAOB. 
+ 
+101. PCAOB Rule 4006, Duty to Cooperate with Inspectors (“Rule 4006”), requires a 
+public accounting firm and its associated persons to cooperate with the Board in the performance 
+                                                 
+7  The rule requires auditors to comply with the AICPA’s Code of Professional Conduct Rule 
+102, and interpretations and rulings thereunder, as in existence on April 16, 2003.  Although 
+PCAOB Rule 3500T references the AICPA Code as in existence on April 16, 2003, the 
+definition of integrity remains identical to the current definitions in the Code of Professional 
+Conduct promulgated by the AICPA and applicable to current members of the AICPA. 
+17 
+of any Board inspection.  Cooperation includes, but it is not limited to, cooperating and complying 
+with any request made by the PCAOB to “provide access to, and the ability to copy, any record in 
+the possession, custody, or control of such firm or person.”  See Rule 4006(a).  “Implicit in this 
+cooperation requirement is that auditors provide accurate and truthful information.”  In the Matter 
+of the Application of Kabani & Company, Inc., et al., Exchange Act Release No. 80201, at 13-14 
+(March 10, 2017) (Commission Opinion). 
+ 
+102. PLS and the individual auditors willfully violated Rule 4006 in connection with the 
+November 2016 PCAOB inspection by providing to the PCAOB documents that had been added to 
+audit work papers for the IMKG 2015 audit, the RDTK 2015 audit, and the TSOI 2014 audit, after 
+the audit report for each of these audits had been released and the applicable documentation 
+completion date had passed, without disclosing of the date that these documents were added to the 
+work papers, the persons who did so, or the reasons for doing so, as required under AS 3.   
+ 
+103. Moreover, PLS and the individual auditors attempted to deceive the PCAOB by 
+backdating documents so that it would appear as though these documents had been prepared and 
+included in the audit work papers before the audit report had been released. 
+ 
+D. VIOLATIONS 
+ 
+104. As a result of the conduct described above, PLS engaged in improper professional 
+conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice by engaging in repeated instances of unreasonable conduct and/or 
+engaging in intentional or knowing conduct, including reckless conduct, and willfully violated the 
+federal securities laws under Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of the 
+Commission’s Rules of Practice, by willfully violating Rule 2-02(b)(1) of Regulation S-X, and 
+willfully violating PCAOB Rule 3500T and PCAOB Rule 4006. 
+ 
+105. As a result of the conduct described above, Park engaged in improper professional 
+conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice by engaging in repeated instances of unreasonable conduct and/or 
+engaging in intentional or knowing conduct, including reckless conduct, and willfully violated or 
+willfully aided and abetted violation of the federal securities laws under Section 4C(a)(3) of the 
+Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice, by willfully aiding 
+and abetting and causing PLS’s violations of Rule 2-02(b)(1) of Regulation S-X, and by willfully 
+violating PCAOB Rule 3500T and PCAOB Rule 4006. 
+ 
+106. As a result of the conduct described above, Joseph Lee engaged in improper 
+professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of 
+the Commission’s Rules of Practice by engaging in repeated instances of unreasonable conduct 
+and/or engaging in intentional or knowing conduct, including reckless conduct, and willfully 
+violated or willfully aided and abetted violation of the federal securities laws under Section 
+4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice, by 
+willfully aiding and abetting and causing PLS’s violations of Rule 2-02(b)(1) of Regulation S-X, 
+and by willfully violating PCAOB Rule 3500T and PCAOB Rule 4006. 
+18 
+ 
+107. As a result of the conduct described above, Juchi Lee engaged in improper 
+professional conduct pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of 
+the Commission’s Rules of Practice by engaging in repeated instances of unreasonable conduct 
+and/or engaging in intentional or knowing conduct, including reckless conduct, and willfully 
+violated or willfully aided and abetted violation of the federal securities laws under Section 
+4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice, by 
+willfully aiding and abetting and causing PLS’s violations of Rule 2-02(b)(1) of Regulation S-X, 
+and by willfully violating PCAOB Rule 3500T and PCAOB Rule 4006. 
+ 
+III. 
+ 
+ In view of the allegations made by the Division of Enforcement, the Commission deems it 
+necessary and appropriate in the public interest that public administrative and cease-and-desist 
+proceedings be instituted to determine: 
+ 
+A. Whether the allegations set forth in Section II hereof are true and, in connection 
+therewith, to afford Respondents an opportunity to establish any defenses to such allegations; 
+ 
+B. What, if any, remedial action is appropriate in the public interest against 
+Respondents pursuant to Section 4C of the Exchange Act and Rule 102(e) of the Commission’s 
+Rules of Practice; 
+ 
+C. Whether, pursuant to Section 21C of the Exchange Act, Respondents should be 
+ordered to cease and desist from committing or causing violation of and any future violations of 
+Rule 2-02(b)(1) of Regulation S-X, PCAOB Rule 3500T, and PCAOB Rule 4006; whether PLS 
+should be ordered to pay disgorgement of audit fees for each of the audits at issue pursuant to 
+Sections 21B(e) and 21C(e) of the Exchange Act; and whether Respondents should be ordered to 
+pay civil penalties pursuant to Section 21B(a) of the Exchange Act. 
+ 
+ 
+IV. 
+ 
+IT IS ORDERED that a public hearing before the Commission for the purposes of taking 
+evidence on the questions set forth in Section III hereof shall be convened not earlier than 30 days 
+and not later than 60 days from service of this Order at a time and place to be fixed by further order 
+of the Commission, pursuant to Rule 110 of the Commission’s Rules of Practice, 17 C.F.R. § 
+201.110. 
+ 
+IT IS FURTHER ORDERED that Respondents shall file an Answer to the allegations 
+contained in this Order within twenty (20) days after service of this Order, as provided by Rule 
+220(b) of the Commission's Rules of Practice, 17 C.F.R. § 201.220(b).  
+ 
+IT IS FURTHER ORDERED that the Division of Enforcement and Respondents shall 
+conduct a prehearing conference pursuant to Rule 221 of the Commission’s Rules of Practice, 
+19 
+17 C.F.R. § 201.221, within fourteen (14) days of service of the Answer.  The parties may meet in 
+person or participate by telephone or other remote means; following the conference, they shall file 
+a statement with the Office of the Secretary advising the Commission of any agreements reached at 
+said conference.  If a prehearing conference was not held, a statement shall be filed with the Office 
+of the Secretary advising the Commission of that fact and of the efforts made to meet and confer. 
+ 
+If any Respondent fails to file the directed Answer, or fails to appear at a hearing after 
+being duly notified, the Respondent may be deemed in default and the proceedings may be 
+determined against them upon consideration of this Order, the allegations of which may be deemed 
+to be true as provided by Rules 155(a), 220(f), 221(f) and 310 of the Commission's Rules of 
+Practice, 17 C.F.R. §§ 201.155(a), 201.220(f), 201.221(f) and 201.310. 
+ 
+This Order shall be served forthwith upon Respondents by any means permitted by the 
+Commission’s Rules of Practice. 
+ 
+Attention is called to Rule 151(b) and (c) of the Commission’s Rules of Practice, 17 C.F.R. 
+§ 201.151(b) and (c), providing that when, as here, a proceeding is set before the Commission, all 
+papers (including those listed in the following paragraph) shall be filed with the Office of the 
+Secretary and all motions, objections, or applications will be decided by the Commission.  The 
+Commission requests that an electronic courtesy copy of each filing should be emailed to 
+APFilings@sec.gov
+ in PDF text-searchable format.  Any exhibits should be sent as separate 
+attachments, not a combined PDF. 
+ 
+The Commission finds that it would serve the interests of justice and not result in prejudice 
+to any party to provide, pursuant to Rule 100(c) of the Commission’s Rules of Practice, 17 C.F.R. 
+§ 201.100(c), that notwithstanding any contrary reference in the Rules of Practice to filing with or 
+disposition by a hearing officer, all filings, including those under Rules 210, 221, 222, 230, 231, 
+232, 233, and 250 of the Commission’s Rules of Practice, 17 C.F.R. §§ 201.210, 221, 222, 230, 
+231, 232, 233, and 250, shall be directed to and, as appropriate, decided by the Commission.  This 
+proceeding shall be deemed to be one under the 120-day timeframe specified in Rule of Practice 
+360(a)(2)(i), 17 C.F.R. § 201.360(a)(2)(i), for the purposes of applying Rules of Practice 233 and 
+250, 17 C.F.R. §§ 201.233 and 250. 
+ 
+The Commission finds that it would serve the interests of justice and not result in prejudice 
+to any party to provide, pursuant to Rule 100(c) of the Commission’s Rules of Practice, 17 C.F.R. 
+§ 201.100(c), that the Commission shall issue a decision on the basis of the record in this 
+proceeding, which shall consist of the items listed at Rule 350(a) of the Commission’s Rules of 
+Practice, 17 C.F.R. § 201.350(a), and any other document or item filed with the Office of the 
+Secretary and accepted into the record by the Commission.  The provisions of Rule 351 of the 
+Commission’s Rules of Practice, 17 C.F.R. § 201.351, relating to preparation and certification of a 
+record index by the Office of the Secretary or the hearing officer are not applicable to this 
+proceeding. 
+ 
+  
+20 
+The Commission will issue a final order resolving the proceeding after one of the following: 
+(A) The completion of post-hearing briefing in a proceeding where the public hearing has been 
+completed; (B) The completion of briefing on a motion for a ruling on the pleadings or a motion for 
+summary disposition pursuant to Rule 250 of the Commission’s Rules of Practice, 17 C.F.R. § 
+201.250, where the Commission has determined that no public hearing is necessary; or (C) The 
+determination that a party is deemed to be in default under Rule 155 of the Commission’s Rules of 
+Practice, 17 C.F.R. § 201.155, and no public hearing is necessary.   
+ 
+In the absence of an appropriate waiver, no officer or employee of the Commission 
+engaged in the performance of investigative or prosecuting functions in this or any factually related 
+proceeding will be permitted to participate or advise in the decision of this matter, except as 
+witness or counsel in proceedings held pursuant to notice.  Since this proceeding is not “rule 
+making” within the meaning of Section 551 of the Administrative Procedure Act, it is not deemed 
+subject to the provisions of Section 553 delaying the effective date of any final Commission action. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 
+ 
+ 
+ 

raw/aaer/2020/AAER-4132.txt

@@ -0,0 +1,117 @@
+ 
+UNITED STATES OF AMERICA 
+before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88763 / April 28, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4132 / April 28, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19774 
+ 
+ 
+In the Matter of 
+ 
+ 
+WILLIAM M. 
+AISENBERG, CPA, 
+ 
+Respondent. 
+CORRECTED ORDER INSTITUTING 
+PUBLIC ADMINISTRATIVE 
+PROCEEDINGS PURSUANT TO RULE 
+102(e) OF THE COMMISSION’S RULES 
+OF PRACTICE, MAKING FINDINGS, 
+AND IMPOSING REMEDIAL 
+SANCTIONS 
+ 
+ 
+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 William 
+M. Aisenberg (“Respondent” or “Aisenberg”) pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice.1 
+ 
+ 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+The Commission, with due regard to the public interest and without preliminary hearing, 
+may, by order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has 
+been by name . . . permanently enjoined by any court of competent jurisdiction, by reason of his 
+or her misconduct in an action brought by the Commission, from violating or aiding and abetting 
+the violation of any provision of the Federal securities laws or of the rules and regulations 
+thereunder. 
+2  
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Paragraph III.3 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 
+102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below. 
+ 
+III. 
+ 
+On the basis of this Order and Respondent’s Offer, the Commission finds that: 
+ 
+1. Aisenberg, age 58, is and has been a certified public accountant licensed to 
+practice in the State of New York. He served as Chief Financial Officer of Ironclad Performance 
+Wear Corp. (“Ironclad”) from April 2014 until his resignation in July 2017. 
+ 
+2. Ironclad, a leading developer and manufacturer of high-performance, task- 
+specific gloves, was a Nevada corporation headquartered in Farmers Branch, Texas. Ironclad’s 
+common stock was registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 
+(the “Exchange Act”), and was quoted on the OTC Markets under the symbol “ICPW.” Ironclad 
+owned all of the shares of Ironclad Performance Wear Corp. California (“ICPW California”), 
+through which all operations were conducted. On September 8, 2017, Ironclad and ICPW 
+California filed voluntary petitions for relief under Chapter 11 of the Bankruptcy Code. Ironclad 
+and ICPW California completed a sale of substantially all of their assets on November 14, 2017 
+and filed a plan of liquidation. The plan was approved by the bankruptcy court and became 
+effective on February 28, 2018. 
+ 
+3. On April 6, 2020, the Commission filed a complaint against Aisenberg in 
+SEC v. Cordes et al. (Civil Action No. 3:20-cv-00822-G). On April 9, 2020, the court entered an 
+order permanently enjoining Aisenberg, by consent, from (i) violating Section 17(a) of the 
+Securities Act of 1933 (the “Securities Act”) and Sections 10(b) and 13(b)(5) of the Exchange Act 
+and Rules 10b- 5, 13a-14, 13b2-1, and 13b2-2 thereunder, (ii) aiding or abetting any violation of 
+Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-
+11, and 13a-13 thereunder, and (iii) acting as an officer or director of any issuer that has a class of 
+securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports 
+pursuant to Section 15(d) of the Exchange Act. Aisenberg was also ordered to pay a $173,437 civil 
+money penalty. 
+ 
+4. The Commission’s complaint alleged, among other things, that Aisenberg, along 
+with Ironclad’s CEO and Senior Vice President, engaged in a fraudulent scheme which resulted 
+in Ironclad filing materially false and misleading financial statements in the company’s annual 
+3  
+report on Form 10-K for the fiscal years ending on December 31, 2015 and 2016, and in the 
+company’s quarterly report on Form 10-Q for the first quarter of 2017. The Complaint alleged 
+that Aisenberg engaged in a number of improper accounting practices that materially increased 
+Ironclad’s annual and quarterly revenue and net income in a departure from generally accepted 
+accounting principles (“GAAP”). These practices included, among other things, recognizing 
+revenue for: out-of-period shipment; orders that were never shipped to or paid for by customers; 
+exchanges booked as new sales; cancelled orders; and products never ordered by a customer. In 
+addition, the complaint alleged that Aisenberg took affirmative steps to hide information about 
+Ironclad’s fraudulent revenue recognition practices from its independent auditors. 
+ 
+IV. 
+ 
+In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Aisenberg’s Offer. 
+ 
+Accordingly, it is hereby ORDERED, effective immediately, that Respondent Aisenberg is 
+suspended from appearing or practicing before the Commission as an accountant. 
+ 
+By the Commission. 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 

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+              Penn West Petroleum Ltd., d/b/a Obsidian Energy Ltd., Todd H. Takeyasu, Jeffery A. Curran, and Waldemar Grab
+           
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+   
+
+     
+
+      
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+             
+        Penn West Petroleum Ltd., d/b/a Obsidian Energy Ltd., Todd H. Takeyasu, Jeffery A. Curran, and Waldemar Grab
+       
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+
+     SEC Settles with Former Top Finance Executives of Oil and Gas Company 
+
+     Litigation Release No. 24809 / April 28, 2020 
+
+     Accounting and Auditing Release No.  4133 / April 28, 2020 
+
+      Securities and Exchange Commission v. Penn West Petroleum Ltd., d/b/a Obsidian Energy Ltd., Todd H. Takeyasu, Jeffery A. Curran, and Waldemar Grab , No. 17-CV-4866 (S.D.N.Y. filed June 28, 2017) 
+
+
+     
+
+       
+
+       
+
+       The Securities and Exchange Commission today announced that Todd H. Takeyasu and Jeffery A. Curran, respectively the former CFO and former vice president of accounting and reporting of a Canadian public oil and gas company, agreed to settle charges arising from an accounting fraud at the company. 
+ 
+       The SEC's  complaint  alleges that from 2012 through 2014, Penn West Petroleum, Ltd., now doing business as Obsidian Energy Ltd., improperly classified certain operating expenses as capital expenses in order to lower a key publicly reported metric concerning the cost of oil extraction and processing.  As alleged, this fraudulent practice was not disclosed to the  company 's external auditor and caused the company's financial statements to be materially inaccurate.  In September 2014, the company publicly reported that it would restate its financial statements from 2012 to the first quarter of 2014 and that its historical financial statements and related audit reports could no longer be relied upon.  The company and  Waldemar Grab , a former operations controller at Penn West, previously settled the Commission's fraud claims. 
+ 
+       Without admitting or denying the allegations, Curran and Takeyasu agreed to be permanently enjoined from violating the record-keeping and internal controls provisions of Section 13(b)(5) of the Securities Exchange Act of 1934 and Rule 13b2-1 thereunder.  Takeyasu has also agreed to be permanently enjoined from violating Exchange Act Rule 13b2-2, to pay a monetary penalty of $100,000, and to reimburse Penn West C$54,755 pursuant to Section 304(a) of the Sarbanes-Oxley Act of 2002.  Curran has agreed to be permanently enjoined from violating the antifraud provisions of Section 17(a)(3) of the Securities Act of 1933, and to pay a monetary penalty of $55,000. 
+ 
+       The SEC's investigation was conducted by Matthew T. Spitzer and Colin J. Rand, and the case was supervised by Anita B. Bandy. The litigation was led by Melissa J. Armstrong, Derek S. Bentsen, David B. Misler, Sarah H. Concannon, and Matthew Spitzer, with supervision by Stephan J. Schlegelmilch. 
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raw/aaer/2020/AAER-4134.txt

@@ -0,0 +1,153 @@
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88791 / May 1, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4134 / May 1, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19781
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING PUBLIC  
+ : ADMINISTRATIVE PROCEEDINGS 
+      : PURSUANT TO RULE 102(e) OF THE  
+TODD H. TAKEYASU, CA   : COMMISSION’S RULES OF PRACTICE, 
+      : MAKING FINDINGS, AND IMPOSING 
+  Respondent.   : REMEDIAL SANCTIONS 
+      :  
+      :  
+____________________________________ :   
+   
+ 
+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 Todd H. 
+Takeyasu (“Respondent” or “Takeyasu”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules 
+of Practice.1   
+ 
+II. 
+ 
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . 
+suspend from appearing or practicing before it any . . . accountant . . . who has been by name . . . permanently 
+enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the 
+Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of 
+the rules and regulations thereunder. 
+ 2 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.2 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 
+102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+ 1.  Respondent, age 59, resides in Calgary, Alberta, Canada.  Respondent is a chartered 
+accountant licensed to practice in Alberta, Canada. Respondent has been a chartered accountant 
+since 1987.  
+ 
+ 2. On April 29, 2020, a final judgment was entered against Respondent, permanently 
+enjoining him from future violations of Section 13(b)(5) of the Exchange Act of 1934 and Rules 
+13b2-1 and 13b2-2 thereunder, in the civil action entitled Securities and Exchange Commission v. 
+Penn West Petroleum Ltd., et al., Civil Action Number 17-4866-GHW in the United States District 
+Court for the Southern District of New York.  Respondent also was also ordered to reimburse Penn 
+West Petroleum, Ltd. in the amount of C$54,755 and to pay a $100,000 civil money penalty. 
+ 
+ 3.  The Commission’s complaint alleged, among other things, that while Respondent 
+was the Chief Financial Officer of Penn West Petroleum, Ltd. (“Penn West”), Penn West engaged 
+in accounting practices that resulted in false and misleading journal entries that had no adequate 
+documentary support or basis in reality.  The complaint further alleged that the journal entries rolled 
+up into Penn West’s annual and quarterly reports, which were signed by Respondent and filed with 
+the Commission.  The complaint further alleged that Respondent did not disclose these accounting 
+practices to Penn West’s independent auditor. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Takeyasu’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice, effective immediately, that: 
+ 
+ A. Todd H. Takeyasu is suspended from appearing or practicing before the 
+Commission as an accountant.   
+ 
+ 3 
+ B. After three years from the date of this order, Respondent 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 (other 
+than as a member of an audit committee, as that term is defined in Section 3(a)(58) of the 
+Securities Exchange Act of 1934).  Such an application must satisfy the Commission that 
+Respondent’s work in his practice before the Commission as an accountant 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.    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 as a 
+member of an audit committee, as that term is defined in Section 3(a)(58) of the Securities Act 
+of 1934.  Such an application will be considered on a facts and circumstances basis with 
+respect to such membership, and the applicant’s burden of demonstrating good cause for 
+reinstatement will be particularly high given the role of the audit committee in financial and 
+accounting matters; and/or  
+ 
+3. an independent accountant.   
+ 
+Such an application must satisfy the Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in Respondent’s or the firm’s quality control system that would indicate 
+that the respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his responsibility, as long as she 
+appears or practices before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited to, all requirements 
+relating to registration, inspections, concurring partner reviews and quality control standards.   
+      
+C. The Commission will consider an application by Respondent to resume 
+appearing or practicing before the Commission provided that his province chartered 
+accountant license is current and he has resolved all other disciplinary issues with the 
+applicable provincial boards of accountancy.  However, if provincial licensure is dependent 
+ 4 
+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 Respondent’s character, integrity, 
+professional conduct, or qualifications to appear or practice before the Commission as an 
+accountant.  Whether an application demonstrates good cause will be considered on a facts 
+and circumstances basis with due regard for protecting the integrity of the Commission’s 
+processes.  
+ 
+ By the Commission. 
+ 
+ 
+       Vanessa A. Countryman 
+Secretary 
+ 

raw/aaer/2020/AAER-4136.txt

@@ -0,0 +1,57 @@
+UNITED STATES OF AMERICA 
+before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88796 / May 1, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4136 / May 1, 2020 
+ 
+Admin. Proc. File No. 3-19767 
+ 
+ 
+In the Matter of 
+ 
+PLS, CPA, A PROFESSIONAL 
+CORPORATION, A/K/A PLS CPAs;  
+CHANG G. PARK, CPA, A/K/A CHANGGEUN PARK; 
+JOSEPH YONGYUN LEE, CPA, A/K/A YONG 
+YUN LEE; AND JUCHI LEE, CPA, A/K/A JUCHI LEE 
+FERNANDEZ, JUCHI LEE, JU CHI LEE, SUE LEE 
+ 
+ 
+ 
+ORDER REGARDING SERVICE 
+ 
+On April 24, 2020, the Securities and Exchange Commission issued an order instituting 
+an administrative proceeding (“OIP”) against PLS, CPA, a Professional Corporation, a/k/a PLS 
+CPAs; Chang G. Park, CPA, a/k/a Changgeun Park; Joseph Yongyun Lee, CPA, a/k/a Yong Yun 
+Lee; and Juchi Lee, CPA, a/k/a Juchi Lee Fernandez, Ju-chi Lee, Ju Chi Lee, Sue Lee 
+(collectively, “Respondents”), pursuant to Sections 4C and 21C of the Securities Exchange Act 
+of 1934 and Rules 102(e)(1)(ii) and (iii) of the Commission’s Rules of Practice.1  It appears that 
+there have been no other filings in this proceeding since issuance of the OIP, including as to 
+whether the OIP was served upon Respondents.  Accordingly, IT IS ORDERED that the 
+Division of Enforcement file a status report concerning service of the OIP by May 8, 2020, and 
+every 28 days thereafter until service is accomplished. 
+ 
+ 
+ 
+                                                 
+1  PLS, CPA, a Professional Corporation, a/k/a PLS CPAs, Exchange Act Release No. 
+88739, 2020 WL 2039958 (Apr. 24, 2020). 
+2 
+ 
+The parties are reminded that to the extent possible all filings should be emailed to 
+APFilings@sec.gov in accordance with the Commission’s March 18, 2020 order.2   
+For the Commission, by the Office of General Counsel, pursuant to delegated authority. 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 
+                                                 
+2  See In re Pending Administrative Proceedings, Securities Act Release No. 10767, 2020 
+WL 1322001 (Mar. 18, 2020), https://www.sec.gov/litigation/opinions/2020/33-10767.pdf 
+(encouraging parties in pending proceedings to confer and notify the Commission as to whether 
+they agree to waive paper service of all opinions and orders and accept service by email). 

raw/aaer/2020/AAER-4138.txt

@@ -0,0 +1,159 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88808 / May 5, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4138 / May 5, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19783
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING PUBLIC  
+ : ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE 
+      : 102(e) OF THE COMMISSION’S RULES OF 
+ JEFFERY A. CURRAN, CA   : PRACTICE, MAKING FINDINGS, AND 
+  Respondent.   : IMPOSING REMEDIAL SANCTIONS 
+      :  
+      :  
+____________________________________ :   
+   
+ 
+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 Jeffery 
+A. Curran (“Respondent” or “Curran”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.1   
+ 
+  
+                                                 
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by order, . . . 
+suspend from appearing or practicing before it any . . . accountant . . . who has been by name . .  . permanently 
+enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the 
+Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws or of 
+the rules and regulations thereunder. 
+ 
+ 2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
+proceedings, and the findings contained in Section III.2 below, which are admitted, Respondent 
+consents to the entry of this Order Instituting Public Administrative Proceedings Pursuant to Rule 
+102(e) of the Commission’s Rules of Practice, Making Findings, and Imposing Remedial 
+Sanctions (“Order”), as set forth below.   
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+ 1.  Respondent, age 51, resides in Calgary, Alberta, Canada.  Respondent is a chartered 
+accountant licensed to practice in Alberta, Canada. Respondent has been a chartered accountant 
+since 1996.  
+ 
+ 2. On April 29, 2020, a final judgment was entered against Respondent, permanently 
+enjoining him from future violations of Section 17(a)(3) of the Securities Act of 1933 (“Securities 
+Act”), Section 13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”), and Exchange 
+Act Rule 13b2-1, in the civil action entitled Securities and Exchange Commission v. Penn West 
+Petroleum Ltd., et al., Civil Action Number 17-4866-GHW in the United States District Court for 
+the Southern District of New York.  Respondent also was also ordered to pay a $55,000 civil 
+money penalty. 
+ 
+ 3.  The Commission’s complaint alleged, among other things, that while Respondent 
+was the Vice President of Accounting and Reporting of Penn West Petroleum, Ltd. (“Penn West”), 
+Penn West booked materially false accounting journal entries and improperly understated its 
+operating expenses in order to meet financial targets.  The complaint further alleged that 
+Respondent did not take adequate steps to ensure that Penn West’s journal entries were materially 
+accurate and properly supported. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent Curran’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED pursuant to Rule 102(e)(3)(i) of the Commission’s 
+Rules of Practice, effective immediately, that: 
+ 
+ 
+ 3 
+ A. Jeffery A. Curran is suspended from appearing or practicing before the Commission 
+as an accountant.   
+ 
+ B. After three years from the date of this order, Respondent 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 (other 
+than as a member of an audit committee, as that term is defined in Section 3(a)(58) of the 
+Securities Exchange Act of 1934).  Such an application must satisfy the Commission that 
+Respondent’s work in his practice before the Commission as an accountant 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.    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 as a 
+member of an audit committee, as that term is defined in Section 3(a)(58) of the Securities Act 
+of 1934.  Such an application will be considered on a facts and circumstances basis with 
+respect to such membership, and the applicant’s burden of demonstrating good cause for 
+reinstatement will be particularly high given the role of the audit committee in financial and 
+accounting matters; and/or  
+ 
+3. an independent accountant.   
+ 
+Such an application must satisfy the Commission that: 
+      
+           (a) Respondent, or the public accounting firm with which he is 
+associated, is registered with the Public Company Accounting Oversight Board (“Board”) in 
+accordance with the Sarbanes-Oxley Act of 2002, and such registration continues to be effective; 
+ 
+   (b) Respondent, or the registered public accounting firm with which he 
+is associated, has been inspected by the Board and that inspection did not identify any criticisms 
+of or potential defects in Respondent’s or the firm’s quality control system that would indicate 
+that the respondent will not receive appropriate supervision; 
+   (c) Respondent has resolved all disciplinary issues with the Board, and 
+has complied with all terms and conditions of any sanctions imposed by the Board (other than 
+reinstatement by the Commission); and 
+ 
+   (d) Respondent acknowledges his responsibility, as long as he appears 
+or practices before the Commission as an independent accountant, to comply with all 
+requirements of the Commission and the Board, including, but not limited to, all requirements 
+relating to registration, inspections, concurring partner reviews and quality control standards.   
+      
+ 
+ 4 
+C. The Commission will consider an application by Respondent to resume 
+appearing or practicing before the Commission provided that his province chartered 
+accountant license is current and he has resolved all other disciplinary issues with the 
+applicable provincial boards of accountancy.  However, if provincial licensure is dependent 
+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 Respondent’s character, integrity, 
+professional conduct, or qualifications to appear or practice before the Commission as an 
+accountant.  Whether an application demonstrates good cause will be considered on a facts 
+and circumstances basis with due regard for protecting the integrity of the Commission’s 
+processes.  
+ 
+ By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 
+ 

raw/aaer/2020/AAER-4139.txt

@@ -0,0 +1,46 @@
+UNITED STATES OF AMERICA 
+before the  
+SECURITIES AND EXCHANGE COMMISSION 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88851 / May 11, 2020 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4139 / May 11, 2020 
+Admin. Proc. File No. 3-19767 
+In the Matter of 
+PLS, CPA, A PROFESSIONAL 
+CORPORATION, A/K/A PLS CPAs;  
+CHANG G. PARK, CPA, A/K/A CHANGGEUN PARK; 
+JOSEPH YONGYUN LEE, CPA, A/K/A YONG 
+YUN LEE; AND JUCHI LEE, CPA, A/K/A JUCHI LEE 
+FERNANDEZ, JUCHI LEE, JU CHI LEE, SUE LEE 
+ORDER 
+On April 24, 2020, the Securities and Exchange Commission issued an order instituting 
+an administrative proceeding (“OIP”) against PLS, CPA, a Professional Corporation, a/k/a PLS 
+CPAs; Chang G. Park, CPA, a/k/a Changgeun Park; Joseph Yongyun Lee, CPA, a/k/a Yong Yun 
+Lee; and Juchi Lee, CPA, a/k/a Juchi Lee Fernandez, Ju-chi Lee, Ju Chi Lee, Sue Lee 
+(collectively, “Respondents”), pursuant to Sections 4C and 21C of the Securities Exchange Act 
+of 1934 and Rules 102(e)(1)(ii) and (iii) of the Commission’s Rules of Practice.1  In compliance 
+with the statutory provision governing cease-and-desist proceedings, the OIP specified that a 
+“public hearing before the Commission for the purpose of taking evidence . . . shall be convened 
+not earlier than 30 days and not later than 60 days” from service of the OIP.2  The statute also 
+provides that “an earlier or later date” for the hearing may be “set by the Commission with the 
+consent of any respondent so served.”3 
+1 PLS, CPA, a Professional Corporation, a/k/a PLS CPAs, Exchange Act Release No. 
+88739, 2020 WL 2039958 (Apr. 24, 2020). 
+2 Id. at *15. 
+3 15 U.S.C. § 78u-3(b). 
+2 
+ 
+Respondents were served with the OIP by April 28, 2020.  As a consequence, in the 
+absence of consent by Respondents regarding a later hearing date, a public hearing will be set for 
+a date on or before June 26, 2020.  To facilitate the orderly and expeditious resolution of this 
+matter, it is ORDERED that the parties shall file a statement advising the Commission of any 
+agreement to a later hearing date (or a statement that no agreement could be reached) by May 18, 
+2020.  In the event the parties do not reach an agreement by that date, this order does not 
+preclude the parties from reaching such an agreement subsequently.  The Commission will 
+specify further proceedings by subsequent order. 
+For the Commission, by the Office of the General Counsel, pursuant to delegated 
+authority. 
+ 
+        Vanessa A. Countryman 
+             Secretary 

raw/aaer/2020/AAER-4140.txt

@@ -0,0 +1,1384 @@
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+        TCA Fund Management Group Corp. and TCA Global Credit Fund GP, Ltd.
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+     SEC Charges Florida Investment Adviser with Fraud 
+
+     Litigation Release No. 24815 / May 12, 2020 
+
+     Accounting and Auditing Release No. 4140 / May 12, 2020 
+
+      Securities and Exchange Commission v. TCA Fund Management Group Corp. and TCA Global Credit Fund GP, Ltd. , No. 1:20-cv-21964 (S.D. Fla. filed May 11, 2020) 
+
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+       
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+       The Securities and Exchange Commission today filed fraud charges against Florida-based investment adviser TCA Fund Management Group Corp. (TCA) and its affiliate, TCA Global Credit Fund GP, Ltd. (TCA-GP), for an alleged fraudulent scheme conducted by TCA to inflate asset values and performance returns of funds it managed. 
+ 
+       The SEC's complaint, filed in the U.S. District Court for the Southern District of Florida, charges TCA and TCA-GP with violating the anti-fraud provisions of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder.  The complaint separately charges TCA with violating the anti-fraud provisions of Sections 206(1), 206(2), 206(4), and 207 of the Investment Advisers Act of 1940 and Rules 206(4)-7 and 206(4)-8 thereunder.  The SEC seeks permanent injunctions, disgorgement of allegedly ill-gotten gains and prejudgment interest, financial penalties, and the appointment of a receiver over TCA, TCA-GP, and the funds TCA managed. 
+ 
+       The SEC's investigation, which is ongoing, is being conducted by Shan Chang, Raynette R. Nicoleau, and Allen J. Genaldi, under the supervision of Chedly C. Dumornay and Glenn S. Gordon, and with the assistance of Jose Molina, Victor Mendoza, William Tudor, Roda Johnson, Jeannie M. Cabot, and John C. Mattimore, of the SEC's Miami Regional Office.  The litigation will be handled by Andrew O. Schiff and Stephanie N. Moot. 
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raw/aaer/2020/AAER-4141.txt

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+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88895 / May 18, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4141 / May 18, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19803 
+ 
+ 
+ 
+In the Matter of 
+ 
+TIMOTHY DALY, CPA, 
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND- 
+ AND- DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 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 Timothy 
+Daly, CPA ( “Respondent” or “Daly”) pursuant to Sections 4C1 and 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) and Rules 102(e)(1)(ii) and 102(e)(1)(iii) of the 
+Commission’s Rules of Practice.2 
+                                                 
+1 Section 4C provides, in relevant part, that:  
+ 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that person is found . . . (1) 
+not to possess the requisite qualifications to represent others; (2) to be lacking in character or integrity, 
+or to have engaged in unethical or improper professional conduct; or (3) to have willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or the rules and 
+regulations issued thereunder. 
+ 
+2 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing 
+before it . . . to any person who is found to be lacking in character or integrity or to have engaged in 
+unethical or improper professional conduct. 
+2 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) that 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 him and the subject matter of these proceedings, which are 
+admitted, Respondent consents to the entry of this Order Instituting Public Administrative and 
+Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the Securities Exchange Act of 
+1934 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 Respondent’s Offer, the Commission finds3 that: 
+ 
+SUMMARY 
+ 
+1. This matter involves misconduct by a now-former KPMG audit partner in 
+connection with an examination on an internally-administered training course.  The purpose of the 
+examination was to test whether KPMG audit professionals understood certain accounting and 
+auditing principles.  In 2018, former lead audit engagement partner Timothy Daly solicited and 
+received questions and answers to the examination from a colleague who was a second audit 
+partner on one of Daly’s engagement teams.   
+ 
+2. After learning of KPMG’s internal investigation of its audit professionals’ cheating 
+on internal training exams, Daly deleted text messages with his colleague in which the colleague 
+had relayed the questions and answers to the exam, after receiving a notice from the firm requiring 
+Daly to preserve them.  Daly also made a misrepresentation to KPMG’s investigators, which he 
+subsequently self-corrected.   
+ 
+3. Daly is required, both by the rules of the Public Company Accounting Oversight 
+Board (“PCAOB”) and by the Code of Professional Conduct of the American Institute of Certified 
+Public Accountants (“AICPA”), to act with integrity in connection with performing professional 
+                                                 
+ 
+ Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ 
+The Commission may . . . 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 any provision of the Federal securities laws or the rules and regulations thereunder.  
+ 
+3 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding.   
+ 
+3 
+services.4  Certified public accountants are required to “be, among other things, honest and candid 
+within the constraints of client confidentiality.”5  Additionally, Daly is prohibited from committing 
+acts “discreditable to the profession.”6  By the misconduct described herein, Daly failed to meet 
+these standards.  
+ 
+RESPONDENT 
+ 
+4. Timothy Daly, 53, of Weston, Connecticut was a partner in KPMG’s audit practice 
+until March 2019.  Daly is licensed as a CPA in the state of New York and was previously licensed 
+in Connecticut. 
+ 
+OTHER RELEVANT PERSON AND ENTITY 
+ 
+5. Michael Bellach, 45, of New York, New York was a partner in KPMG’s audit 
+practice until March 2019.  Bellach is licensed as a CPA in Connecticut and New York.  The 
+Commission has charged Bellach for his role in the misconduct described in this Order. 
+ 
+6. KPMG LLP is a Delaware limited liability partnership and PCAOB-registered 
+accounting firm.  Headquartered in New York, New York, KPMG is the U.S. member firm of 
+KPMG International Cooperative, a Swiss entity. 
+ 
+FACTS 
+ 
+A. Professional Education Requirements for KPMG Auditor Personnel  
+ 
+7. As an accountant licensed in New York, Daly was required to complete a minimum 
+number of continuing professional education (“CPE”) courses.  KPMG requires its audit 
+professionals, including Daly, to complete additional training in excess of state requirements and to 
+take examinations generally not mandated by state accountancy boards.  These training 
+requirements vary by position, role, and industry, and are designed by the firm to be relevant to the 
+audit work its professionals are performing. 
+ 
+8. To help its audit professionals satisfy these requirements, KPMG administers its 
+own set of online training programs that also qualify for CPE credit.  KPMG requires its auditors to 
+pass an examination at the conclusion of each online training program.  Audit professionals are 
+given three opportunities to pass each examination.  If one of KPMG’s audit professionals is 
+                                                 
+4  PCAOB Rule 3500T requires Daly to maintain integrity when performing any professional service in 
+connection with the preparation or issuance of any audit report.  As an AICPA member, Daly is required to comply 
+with the AICPA’s Code of Professional Conduct, which requires him to maintain integrity in connection with all 
+professional services. 
+ 
+5 See “Principles of Professional Conduct,” ET Section 54 (available at 
+https://www.aicpa.org/Research/Standards/CodeofConduct/DownloadableDocuments/2011June1CodeOfProfessiona
+lConduct.pdf).  Codified as AICPA Code 0.300.040. 
+ 
+6 AICPA Code of Professional Conduct 1.400.001 (“Acts Discreditable Rule”). 
+4 
+unable to pass after two attempts, their Performance Management Leader is notified.  If they are 
+unable to pass after three attempts, the consequences are more significant:  they are required to re-
+take the training; they are prohibited from conducting audit work until they pass the exam; and 
+others at the firm may be notified.  Audit professionals also understood that failing to pass an exam 
+could lead to their compensation being reduced. 
+ 
+B. Daly Solicits Test Answers from Bellach 
+ 
+9. In the fall of 2018, KPMG required its audit staff to complete trainings and exams 
+related to a new lease accounting standard.  In late September, Daly asked Michael Bellach, the 
+second partner on a significant KPMG engagement for which Daly was lead engagement partner, 
+about his progress on the KPMG lease testing.  Bellach told Daly he had completed the last lease 
+exam, and it was difficult.  Bellach also told Daly he had pictures of the questions and his 
+responses that he had taken after he failed his first attempt for his own use in preparing to retake 
+the exam.  In early October, Daly sent Bellach a text message asking for the photographs of the 
+failed lease exam, and Bellach texted the images back to Daly. 
+ 
+C. Daly and Bellach Delete the Text Containing the Test Photos 
+ 
+10. After learning of potential cheating on internal training exams, KPMG leadership 
+began an internal investigation.  The firm’s Board of Directors then formed a Special Committee 
+led by an independent board member to oversee an investigation of this conduct. 
+ 
+11. As part of its investigation, KPMG’s Office of General Counsel emailed an “Urgent 
+Request” to all KPMG personnel to preserve all documents related to KPMG’s training 
+requirements or training sessions.  The November 1, 2018 email emphasized the importance of 
+“strict compliance” with the document preservation order, cautioning that failure to comply could 
+expose individuals and the firm to serious consequences.  After receiving the November 1 
+document preservation notice, Daly deleted the text message and photos of the failed lease exam 
+Bellach had sent him and encouraged Bellach to do the same. 
+ 
+12. In December 2018, the firm required certain audit professionals to complete a 
+questionnaire that probed whether individuals had shared exam materials.  Daly falsely answered 
+“no” to the question of whether he had received any answers to KPMG training exams.  Early the 
+following week, Daly self-corrected by informing KPMG senior management that he had, contrary 
+to his response to the questionnaire, received a colleague’s answers to a training exam. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+5 
+VIOLATIONS 
+ 
+13. As a result of the conduct described above, Daly willfully7 violated PCAOB Rule 
+3500T, which requires Daly to comply with ethics standards, including to maintain integrity, as 
+described in the AICPA’s Code of Professional Conduct when performing any professional service 
+in connection with the preparation or issuance of any audit report,8 within the meaning of Section 
+4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice. 
+ 
+14. The AICPA Code of Professional Conduct requires that a member not commit any 
+act discreditable to the profession.  AICPA Code of Professional Conduct 1.400.001.  As a result 
+of the conduct described above, Daly failed to comply with AICPA Code of Professional Conduct 
+1.400.001 within the meaning of Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of 
+the Commission’s Rules of Practice. 
+ 
+FINDINGS 
+ 
+15. Based on the foregoing, the Commission finds that Daly willfully violated PCAOB 
+Rule 3500T within the meaning of Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of 
+the Commission’s Rules of Practice. 
+ 
+16. Based on the foregoing, the Commission finds a basis to impose remedies against 
+Daly pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the Commission’s 
+Rules of Practice, because Daly engaged in conduct within their purview.  Those provisions allow 
+the Commission to impose remedies when a person has been found to have engaged in conduct 
+“lacking in character or integrity or [has] engaged in unethical or improper professional conduct.” 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+7 “Willfully,” for purposes of imposing relief under Exchange Act Section 4C(a) (3) and Rule 102(e)(1)(iii) 
+“means no more than that the person charged with the duty knows what he is doing.”   Wonsover v. SEC, 205 F.3d 
+408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).  There is no requirement 
+that the actor “also be aware that he is violating one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 
+1965). 
+ 
+8  The rule requires auditors to comply with the AICPA’s Code of Professional Conduct Rule 102, and 
+interpretations and rulings thereunder, as in existence on April 16, 2003.  Although PCAOB Rule 3500T references 
+the AICPA Code as in existence on April 16, 2003, the definition of integrity remains identical to the current 
+definitions in the Code of Professional Conduct promulgated by the AICPA and applicable to current members of 
+the AICPA. 
+ 
+6 
+IV. 
+ 
+  In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Daly’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Daly shall cease and desist from committing or causing any violations and any 
+future violations of PCAOB Rule 3500T. 
+ 
+ B. Daly is denied the privilege of appearing or practicing before the Commission as an 
+accountant. 
+ 
+ C. After three years from the date of this order, Daly 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 (other than as a member of an audit committee, as that term is 
+defined in Section 3(a)(58) of the Securities Exchange Act of 1934).  Such 
+an application must satisfy the Commission that Daly’s work in his practice 
+before the Commission as an accountant 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.    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 as a member of an audit committee, as that term is defined in 
+Section 3(a)(58) of the Securities Exchange Act of 1934.  Such an 
+application will be considered on a facts and circumstances basis with 
+respect to such membership, and the applicant’s burden of demonstrating 
+good cause for reinstatement will be particularly high given the role of the 
+audit committee in financial and accounting matters; and/or 
+ 
+  3. an independent accountant.   
+ 
+  Such an application must satisfy the Commission that: 
+      
+           (a) Daly, or the public accounting firm with which he is associated, is 
+registered with the PCAOB in accordance with the Sarbanes-Oxley 
+Act of 2002, and such registration continues to be effective; 
+ 
+7 
+   (b) Daly, or the registered public accounting firm with which he is 
+associated, has been inspected by the PCAOB and that inspection 
+did not identify any criticisms of or potential defects in the 
+respondent’s or the firm’s quality control system that would 
+indicate that Daly will not receive appropriate supervision; 
+   (c) Daly has resolved all disciplinary issues with the PCAOB, and has 
+complied with all terms and conditions of any sanctions imposed 
+by the PCAOB (other than reinstatement by the Commission); and 
+ 
+   (d) Daly acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the PCAOB, 
+including, but not limited to, all requirements relating to 
+registration, inspections, concurring partner reviews and quality 
+control standards.   
+ 
+D. The Commission will consider an application by Daly 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 state licensure is dependent 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 Daly’s character, 
+integrity, professional conduct, or qualifications to appear or practice before the Commission as 
+an accountant.  Whether an application demonstrates good cause will be considered on a facts 
+and circumstances basis with due regard for protecting the integrity of the Commission’s 
+processes. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Vanessa A. Countryman 
+       Secretary 
+ 
+ 

raw/aaer/2020/AAER-4142.txt

@@ -0,0 +1,324 @@
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88896 / May 18, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4142 / May 18, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19804 
+ 
+ 
+ 
+In the Matter of 
+ 
+MICHAEL BELLACH, CPA, 
+ 
+Respondent. 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND- 
+ AND- DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 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 Michael 
+Bellach, CPA (“Respondent” or “Bellach”) pursuant to Sections 4C1 and 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) and Rules 102(e)(1)(ii) and 102(e)(1)(iii) of the 
+Commission’s Rules of Practice.2 
+                                                 
+1 Section 4C provides, in relevant part, that:  
+ 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if t hat person is found . . . (1) 
+not to possess the requisite qualifications to represent others; (2) to be lacking in character or integrity, 
+or to have engaged in unethical or improper professional conduct; or (3) to have willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or the rules and 
+regulations issued thereunder. 
+ 
+2 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing 
+before it . . . to any person who is found to be lacking in character or integrity or to have engaged in 
+unethical or improper professional conduct. 
+2 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) that 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 him and the subject matter of these proceedings, which are 
+admitted, Respondent consents to the entry of this Order Instituting Public Administrative and 
+Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the Securities Exchange Act of 
+1934 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 Respondent’s Offer, the Commission finds3 that: 
+ 
+SUMMARY 
+ 
+1. This matter involves misconduct by a now-former KPMG audit partner in 
+connection with an examination on an internally-administered training course.  The purpose of the 
+examination was to test whether KPMG audit professionals understood certain accounting and 
+auditing principles.  In late 2018, the former audit partner, Michael Bellach, sent pictures of 
+questions and answers to the examination that he had failed to a colleague, a now-former lead audit 
+engagement partner on one of Bellach’s engagements, at the lead partner’s request. 
+ 
+2. After learning of KPMG’s internal investigation of its audit professionals’ cheating 
+on internal training exams, the lead partner encouraged Bellach to delete his text messages with the 
+lead partner in which Bellach had relayed the questions and answers to the exam.  Bellach did so 
+after receiving a notice from the firm requiring him to preserve them.  
+ 
+3. Bellach is required, both by the rules of the Public Company Accounting Oversight 
+Board (“PCAOB”) and by the Code of Professional Conduct of the American Institute of Certified 
+Public Accountants (“AICPA”), to act with integrity in connection with performing professional 
+                                                 
+ 
+ Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ 
+The Commission may . . . 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 any provision of the Federal securities laws or the rules and regulations thereunder. 
+ 
+3 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding.   
+ 
+3 
+services.4  Certified public accountants are required to “be, among other things, honest and candid 
+within the constraints of client confidentiality.”5  Additionally, Bellach is prohibited from 
+committing acts “discreditable to the profession.”6  By the misconduct described herein, Bellach 
+failed to meet these standards.  
+ 
+RESPONDENT 
+ 
+4. Michael Bellach, 45, of New York, New York was a partner in KPMG’s audit 
+practice until March 2019.  Bellach is licensed as a CPA in Connecticut and New York.    
+OTHER RELEVANT PERSON AND ENTITY 
+ 
+5. Timothy Daly, 53, of Weston, Connecticut was a partner in KPMG’s audit practice 
+until March 2019.  Daly is licensed as a CPA in New York and was previously licensed in 
+Connecticut.  The Commission has charged Daly for his role in the misconduct described in this 
+Order. 
+ 
+6. KPMG LLP is a Delaware limited liability partnership and PCAOB-registered 
+accounting firm.  Headquartered in New York, New York, KPMG is the U.S. member firm of 
+KPMG International Cooperative, a Swiss entity. 
+ 
+FACTS 
+ 
+A. Professional Education Requirements for KPMG Auditor Personnel  
+ 
+7. As an accountant licensed in Connecticut and New York, Bellach was required to 
+complete a minimum number of continuing professional education (“CPE”) courses.  KPMG 
+requires its audit professionals, including Bellach, to complete additional training in excess of state 
+requirements and to take examinations generally not mandated by state accountancy boards.  These 
+training requirements vary by position, role, and industry, and are designed by the firm to be 
+relevant to the audit work its professionals are performing. 
+ 
+8. To help its audit professionals satisfy these requirements, KPMG administers its 
+own set of online training programs that also qualify for CPE credit.  KPMG requires its auditors to 
+pass an examination at the conclusion of each online training program.  Audit professionals are 
+given three opportunities to pass each examination.  If one of KPMG’s audit professionals is 
+                                                 
+4  PCAOB Rule 3500T requires Bellach to maintain integrity when performing any professional service in 
+connection with the preparation or issuance of any audit report.  As an AICPA member, Bellach is required to 
+comply with the AICPA’s Code of Professional Conduct, which requires him to maintain integrity in connection 
+with all professional services. 
+ 
+5 See “Principles of Professional Conduct,” ET Section 54 (available at 
+https://www.aicpa.org/Research/Standards/CodeofConduct/DownloadableDocuments/2011June1CodeOfProfessiona
+lConduct.pdf).  Codified as AICPA Code 0.300.040. 
+ 
+6 AICPA Code of Professional Conduct 1.400.001 (“Acts Discreditable Rule”).   
+4 
+unable to pass after two attempts, their Performance Management Leader is notified.  If they are 
+unable to pass after three attempts, the consequences are more significant:  they are required to re-
+take the training; they are prohibited from conducting audit work until they pass the exam; and 
+others at the firm may be notified.  Audit professionals also understood that failing to pass an exam 
+could lead to their compensation being reduced. 
+ 
+B. Daly Solicits Test Answers from Bellach 
+ 
+9. In 2017 Daly, as lead partner on a significant KPMG engagement, added Bellach as 
+the second partner on the audit.  By late summer 2018, Bellach understood that Daly intended to 
+recommend Bellach become lead audit engagement partner when Daly rotated off the engagement. 
+ 
+10. In the fall of 2018, KPMG required its audit staff to complete trainings and exams 
+related to a new lease accounting standard.  In late September, in response to Daly asking about his 
+progress on the KPMG lease testing, Bellach told Daly he had completed the last lease exam, and it 
+was difficult.  Bellach also told Daly he had pictures of the questions and his responses that he had 
+taken after he failed his first attempt for his own use in preparing to retake the exam.  In early 
+October, Daly sent Bellach a text message asking for the photographs of the failed lease exam, and 
+Bellach texted the images back to Daly. 
+ 
+C. Daly Encourages Bellach to Delete the Text Containing the Test Photos 
+ 
+11. After learning of potential cheating on internal training exams, KPMG leadership 
+began an internal investigation.  The firm’s Board of Directors then formed a Special Committee 
+led by an independent board member to oversee an investigation of this conduct. 
+ 
+12. As part of its investigation, KPMG’s Office of General Counsel emailed an “Urgent 
+Request” to all KPMG personnel to preserve all documents related to KPMG’s training 
+requirements or training sessions.  The November 1, 2018 email emphasized the importance of 
+“strict compliance” with the document preservation order, cautioning that failure to comply could 
+expose individuals and the firm to serious consequences.   
+ 
+13. After receiving the November 1 document preservation notice, Daly deleted the text 
+message and photos of the failed lease exam Bellach had sent him and encouraged Bellach to do 
+the same.  After repeated inquiries from Daly, Bellach also deleted the texts with Daly, but not the 
+pictures of the exam.  Bellach later told counsel representing the Special Committee overseeing 
+KPMG’s internal investigation about his deletion of the text. 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+5 
+VIOLATIONS 
+ 
+14. As a result of the conduct described above, Bellach willfully7 violated PCAOB 
+Rule 3500T, which requires Bellach to comply with ethics standards, including to maintain 
+integrity, as described in the AICPA’s Code of Professional Conduct when performing any 
+professional service in connection with the preparation or issuance of any audit report,8 within the 
+meaning of Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s 
+Rules of Practice. 
+ 
+15. The AICPA Code of Professional Conduct requires that a member not commit any 
+act discreditable to the profession.  AICPA Code of Professional Conduct 1.400.001.  As a result 
+of the conduct described above, Bellach failed to comply with AICPA Code of Professional 
+Conduct 1.400.001 within the meaning of Section 4C(a)(2) of the Exchange Act and Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice. 
+ 
+FINDINGS 
+ 
+16. Based on the foregoing, the Commission finds that Bellach willfully violated 
+PCAOB Rule 3500T within the meaning of Section 4C(a)(3) of the Exchange Act and Rule 
+102(e)(1)(iii) of the Commission’s Rules of Practice. 
+ 
+17. Based on the foregoing, the Commission finds a basis to impose remedies against 
+Bellach pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice, because Bellach engaged in conduct within their purview.  Those 
+provisions allow the Commission to impose remedies when a person has been found to have 
+engaged in conduct “lacking in character or integrity or [has] engaged in unethical or improper 
+professional conduct.” 
+ 
+ 
+ 
+ 
+ 
+ 
+ 
+                                                 
+7 “Willfully,” for purposes of imposing relief under Exchange Act Section 4C(a)(3) and Rule 102(e)(1)(iii) 
+“means no more than that the person charged with the duty knows what he is doing.”   Wonsover v. SEC, 205 F.3d 
+408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).  There is no requirement 
+that the actor “also be aware that he is violating one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 
+1965). 
+ 
+8  The rule requires auditors to comply with the AICPA’s Code of Professional Conduct Rule 102, and 
+interpretations and rulings thereunder, as in existence on April 16, 2003.  Although PCAOB Rule 3500T references 
+the AICPA Code as in existence on April 16, 2003, the definition of integrity remains identical to the curre nt 
+definitions in the Code of Professional Conduct promulgated by the AICPA and applicable to current members of 
+the AICPA. 
+ 
+6 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Bellach’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Bellach shall cease and desist from committing or causing any violations and any 
+future violations of PCAOB Rule 3500T. 
+ 
+ B. Bellach is denied the privilege of appearing or practicing before the Commission as 
+an accountant. 
+ 
+ C. After two years from the date of this order, Bellach 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 (other than as a member of an audit committee, as that term is 
+defined in Section 3(a)(58) of the Securities Exchange Act of 1934).  Such 
+an application must satisfy the Commission that Bellach’s work in his 
+practice before the Commission as an accountant 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.    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 as a member of an audit committee, as that term is defined in 
+Section 3(a)(58) of the Securities Exchange Act of 1934.  Such an 
+application will be considered on a facts and circumstances basis with 
+respect to such membership, and the applicant’s burden of demonstrating 
+good cause for reinstatement will be particularly high given the role of the 
+audit committee in financial and accounting matters; and/or 
+ 
+  3. an independent accountant.   
+ 
+  Such an application must satisfy the Commission that: 
+      
+           (a) Bellach, or the public accounting firm with which he is associated, 
+is registered with the PCAOB in accordance with the Sarbanes-
+Oxley Act of 2002, and such registration continues to be effective; 
+ 
+7 
+   (b) Bellach, or the registered public accounting firm with which he is 
+associated, has been inspected by the PCAOB and that inspection 
+did not identify any criticisms of or potential defects in the 
+respondent’s or the firm’s quality control system that would 
+indicate that Bellach will not receive appropriate supervision; 
+   (c) Bellach has resolved all disciplinary issues with the PCAOB, and 
+has complied with all terms and conditions of any sanctions 
+imposed by the PCAOB (other than reinstatement by the 
+Commission); and 
+ 
+   (d) Bellach acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the PCAOB, 
+including, but not limited to, all requirements relating to 
+registration, inspections, concurring partner reviews and quality 
+control standards.   
+ 
+D. The Commission will consider an application by Bellach 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 state licensure is dependent 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 Bellach’s character, 
+integrity, professional conduct, or qualifications to appear or practice before the Commission as 
+an accountant.  Whether an application demonstrates good cause will be considered on a facts 
+and circumstances basis with due regard for protecting the integrity of the Commission’s 
+processes. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Vanessa A. Countryman 
+       Secretary 
+ 
+ 
+ 

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@@ -0,0 +1,271 @@
+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 88897 / May 18, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4143 / May 18, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19805 
+ 
+ 
+ 
+In the Matter of 
+ 
+JOHN DONOVAN, CPA, 
+ 
+Respondent. 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE-AND- 
+ AND- DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 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 John 
+Donovan, CPA (“Respondent” or “Donovan”) pursuant to Sections 4C1 and 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”) and Rules 102(e)(1)(ii) and 102(e)(1)(iii) of the 
+Commission’s Rules of Practice.2 
+                                                 
+1 Section 4C provides, in relevant part, that:  
+ 
+The Commission may censure any person, or deny, temporarily or permanently, to any person the 
+privilege of appearing or practicing before the Commission in any way, if that person is found . . . (1) 
+not to possess the requisite qualifications to represent others; (2) to be lacking in character or integrity, 
+or to have engaged in unethical or improper professional conduct; or (3) to have willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or the rules and 
+regulations issued thereunder. 
+ 
+2 Rule 102(e)(1)(ii) provides, in pertinent part, that: 
+ 
+The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing 
+before it . . . to any person who is found to be lacking in character or integrity or to have engaged in 
+unethical or improper professional conduct. 
+2 
+ 
+II. 
+ 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “Offer”) that 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 him and the subject matter of these proceedings, which are 
+admitted, Respondent consents to the entry of this Order Instituting Public Administrative and 
+Cease-and-Desist Proceedings Pursuant to Sections 4C and 21C of the Securities Exchange Act of 
+1934 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 Respondent’s Offer, the Commission finds3 that: 
+ 
+SUMMARY 
+ 
+1. This matter involves misconduct by a now-former KPMG audit partner in 
+connection with examinations on internally-administered training courses.  The purpose of the 
+examinations was to test whether KPMG audit professionals understood certain accounting and 
+auditing principles.  In 2018, former lead audit engagement partner John Donovan shared answers 
+to three and received answers to seven KPMG training examinations with junior members of his 
+engagement team.  During KPMG’s internal investigation of its audit professionals’ exam-related 
+cheating, Donovan made misrepresentations to KPMG’s investigators. 
+2. Donovan is required, both by the rules of the Public Company Accounting 
+Oversight Board (“PCAOB”) and by the Code of Professional Conduct of the American Institute 
+of Certified Public Accountants (“AICPA”), to act with integrity in connection with performing 
+professional services.4  Certified public accountants are required to “be, among other things, honest 
+                                                 
+ 
+ Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ 
+The Commission may . . . 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 any provision of the Federal securities laws or the rules and regulations thereunder.  
+ 
+3 The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding on any 
+other person or entity in this or any other proceeding.   
+ 
+4  PCAOB Rule 3500T requires Donovan to maintain integrity when performing any professional service in 
+connection with the preparation or issuance of any audit report.  As an AICPA member, Donovan is required to 
+comply with the AICPA’s Code of Professional Conduct, which requires him to maintain integrity in connection 
+with all professional services.   
+ 
+3 
+and candid within the constraints of client confidentiality.”5  Additionally, Donovan is prohibited 
+from committing acts “discreditable to the profession.”6  By the misconduct described herein, 
+Donovan failed to meet these standards.  
+RESPONDENT 
+ 
+3. John Donovan, 57, of Westlake Village, California was a partner in KPMG’s audit 
+practice until March 2019.  Donovan is licensed as a CPA in California and Texas. 
+OTHER RELEVANT ENTITY 
+ 
+4. KPMG LLP is a Delaware limited liability partnership and PCAOB-registered 
+accounting firm.  Headquartered in New York, New York, KPMG is the U.S. member firm of 
+KPMG International Cooperative, a Swiss entity. 
+FACTS 
+ 
+A. Professional Education Requirements for KPMG Auditor Personnel  
+ 
+5. As an accountant licensed in California and Texas, Donovan was required to 
+complete a minimum number of continuing professional education (“CPE”) courses.  KPMG 
+requires its audit professionals, including Donovan, to complete additional training in excess of 
+state requirements and to take examinations generally not mandated by state accountancy boards.  
+These training requirements vary by position, role, and industry, and are designed by the firm to be 
+relevant to the audit work its professionals are performing. 
+6. To help its audit professionals satisfy these requirements, KPMG administers its 
+own set of online training programs that also qualify for CPE credit.  KPMG requires its auditors to 
+pass an examination at the conclusion of each online training program.  Audit professionals are 
+given three opportunities to pass each examination.  If one of KPMG’s audit professionals is 
+unable to pass after two attempts, their Performance Management Leader is notified.  If they are 
+unable to pass after three attempts, the consequences are more significant:  they are required to re-
+take the training; they are prohibited from conducting audit work until they pass the exam; and 
+others at the firm may be notified.  Audit professionals also understood that failing to pass an exam 
+could lead to their compensation being reduced. 
+B. Donovan Shares Exam Materials and Misrepresents Conduct 
+7. As a partner of the firm, Donovan was charged by KPMG’s Code of Conduct with 
+helping to ensure that KPMG professionals he supervised understood the importance of ethics and 
+                                                 
+5 See “Principles of Professional Conduct,” ET Section 54 (available at 
+https://www.aicpa.org/Research/Standards/CodeofConduct/DownloadableDocuments/2011June1CodeOfProfessiona
+lConduct.pdf).  Codified as AICPA Code 0.300.040. 
+ 
+6 AICPA Code of Professional Conduct 1.400.001 (“Acts Discreditable Rule”). 
+ 
+4 
+integrity.  Despite his responsibilities, Donovan supported examination sharing within his team.  
+Between April and September 2018, Donovan received answers to training exams from 
+subordinates on his engagement team on seven occasions and shared answers with his team three 
+times. 
+8. In December 2018, the firm required certain audit professionals to complete a 
+questionnaire that probed whether individuals had shared exam materials.  Donovan falsely 
+responded on the questionnaire that he had not sent, received, or shared answers.  
+VIOLATIONS 
+ 
+9. As a result of the conduct described above, Donovan willfully7 violated PCAOB 
+Rule 3500T, which requires Donovan to comply with ethics standards, including to maintain 
+integrity, as described in the AICPA’s Code of Professional Conduct when performing any 
+professional service in connection with the preparation or issuance of any audit report,8 within the 
+meaning of Section 4C(a)(3) of the Exchange Act and Rule 102(e)(1)(iii) of the Commission’s 
+Rules of Practice. 
+10. The AICPA Code of Professional Conduct requires that a member not commit any 
+act discreditable to the profession.  AICPA Code of Professional Conduct 1.400.001.  As a result 
+of the conduct described above, Donovan failed to comply with AICPA Code of Professional 
+Conduct 1.400.001 within the meaning of Section 4C(a)(2) of the Exchange Act and Rule 
+102(e)(1)(ii) of the Commission’s Rules of Practice. 
+FINDINGS 
+ 
+11. Based on the foregoing, the Commission finds that Donovan willfully violated 
+PCAOB Rule 3500T within the meaning of Section 4C(a)(3) of the Exchange Act and Rule 
+102(e)(1)(iii) of the Commission’s Rules of Practice. 
+12. Based on the foregoing, the Commission finds a basis to impose remedies against 
+Donovan pursuant to Section 4C(a)(2) of the Exchange Act and Rule 102(e)(1)(ii) of the 
+Commission’s Rules of Practice, because Donovan engaged in conduct within their purview.  
+Those provisions allow the Commission to impose remedies when a person has been found to have 
+                                                 
+7 “Willfully,” for purposes of imposing relief under Exchange Act Section 4C(a)(3) and Rule 102(e)(1)(iii) 
+“means no more than that the person charged with the duty knows what he is doing.”   Wonsover v. SEC, 205 F.3d 
+408, 414 (D.C. Cir. 2000) (quoting Hughes v. SEC, 174 F.2d 969, 977 (D.C. Cir. 1949)).  There is no requirement 
+that the actor “also be aware that he is violating one of the Rules or Acts.”  Tager v. SEC, 344 F.2d 5, 8 (2d Cir. 
+1965). 
+ 
+8  The rule requires auditors to comply with the AICPA’s Code of Professional Conduct Rule 102, and 
+interpretations and rulings thereunder, as in existence on April 16, 2003.  Although PCAOB Rule 3500T references 
+the AICPA Code as in existence on April 16, 2003, the definition of integrity remains identical to the curre nt 
+definitions in the Code of Professional Conduct promulgated by the AICPA and applicable to current members of 
+the AICPA. 
+ 
+5 
+engaged in conduct “lacking in character or integrity or [has] engaged in unethical or improper 
+professional conduct.” 
+IV. 
+ 
+  In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Donovan’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+A. Donovan shall cease and desist from committing or causing any violations and any 
+future violations of PCAOB Rule 3500T. 
+ 
+ B. Donovan is denied the privilege of appearing or practicing before the Commission 
+as an accountant. 
+ 
+ C. After one year from the date of this order, Donovan 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 (other than as a member of an audit committee, as that term is 
+defined in Section 3(a)(58) of the Securities Exchange Act of 1934).  Such 
+an application must satisfy the Commission that Donovan’s work in his 
+practice before the Commission as an accountant 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.    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 as a member of an audit committee, as that term is defined in 
+Section 3(a)(58) of the Securities Exchange Act of 1934.  Such an 
+application will be considered on a facts and circumstances basis with 
+respect to such membership, and the applicant’s burden of demonstrating 
+good cause for reinstatement will be particularly high given the role of the 
+audit committee in financial and accounting matters; and/or 
+ 
+  3. an independent accountant.   
+ 
+  Such an application must satisfy the Commission that: 
+      
+           (a) Donovan, or the public accounting firm with which he is 
+associated, is registered with the PCAOB in accordance with the 
+6 
+Sarbanes-Oxley Act of 2002, and such registration continues to be 
+effective; 
+ 
+   (b) Donovan, or the registered public accounting firm with which he is 
+associated, has been inspected by the PCAOB and that inspection 
+did not identify any criticisms of or potential defects in the 
+respondent’s or the firm’s quality control system that would 
+indicate that Donovan will not receive appropriate supervision; 
+   (c) Donovan has resolved all disciplinary issues with the PCAOB, and 
+has complied with all terms and conditions of any sanctions 
+imposed by the PCAOB (other than reinstatement by the 
+Commission); and 
+ 
+   (d) Donovan acknowledges his responsibility, as long as he appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the PCAOB, 
+including, but not limited to, all requirements relating to 
+registration, inspections, concurring partner reviews and quality 
+control standards.   
+ 
+D. The Commission will consider an application by Donovan 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 state licensure is dependent 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 Donovan’s character, 
+integrity, professional conduct, or qualifications to appear or practice before the Commission as 
+an accountant.  Whether an application demonstrates good cause will be considered on a facts 
+and circumstances basis with due regard for protecting the integrity of the Commission’s 
+processes. 
+ 
+ By the Commission. 
+ 
+ 
+ 
+       Vanessa A. Countryman 
+       Secretary 
+ 

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@@ -0,0 +1,222 @@
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+INVESTMENT ADVISERS ACT OF 1940 
+Release No. 5508 / May 22, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT  
+Release No. 4144 / May 22, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19807 
+ 
+ 
+In the Matter of 
+ 
+TSP CAPITAL MANAGEMENT       
+GROUP, LLC,  
+ 
+Respondent. 
+ORDER INSTITUTING 
+ADMINISTRATIVE AND CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 203(e) AND 203(k) OF THE 
+INVESTMENT ADVISERS ACT OF 1940, 
+MAKING FINDINGS, AND IMPOSING 
+REMEDIAL SANCTIONS AND A 
+CEASE-AND-DESIST ORDER  
+   
+ 
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate and in the 
+public interest that public administrative and cease-and-desist proceedings be, and hereby are, 
+instituted pursuant to Sections 203(e) and 203(k) of the Investment Advisers Act of 1940 
+(“Advisers Act”) against TSP Capital Management Group, LLC (“TSP Capital” or the 
+“Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, the Respondent 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, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, the Respondent consents to the entry of this Order Instituting 
+Administrative and Cease-and-Desist Proceedings Pursuant to Sections 203(e) and 203(k) of the 
+Investment Advisers Act of 1940, Making Findings, and Imposing Remedial Sanctions and a 
+Cease-and-Desist Order (“Order”), as set forth below.    
+ 
+2 
+III. 
+ 
+ On the basis of this Order and the Respondent’s Offer, the Commission finds that:  
+ 
+Summary 
+ 
+1. TSP Capital, a registered investment adviser, failed to timely distribute annual 
+audited financial statements prepared in accordance with Generally Accepted Accounting 
+Principles (“GAAP”) to the investors in the largest private fund that it advised in each fiscal year 
+from 2014 through 2018, or even to retain an auditor for the years after 2015, resulting in 
+violations of Section 206(4) of the Advisers Act and Rule 206(4)-2 thereunder, commonly 
+referred to as the “custody rule.” 
+ 
+ 2. TSP Capital also failed to adopt and implement written policies and procedures 
+reasonably designed to prevent violations of the Advisers Act and the rules thereunder, a violation 
+of Section 206(4) of the Advisers Act and Rule 206(4)-7 thereunder. 
+ 
+Respondent 
+ 
+3. TSP Capital is a Delaware limited liability company with its principal office and 
+place of business in Summit, New Jersey.  TSP Capital has been registered with the Commission 
+as an investment adviser since September 2004.  During the relevant period, TSP Capital was the 
+managing member of and served as investment adviser to two private funds.   
+Facts 
+ 
+4. TSP Capital’s largest private fund is Cameroon Enterprises, LLC Fund (the 
+“Cameroon Fund”), which accounted for approximately $31.5 million of the approximately $296 
+million in regulatory assets under management that TSP Capital reported in its Form ADV filed on 
+March 27, 2019.  The Cameroon Fund’s stated investment strategy focuses on private agricultural 
+investments in Cameroon.    
+5. The custody rule is designed to protect investment advisory clients from the misuse 
+or misappropriation of their funds and securities.  It requires that registered advisers who have 
+custody of client funds or securities implement an enumerated set of requirements to prevent loss, 
+misuse, or misappropriation of those assets.  
+ 
+ 6. An investment adviser has custody of client assets if it holds, directly or indirectly, 
+client funds or securities, or if it has the ability to obtain possession of those assets.  See Rule 
+206(4)-2(d)(2).   
+ 
+ 7. TSP Capital had custody of the Cameroon Fund’s assets as defined in Rule 
+206(4)-2.  An investment adviser who has custody of client assets must, among other things:  (i) 
+ensure that a qualified custodian maintains the client assets; (ii) notify the client in writing of 
+accounts opened by the adviser at a qualified custodian on the client’s behalf; (iii) have a 
+ 
+3 
+reasonable basis for believing that the qualified custodian sends account statements at least 
+quarterly to clients, except if the client is a limited partnership for which the adviser or a related 
+person is a general partner, the account statements must be sent to each limited partner; and (iv) 
+ensure that client funds and securities are verified by actual examination each year by an 
+independent public accountant at a time chosen by the accountant without prior notice or 
+announcement to the adviser.  See Rule 206(4)-2(a)(1) - (5). 
+ 
+ 8. The custody rule provides an alternative to complying with the requirements of 
+Rule 206(4)-2(a)(2), (3) and (4) for investment advisers to limited partnerships or other types of 
+pooled investment vehicles, such as the Cameroon Fund.  The custody rule provides that an 
+investment adviser “shall be deemed to have complied with” the independent verification 
+requirement and is not required to satisfy the notification and accounts statements delivery 
+requirements with respect to a fund if the fund is subject to audit at least annually and “distributes 
+[the fund’s] audited financial statements prepared in accordance with generally accepted 
+accounting principles to all limited partners . . .  within 120 days of the end of [the fund’s] fiscal 
+year” (“Audited Financials Alternative”).  See Rule 206(4)-2(b)(4).  The accountant performing the 
+audit must be an independent public accountant that is registered with, and subject to regular 
+inspection by, the Public Company Accounting Oversight Board (“PCAOB”).  See Rule 206(4)-
+2(b)(4)(ii).  An investment adviser to a limited partnership that fails to meet the requirements of the 
+Audited Financials Alternative to timely distribute audited financial statements prepared in 
+accordance with GAAP would need to satisfy all of the requirements of Rule 206(4)-2(a)(2-4) in 
+order to avoid violating the custody rule. 
+ 
+9. With respect to the Cameroon Fund, TSP Capital relied on the Audited Financials 
+Alternative to attempt to comply with the custody rule for the years 2014 through 2018 but did 
+not do so.  Although TSP Capital engaged a PCAOB-registered firm to conduct an annual audit 
+of the Cameroon Fund’s financial statements for fiscal years 2014 and 2015, the audit firm was 
+not engaged, and did not issue an audit report, until well after 120 days following the end of both 
+of those fiscal years.  For 2014, the audit report was mailed to investors 686 days late; for 2015, 
+the audit report was mailed to investors 927 days late.  For the following years, TSP Capital did 
+not succeed in engaging an audit firm to audit the Cameroon Fund’s annual financial statements 
+and therefore failed to distribute the requisite audited financial statements to investors within 120 
+days of the fiscal year’s end or at any time thereafter.  Accordingly, TSP Capital did not satisfy 
+the requirements of the Audited Financials Alternative in Rule 206(4)-2(b)(4) for the Cameroon 
+Fund for fiscal years 2014 through 2018 and was therefore obligated to comply with Rule 
+206(4)-2(a)(2), (3) and (4), which it also failed to do. 
+ 
+ 10. TSP Capital also failed to comply with the requirement that every investment 
+adviser registered with the Commission adopt and implement written policies and procedures 
+reasonably designed to prevent violations of the Advisers Act and the rules thereunder.  See Rule 
+206(4)-7(a).  While TSP Capital’s written policies and procedures referenced the custody rule, they 
+were not reasonably designed and implemented to prevent violations of the rule.   
+ 
+ 
+4 
+Violations 
+ 
+ 11. Section 206(4) of the Advisers Act prohibits an investment adviser from engaging 
+in acts, practices or courses of business that are fraudulent, deceptive, or manipulative, as defined 
+by the Commission in rules and regulations promulgated under the statute.  Proof of scienter is not 
+required to establish a violation of Section 206(4) of the Advisers Act and the rules thereunder.  
+See SEC v. Steadman, 967 F.2d 636, 647 (D.C. Cir. 1992).  Among other things, Rule 206(4)-2 
+requires registered investment advisers with custody of client assets to have independent public 
+accountants conduct surprise examinations of those client funds or securities, or to have private fund 
+clients timely distribute to their investors annual audited financial statements prepared in accordance 
+with GAAP.  Rule 206(4)-7 requires, among other things, that an investment adviser registered 
+with the Commission adopt and implement written policies and procedures reasonably designed to 
+prevent violation of the Advisers Act and rules thereunder.   
+ 
+ 12. As a result of the conduct described above, TSP Capital willfully violated Section 
+206(4) of the Advisers Act and Rules 206(4)-2 and 206(4)-7 thereunder. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanctions agreed to in Respondent’s Offer. 
+ 
+ Accordingly, pursuant Sections 203(e) and 203(k) of the Advisers Act, it is hereby 
+ORDERED that: 
+ 
+ A. Respondent cease and desist from committing or causing any violations and any 
+future violations of Section 206(4) of the Advisers Act and Rules 206(4)-2 and 206(4)-7 thereunder.   
+ 
+B. TSP Capital is censured.  
+ 
+C. Within 21 days of the entry of this Order, TSP Capital shall pay a civil monetary 
+penalty in the amount of $60,000 to the Securities and Exchange Commission for transfer to the 
+general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely 
+payment is not made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.   
+ 
+Payment must be made in one of the following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+ 
+5 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying TSP 
+Capital Management Group, LLC, as Respondent in these proceedings, and the file number of 
+these proceedings; a copy of the cover letter and check or money order must be sent to Sanjay 
+Wadhwa, Senior Associate Director, Securities and Exchange Commission, New York Regional 
+Office, 200 Vesey Street, Suite 400, New York, NY 10281.  
+ 
+ E. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, Respondent shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of 
+any award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting 
+the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the 
+Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed 
+an additional civil penalty and shall not be deemed to change the amount of the civil penalty 
+imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a 
+private damages action brought against Respondent by or on behalf of one or more investors based 
+on substantially the same facts as alleged in the Order instituted by the Commission in this 
+proceeding. 
+ 
+ By the Commission. 
+ 
+      
+ Vanessa A. Countryman 
+        Secretary 

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@@ -0,0 +1,102 @@
+ 
+ 
+ 
+ UNITED STATES OF AMERICA 
+ before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No.  88998 / June 3, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No.  4145 / June 3, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19821 
+       
+      :  
+ :  
+ :   
+In the Matter of : ORDER INSTITUTING ADMINISTRATIVE 
+      : PROCEEDINGS PURSUANT TO RULE    
+Christopher D. Larson (CPA),   : 102(e)  OF THE COMMISSION’S RULES OF 
+      : PRACTICE, MAKING FINDINGS, AND 
+Respondent.     : IMPOSING REMEDIAL SANCTIONS 
+      :  
+      :  
+____________________________________ :   
+   
+ 
+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 
+Christopher D. Larson (“Respondent”) pursuant to Rule 102(e)(3)(i) of the Commission’s Rules of 
+Practice.1   
+ 
+                                              
+1 Rule 102(e)(3)(i) provides, in relevant part, that: 
+ 
+ The Commission, with due regard to the public interest and without preliminary hearing, may, by 
+order, . . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name     . 
+. . permanently enjoined by any court of compe tent jurisdiction, by reason of his or her misconduct in an 
+action brought by the Commission, from violating or aiding and abetting the violation of any provision of 
+the Federal securities laws or of the rules and regulations thereunder. 
+ 2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent 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, and without admitting or denying the findings herein, except as to the 
+Commission’s jurisdiction over him and the subject matter of these proceedings, and the findings 
+contained in Section III.2 below, which are admitted, Respondent consents to the entry of this Order 
+Instituting Administrative Proceedings Pursuant to Rule 102(e) of the Commission’s Rules of 
+Practice, Making Findings, and Imposing Remedial Sanctions (“Order”), as set forth below.  
+ 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds that:  
+ 
+ 1. Respondent, age 48, is a certified public accountant in the State of Minnesota 
+on inactive status.  From no later than December 2011 through at least December 2012, he acted as 
+the undisclosed Chief Financial Officer (CFO) of Crown Dynamics Corporation (“Crown”), a 
+company whose common stock traded on the Over-the-Counter Bulletin Board (OTCBB), and also 
+served as the CFO of Mix1Life Inc., a company whose common stock also traded on the OTCBB.  
+Respondent is currently an employee of Ammo, Inc. 
+ 
+ 2. On April 25, 2016, the Commission filed a complaint against Larson in the 
+Southern District of California styled as SEC v. Zouvas et al., (Civil Action No. 16CV0998), which 
+subsequently was transferred to the District of Arizona as Civil Action No. CV-17-00427-PHX-SPL.  
+On June 1, 2020, the court entered an order permanently enjoining Larson, by consent, from future 
+violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) and Rule 10b-5 of the 
+Securities Exchange Act of 1934. 
+ 
+ 3. The Commission’s complaint alleged, among other things, that from no later 
+than December 2011 through at least December 2012, Larson engaged in a scheme to manipulate 
+the market for Crown stock.  As part of the scheme, Larson obtained control of Crown, transferred 
+shares to nominees, paid $400,000 for a “call center” to promote Crown, placed manipulative trades 
+in his own account to create the appearance of market interest, and acted as the undisclosed CFO of 
+the company.  As Crown’s stock price became inflated as a result of these efforts, Larson’s nominees 
+sold Crown shares and wired the sale proceeds — at least $865,000 — to him. 
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate and in the public interest to 
+impose the sanction agreed to in Respondent’s Offer. 
+ 
+ 
+ 
+ 
+ 3 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Respondent is suspended from appearing or practicing before the Commission as an 
+accountant.   
+  
+ By the Commission. 
+ 
+ 
+       Vanessa A. Countryman 
+       Secretary 
+ 

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+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 89009 / June 4, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4146 / June 4, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19822 
+ 
+In the Matter of 
+ 
+ARGO GROUP 
+INTERNATIONAL 
+HOLDINGS, LTD., 
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER 
+  
+I. 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Argo Group International Holdings, Ltd. 
+(“Argo” or “Respondent”). 
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over it and the subject matter of these 
+proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
+and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
+Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.  
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+Summary 
+1. This matter arises from Argo Group International Holding, Ltd.’s failure to disclose 
+in its definitive proxy statements that, from 2014 through 2018, it paid over $5.3 million to its then 
+Chief Executive Officer, President and member of its Board of Directors, Mark E. Watson III, in 
+the form of a wide range of perquisites and personal benefits.  In connection with this conduct, 
+Argo violated Sections 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) of the Exchange Act and Rules 
+12b-20, 13a-1, 14a-3, and 14a-9 thereunder.  In late 2019, Watson resigned and agreed to 
+reimburse Argo for certain perquisites and/or personal expenses. 
+Respondent and Relevant Individual 
+ 2. Respondent Argo Group International Holdings, Ltd. is organized under the laws 
+of, and headquartered in, Bermuda.  Argo is an international underwriter of specialty insurance and 
+reinsurance products in the property and casualty market, with significant operations in the United 
+States.  The company’s common stock is registered under Section 12(b) of the Exchange Act and 
+trades on the New York Stock Exchange under the ticker symbol “ARGO.” 
+ 3. Mark E. Watson III was the Chief Executive Officer, President and a director of 
+Argo from 2000 until late 2019.  His resignation as Argo’s Chief Executive Officer and President 
+became effective on November 5, 2019, and his resignation as a member of Argo’s Board of 
+Directors became effective on December 30, 2019.  
+Facts  
+ 4. In definitive proxy statements disclosing executive compensation paid for 2014 
+through 2018, which were filed in 2015 through 2019, Argo disclosed a total of approximately 
+$1.22 million worth of perquisites and personal benefits provided to Watson, with an annual 
+average of approximately $244,000.  The disclosed perquisites and personal benefits consisted 
+predominately of 401(k) and retirement contributions, the imputed value of insurance coverage, 
+supplemental executive retirement plan benefits, housing and home leave allowances, medical 
+premiums and financial planning services. 
+5. However, these same definitive proxy statements failed to disclose over $5.3 
+million worth of additional perquisites and personal benefits provided to Watson, thereby 
+understating the perquisites and personal benefits portion of Watson’s compensation by an annual 
+average of over $1 million, or 400%.  Items that Argo paid for on Watson’s behalf, but did not 
+disclose, include, but are not limited to, expenses associated with personal use of corporate aircraft, 
+                                                 
+1  The findings herein are made pursuant to Respondent’s Offer of Settlement and are not binding 
+on any other person or entity in this or any other proceeding.   
+ 
+ 3 
+rent and other housing costs, personal use of corporate automobiles, helicopter trips, other personal 
+travel costs, use of a car service by family members, club and concierge service memberships, 
+tickets and transportation to sporting, fashion or other entertainment events, personal services 
+provided by Argo employees, and watercraft-related costs. 
+ 6. In February 2019, an Argo shareholder issued a press release in which it alleged, 
+among other things, the misuse of Argo assets by Watson, including undisclosed personal usage of 
+corporate aircraft.  On April 12, 2019, during a proxy contest with this shareholder in connection 
+with Argo’s May 2019 annual shareholders meeting, Argo filed a definitive proxy statement that 
+failed to disclose over $1 million worth of perquisites, including over $230,000 related to Watson’s 
+use of corporate aircraft.  
+ 7. From 2015 through 2019, Argo incorporated its definitive proxy statements into its 
+annual reports by reference. 
+ 8. From 2014 through 2018, Argo incorrectly recorded payments for the benefit of, 
+and reimbursements to, Watson as business expenses, and not compensation.  As a result, its 
+books, records, and accounts did not, in reasonable detail, accurately and fairly reflect its 
+disposition of assets.       
+ 9. In addition, Argo failed to devise and maintain internal accounting controls relating 
+to payments for the benefit of, and reimbursements to, Watson that were sufficient to provide 
+reasonable assurances that transactions were recorded as necessary to maintain the accountability 
+of assets.  These failures included, for instance, a practice of providing expense reimbursements to 
+Watson without requiring an adequate explanation of a business purpose for the expense, allowing 
+Watson to approve his own expense reimbursements, and a lack of a mechanism to ensure Watson 
+paid for personal usage of corporate aircraft. 
+ 10. Argo conducted an internal investigation, which was launched in June 2019 after 
+receipt of a subpoena from the Commission staff.  Thereafter, Watson resigned and agreed to 
+reimburse Argo for certain perquisites and/or personal expenses, subject to an arbitration process 
+as to any items Watson disputes.  
+Violations 
+ 11. Section 14(a) of the Exchange Act makes it unlawful to solicit any proxy in respect 
+of any security (other than an exempted security) registered pursuant to Section 12 of the Exchange 
+Act in contravention of such rules and regulations as the Commission may prescribe.  Rule 14a-3 
+prohibits issuers with securities registered pursuant to Section 12 of the Exchange Act from 
+soliciting proxies without furnishing proxy statements containing the information specified in 
+Schedule 14A, including executive compensation disclosures pursuant to Item 402 of Regulation 
+S-K.  Item 402 of Regulation S-K requires disclosure of the total value of all perquisites and other 
+personal benefits provided to named executive officers (including CEOs) who receive at least 
+$10,000 worth of such items in a given year.  Item 402 of Regulation S-K also requires disclosure 
+of all perquisites and personal benefits by type, and specific identification of any perquisite or 
+personal benefit that exceeds the greater of $25,000 or 10% of the total perquisites.  Rule 14a-9 
+ 4 
+prohibits the use of proxy statements containing materially false or misleading statements or 
+materially misleading omissions.  No showing of scienter is required to establish a violation of 
+Section 14(a) of the Exchange Act and Rules 14a-3 and 14a-9 thereunder.  See, e.g., Gerstle v. 
+Gamble-Skogmo, Inc., 478 F.2d 1281, 1299-1300 (2d Cir. 1973).  As a result of the conduct 
+described above, Argo violated Section 14(a) of the Exchange Act and Rules 14a-3 and 14a-9 
+thereunder. 
+ 12. Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require every issuer 
+of a security registered pursuant to Section 12 of the Exchange Act to file with the Commission, 
+among other things, annual reports as the Commission may require.  The Commission need not 
+prove scienter to establish a violation of Section 13(a) of the Exchange Act (or Sections 
+13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, or Exchange Act Rules 12b-20 and 13a-1).  See, 
+e.g., SEC v. McNulty, 137 F.3d 732, 740-41 (2d Cir. 1998).  As a result of its incorporation of 
+deficient proxy statements by reference in its annual reports, Argo violated Section 13(a) of the 
+Exchange Act and Rule 13a-1 thereunder. 
+ 13. As a result of the conduct described above, Argo violated Rule 12b-20 under the 
+Exchange Act, which requires that, in addition to the information expressly required to be included 
+in a statement or report filed with the Commission, there shall be added such further material 
+information, if any, as may be necessary to make the required statements, in light of the 
+circumstances under which they are made, not misleading. 
+ 14. As a result of the conduct described above, Argo violated Section 13(b)(2)(A) of 
+the Exchange Act, which requires reporting companies to make and keep books, records and 
+accounts which, in reasonable detail, accurately and fairly reflect their transactions and dispositions 
+of their assets. 
+ 15. As a result of the conduct described above, Argo violated Section 13(b)(2)(B) of 
+the Exchange Act, which requires reporting companies to devise and maintain a system of internal 
+accounting controls sufficient to provide reasonable assurances that, among other things, 
+transactions are recorded as necessary to maintain accountability for assets.  
+Undertakings 
+16. Respondent undertakes to cooperate fully with the Commission in any and all 
+investigations, litigations or other proceedings relating to or arising from the matters described in 
+the Order.  In connection with such cooperation, Respondent undertakes: 
+a. To produce, without service or notice of subpoena, any and all documents 
+and other information reasonably requested by the Commission’s staff, with a custodian 
+declaration as to their authenticity, if requested; 
+b. To use its best efforts to cause Respondent’s current and former employees, 
+officers and directors to be interviewed by the Commission’s staff at such times and places as the 
+staff reasonably may direct; 
+ 5 
+c. To use its best efforts to cause Respondent’s current and former employees, 
+officers and directors to appear and testify truthfully and completely without service of a notice or 
+subpoena in such investigations, depositions, hearings or trials as may be reasonably requested by 
+the Commission’s staff; and 
+d. In connection with any interviews of Respondent’s current and former 
+employees, officers and directors to be conducted pursuant to this undertaking, requests for such 
+interviews may be provided by the Commission’s staff by regular or electronic mail to Barry 
+Rashkover of Sidley Austin LLP, or such other counsel that may be substituted by Respondent. 
+17. In determining whether to accept the Offer, the Commission has considered these 
+undertakings. 
+Argo’s Remedial Efforts and Cooperation 
+18. In determining to accept the Offer, the Commission considered remedial acts 
+undertaken by Respondent and cooperation afforded the Commission staff.  Specifically, Argo 
+undertook remedial efforts including (i) engagement of outside counsel and an independent 
+forensic accounting firm to conduct an investigation; (ii) engagement of a third-party consultant 
+to assist in reviewing and revising its executive compensation process, policies and controls; (iii) 
+replacing its Chief Executive Officer; (iv) entering into an agreement to obtain repayments from 
+the former Chief Executive Officer; (v) implementing new internal controls and compliance 
+policies and procedures concerning perquisites, airplane usage, expense reimbursement, travel, 
+and charitable contributions; and (vi) changing the composition of its Board of Directors.  In 
+addition, Argo shared the results of its internal investigation with the Commission staff. 
+IV. 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Argo’s Offer. 
+ Accordingly, it is hereby ORDERED that: 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent Argo cease and desist 
+from committing or causing any violations and any future violations of Sections 13(a), 13(b)(2)(A), 
+13(b)(2)(B), and 14(a) of the Exchange Act and Rules 12b-20, 13a-1, 14a-3 and 14a-9 thereunder.  
+ B. Respondent shall, within 10  days of the entry of  this Order, pay a civil money 
+penalty in the amount of $900,000 to the Securities and Exchange Commission for transfer to the 
+general fund of the United States Treasury, subject to Exchange Act Section 21F(g)(3). If timely 
+payment is not made, additional interest shall accrue pursuant to 31 U.S.C. §3717.   
+Payment must be made in one of the following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+ 6 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying Argo 
+Group International Holding, Ltd. as a Respondent in these proceedings, and the file number of 
+these proceedings; a copy of the cover letter and check or money order must be sent to Brendan P. 
+McGlynn, Assistant Regional Director, Philadelphia Regional Office, Division of Enforcement, 
+Securities and Exchange Commission, 1617 JFK Blvd., Suite 520, Philadelphia, PA 19103.   
+ C. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondent agrees that it shall, within 30 days after entry of a final order granting 
+the Penalty Offset, notify the Commission's counsel in this action and pay the amount of the 
+Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed 
+an additional civil penalty and shall not be deemed to change the amount of the civil penalty 
+imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a 
+private damages action brought against Respondent by or on behalf of one or more investors based 
+on substantially the same facts as alleged in the Order instituted by the Commission in this 
+proceeding. 
+ 7 
+ 
+D.   Respondent acknowledges that the Commission is not imposing a civil penalty in 
+excess of $900,000 based upon its cooperation in a Commission investigation and related 
+enforcement action.  If at any time following the entry of the Order, the Division of Enforcement 
+(“Division”) obtains information indicating that Respondent knowingly provided materially false 
+or misleading information or materials to the Commission, or in a related proceeding, the Division 
+may, at its sole discretion and with prior notice to the Respondent, petition the Commission to 
+reopen this matter and seek an order directing that the Respondent pay an additional civil penalty.  
+Respondent may contest by way of defense in any resulting administrative proceeding whether it 
+knowingly provided materially false or misleading information, but may not:  (1) contest the 
+findings in the Order; or (2) assert any defense to liability or remedy, including, but not limited to, 
+any statute of limitations defense. 
+ By the Commission. 
+Vanessa A. Countryman 
+Secretary 
+ 
+ 

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+ UNITED STATES OF AMERICA 
+ Before the 
+ SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 89023 / June 5, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4147 / June 5, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19824 
+ 
+ 
+ 
+ 
+In the Matter of 
+ 
+JANA FAITH 
+KIENA, CPA,  
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING PUBLIC 
+ADMINISTRATIVE AND CEASE- 
+ AND-DESIST PROCEEDINGS PURSUANT TO 
+SECTIONS 4C AND 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934 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 Jana Faith 
+Kiena, CPA (“Respondent” or “Kiena”) pursuant to Sections 4C1 and 21C of the Securities 
+                                                 
+1  Section 4C provides, in relevant part, that:  
+ 
+ The Commission may censure any person, or deny, temporarily or permanently, 
+to any person the privilege of appearing or practicing before the Commission in 
+any way, if that person is found . . . (1) not to possess the requisite qualifications 
+to represent others; (2) to be lacking in character or integrity, or to have engaged 
+in unethical or improper professional conduct; or (3) to have willfully violated, or 
+willfully aided and abetted the violation of, any provision of the securities laws or 
+the rules and regulations issued thereunder. 
+ 
+2 
+Exchange Act of 1934 (“Exchange Act”) and 102(e)(1)(iii) of the Commission’s Rules of 
+Practice.2 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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 and without admitting or denying the findings 
+herein, except as to the Commission’s jurisdiction over her and the subject matter of these 
+proceedings, which are admitted, and except as provided herein in Section V, Respondent consents 
+to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings 
+Pursuant to Sections 4C and 21C of the Securities Exchange Act of 1934 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 Respondent’s Offer, the Commission finds that: 
+ 
+A. SUMMARY 
+ 
+           These proceedings involve insider trading by Jana Faith Kiena, a certified public accountant 
+(“CPA”), who is licensed in California, and worked as an accountant in the revenue recognition 
+department at Illumina, Inc. (“Illumina” or “ILMN”).  In late June 2019, during a meeting at 
+Illumina, an accounting manager told Kiena and others that Illumina would have disappointing 
+revenues for its second quarter of 2019.  While possessing, and on the basis of, this material 
+nonpublic information, Kiena bought a total of 50 short term out of the money ILMN put option 
+contracts on two days, July 2 and 8, 2019.  On July 11, 2019, after the market closed, Illumina 
+disclosed that its second quarter revenues would be lower than expected and updated its full year 
+revenue guidance.  ILMN’s stock price dropped from $363.66 to $305.05 per share, or 
+approximately 16%, following the issuance of the announcement.  On July 12, 2019, Kiena sold the 
+50 option contracts and netted $249,227.92 in profits.   
+ 
+ In August 2019, Kiena self-reported her trading to the Commission staff. 
+ 
+                                                 
+2  Rule 102(e)(1)(iii) provides, in pertinent part, that: 
+ 
+ The Commission may . . . 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 any provision of 
+the Federal securities laws or the rules and regulations thereunder. 
+ 
+3 
+B. RESPONDENT 
+ 
+ Jana Faith Kiena, 59, resides in San Diego, California.  Kiena worked at Illumina as a 
+contract employee from May to October 2019 in its revenue recognition department.  She is 
+currently the chief financial officer of a biotechnology company.  Since November 15, 1996, Kiena 
+has been a CPA licensed in California; her CPA license, however, is currently inactive.   
+ 
+C. RELATED ENTITY 
+ 
+Illumina, Inc., is a Delaware corporation headquartered in San Diego, California.  
+Illumina manufactures DNA sequencing machines, and its services are used by genetic testing 
+companies.  Illumina is an SEC-reporting company with a class of shares registered under 
+Section 12(b) of the Exchange Act.  Its common stock is quoted on the NASDAQ Global Select 
+Market under the ticker symbol “ILMN,” and its options are quoted on the CBOE.  Illumina’s 
+second quarter ended on June 30, 2019.  
+ 
+D. FACTS 
+ 
+ 1. In May 2019, Kiena began as a contract employee at Illumina in its revenue 
+recognition department.  Upon starting at Illumina, she was informed that she could not buy or sell 
+ILMN securities while in possession of material, nonpublic information. 
+ 
+2. While in Illumina’s revenue recognition department, Kiena processed revenue 
+related to monthly service contracts.  She also participated in periodic status updates about revenue 
+by phone or in-person.  The in-person updates were called “group huddles.”  At one group huddle, 
+in late June 2019, an accounting manager told the group of approximately seven employees, 
+including Kiena, that revenue for the second quarter would be disappointing.   
+ 
+3. Kiena knew or was reckless in not knowing that information about Illumina’s 
+revenue was material and nonpublic. Kiena also knew or was reckless in not knowing that she 
+owed a duty of trust and confidence to Illumina to refrain from trading in Illumina securities 
+while in possession of the confidential information about revenues that she learned in the course 
+of her employment.  
+ 
+4. Shortly after the aforementioned group huddle, on July 2, 2019, Kiena took a cash 
+advance on her credit card and bought $13,638.33 worth of July 12, 2019 out of the money ILMN 
+put option contracts with a strike price of $365 per share.  Six days later, on July 8, 2019, she took 
+money out of her savings account and bought an additional $3,096.33 worth of the same short-term 
+out of the money ILMN put option contracts.  Kiena bought these 50 put option contracts while 
+possessing, and on the basis of, material nonpublic information about Illumina’s disappointing 
+revenues. 
+ 
+5. On July 11, 2019, Illumina announced that the company’s preliminary revenue for 
+the second quarter would be lower than expected and updated its full year revenue guidance.  
+Illumina’s stock price dropped from $363.66 to $305.05 per share or approximately a 16% 
+4 
+decrease following the issuance of the announcement.  The next day, on July 12, 2019, Kiena sold 
+her 50 put option contracts, realizing a gain of $249,227.92. 
+ 
+6. Within a month after her insider trading, Kiena self-reported her Illumina trading to 
+the Commission staff.   
+   
+E.        VIOLATIONS 
+ 
+ 7.    As a result of the conduct described above, Kiena violated Section 10(b) of the 
+Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in connection with 
+the purchase or sale of securities. 
+ 
+F. RESPONDENT’S COOPERATION 
+ 
+ 8. In determining to accept this Offer, the Commission considered Respondent’s 
+cooperation afforded the Commission’s staff. 
+ 
+G.         FINDINGS 
+ 
+ 9. Based on the foregoing, the Commission finds that Kiena willfully violated Section 
+10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.  
+ 
+IV. 
+ 
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Kiena’s Offer. 
+ 
+ Accordingly, it is hereby ORDERED, effective immediately, that: 
+ 
+ A. Kiena shall cease and desist from committing or causing any violations and any 
+future violations of Section 10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder.   
+ 
+ B. Kiena is denied the privilege of appearing or practicing before the Commission as 
+an accountant. 
+ 
+ C. After two years from the date of this order, Kiena may request that the 
+Commission consider her 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 (other than as a member of an audit committee, as that term is 
+defined in Section 3(a)(58) of the Securities Exchange Act of 1934).  Such 
+an application must satisfy the Commission that Kiena’s work in her practice 
+before the Commission as an accountant will be reviewed either by the 
+5 
+independent audit committee of the public company for which she works or 
+in some other acceptable manner, as long as she practices before the 
+Commission in this capacity; and/or 
+ 
+  2.    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 as a member of an audit committee, as that term is defined in 
+Section 3(a)(58) of the Securities Exchange Act of 1934.  Such an 
+application will be considered on a facts and circumstances basis with 
+respect to such membership, and the applicant’s burden of demonstrating 
+good cause for reinstatement will be particularly high given the role of the 
+audit committee in financial and accounting matters; and/or 
+ 
+  3. an independent accountant.   
+ 
+  Such an application must satisfy the Commission that: 
+      
+           (a) Kiena, or the public accounting firm with which she is associated, 
+is registered with the Public Company Accounting Oversight 
+Board (“Board”) in accordance with the Sarbanes-Oxley Act of 
+2002, and such registration continues to be effective; 
+ 
+   (b) Kiena, or the registered public accounting firm with which she is 
+associated, has been inspected by the Board and that inspection did 
+not identify any criticisms of or potential defects in the 
+Respondent’s or the firm’s quality control system that would 
+indicate that Kiena will not receive appropriate supervision; 
+   (c) Kiena has resolved all disciplinary issues with the Board, and has 
+complied with all terms and conditions of any sanctions imposed 
+by the Board (other than reinstatement by the Commission); and 
+ 
+   (d) Kiena acknowledges her responsibility, as long as she appears or 
+practices before the Commission as an independent accountant, to 
+comply with all requirements of the Commission and the Board, 
+including, but not limited to, all requirements relating to 
+registration, inspections, concurring partner reviews and quality 
+control standards.   
+ 
+D. The Commission will consider an application by Kiena to resume appearing or 
+practicing before the Commission provided that her state CPA license is current and she has 
+resolved all other disciplinary issues with the applicable state boards of accountancy.  However, 
+if state licensure is dependent 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 Kiena’s character, 
+integrity professional conduct, or qualifications to appear or practice before the Commission as 
+6 
+an accountant.  Whether an application demonstrates good cause will be considered on a facts 
+and circumstances basis with due regard for protecting the integrity of the Commission’s 
+processes. 
+ 
+ E. Respondent shall, within 14 days, pay disgorgement of $249,227.92 and a civil 
+penalty of $124,613.96 to the Securities and Exchange Commission for transfer to the general fund 
+of the United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment of 
+disgorgement is not made, interest shall accrue pursuant to SEC Rule of Practice 600, and if timely 
+payment of the civil money penalty is not made, interest shall accrue pursuant to 31 U.S.C. §3717. 
+ 
+Payment must be made in one of the following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter identifying Jana 
+Faith Kiena as a Respondent in these proceedings, and the file number of these proceedings; a copy 
+of the cover letter and check or money order must be sent to Alka Patel, Associate Director, 
+Division of Enforcement, Securities and Exchange Commission, 444 S. Flower St, Suite 900, Los 
+Angeles, CA  90071.   
+ 
+ F. Amounts ordered to be paid as civil money penalties pursuant to this Order shall be 
+treated as penalties paid to the government for all purposes, including all tax purposes.  To 
+preserve the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, she shall not argue that she is entitled to, nor shall she benefit by, offset or reduction of any 
+award of compensatory damages by the amount of any part of Respondent’s payment of a civil 
+penalty in this action (“Penalty Offset”).  If the court in any Related Investor Action grants such a 
+Penalty Offset, Respondent agrees that she shall, within 30 days after entry of a final order granting 
+the Penalty Offset, notify the Commission’s counsel in this action and pay the amount of the 
+Penalty Offset to the Securities and Exchange Commission.  Such a payment shall not be deemed 
+an additional civil penalty and shall not be deemed to change the amount of the civil penalty 
+imposed in this proceeding.  For purposes of this paragraph, a “Related Investor Action” means a 
+7 
+private damages action brought against Respondent by or on behalf of one or more investors based 
+on substantially the same facts as alleged in the Order instituted by the Commission in this 
+proceeding. 
+ 
+ G. Respondent acknowledges that the Commission is not imposing a civil penalty in 
+excess of $124,613.96, based on her cooperation in a Commission investigation. If at any time 
+following the entry of the Order, the Division of Enforcement (“Division”) obtains information 
+indicating that Respondent knowingly provided materially false or misleading information or 
+materials to the Commission, or in a related proceeding, the Division may, at its sole discretion and 
+with prior notice to the Respondent, petition the Commission to reopen this matter and seek an 
+order directing that the Respondent pay an additional civil penalty.  Respondent may contest by 
+way of defense in any resulting administrative proceeding whether she knowingly provided 
+materially false or misleading information, but may not: (1) contest the findings in the Order; or (2) 
+assert any defense to liability or remedy, including, but not limited to, any statute of limitations 
+defense. 
+ 
+V. 
+It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
+523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
+Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
+amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
+or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
+Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
+forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 
+ 
+ 
+ 

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+UNITED STATES OF AMERICA 
+before the  
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 89099 / June 18, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4148 / June 18, 2020 
+ 
+Admin. Proc. File No. 3-19767 
+ 
+ 
+In the Matter of 
+ 
+PLS, CPA, A PROFESSIONAL 
+CORPORATION, A/K/A PLS CPAs;  
+CHANG G. PARK, CPA, A/K/A CHANGGEUN PARK; 
+JOSEPH YONGYUN LEE, CPA, A/K/A YONG 
+YUN LEE; AND JUCHI LEE, CPA, A/K/A JUCHI LEE 
+FERNANDEZ, JUCHI LEE, JU CHI LEE, SUE LEE 
+ 
+ 
+ 
+ 
+ 
+ORDER 
+ 
+On April 24, 2020, the Securities and Exchange Commission issued an order instituting 
+an administrative proceeding (“OIP”) against PLS, CPA, a Professional Corporation, a/k/a PLS 
+CPAs; Chang G. Park, CPA, a/k/a Changgeun Park; Joseph Yongyun Lee, CPA, a/k/a Yong Yun 
+Lee; and Juchi Lee, CPA, a/k/a Juchi Lee Fernandez, Ju-chi Lee, Ju Chi Lee, Sue Lee 
+(collectively, “Respondents”), pursuant to Sections 4C and 21C of the Securities Exchange Act 
+of 1934 and Rules 102(e)(1)(ii) and (iii) of the Commission’s Rules of Practice.1  In compliance 
+with the statutory provision governing cease-and-desist proceedings, the OIP specified that a 
+“public hearing before the Commission for the purpose of taking evidence . . . shall be convened 
+not earlier than 30 days and not later than 60 days” from service of the OIP.2  The statute also 
+provides that “an earlier or later date” for the hearing may be “set by the Commission with the 
+consent of any respondent so served.”3 
+                                                 
+1  PLS, CPA, a Professional Corporation, a/k/a PLS CPAs, Exchange Act Release No. 
+88739, 2020 WL 2039958 (Apr. 24, 2020). 
+2  Id. at *15. 
+3  15 U.S.C. § 78u-3(b). 
+2 
+ 
+Respondents were served with the OIP by April 28, 2020.  As a consequence, in the 
+absence of consent by Respondents regarding a later hearing date, a public hearing was to be 
+held on or before June 26, 2020.  On May 11, 2020, the parties were directed to file a statement 
+advising the Commission of any agreement to a later hearing date (or a statement that no 
+agreement could be reached) by May 18, 2020.4  
+On May 15, 2020, the parties filed a joint statement in which Respondents consented to a 
+hearing more than 60 days from service of the OIP.  Also on May 15, 2020, Respondents each 
+filed answers to the OIP.  The parties filed another joint statement on May 28, 2020.  They stated 
+that, after a prehearing conference, they had reached agreement on a proposed schedule with a 
+hearing to commence on or about June 1, 2021, in San Diego, California.  The Division of 
+Enforcement also sought leave to file a motion for summary disposition. 
+Accordingly, it is ORDERED, based on the parties’ representations, that the parties 
+adhere to the following procedural schedule: 
+June 23, 2020 Parties exchange initial witness lists. 
+ 
+October 20, 2020 Close of fact discovery. 
+ 
+November 10, 2020 Last date to serve expert reports. 
+ 
+December 1, 2020 Last date to serve rebuttal expert reports. 
+ 
+December 18, 2020 Close of expert discovery. 
+ 
+January 26, 2021 Last date to file motions for summary disposition, with leave. 
+ 
+February 16, 2021 Last date to file oppositions to summary disposition. 
+ 
+February 23, 2021 Last date to file replies to summary disposition. 
+ 
+March 23, 2021 Parties exchange witness and exhibit lists. 
+ 
+March 30, 2021 Parties exchange pre-marked exhibits. 
+ 
+April 13, 2021 Parties exchange supplemental pre-marked exhibits. 
+ 
+April 27, 2021 Parties to file prehearing briefs and any motions in limine. 
+ 
+May 4, 2021 Parties file opposition to motions in limine. 
+ 
+                                                 
+4  Exchange Act Release No. 88851, 2020 WL 2394950 (May 11, 2020). 
+3 
+ 
+May 18, 2021 Final prehearing conference and hearing on motions in limine. 
+ 
+June 1, 2021 Hearing commences. 
+ 
+It is further ORDERED that the Division of Enforcement is granted leave to file a motion 
+for summary disposition pursuant to Rule of Practice 250(c) and that briefs shall be filed 
+consistent with the procedural schedule set forth above.5  
+ 
+We note that the Division represents that it has made documents available for inspection 
+or copying in accordance with Rule of Practice 230.6  Respondents have indicated they will make 
+arrangements to inspect or copy the documents.  The parties may engage in discovery consistent 
+with the Rules of Practice.  We note that the parties reserve their rights to take no more than five 
+depositions per side unless granted leave to notice additional depositions in accordance with 
+Rule of Practice 233.7 
+ 
+For the Commission, by the Office of the General Counsel, pursuant to delegated 
+authority. 
+ 
+ 
+        Vanessa A. Countryman 
+             Secretary 
+                                                 
+5  17 C.F.R. § 201.250(c). 
+6  17 C.F.R. § 201.230. 
+7  17 C.F.R. § 201.233. 

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+ 
+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES ACT OF 1933 
+Release No. 10793 / June 23, 2020 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 89133 / June 23, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4149 / June 23, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19831 
+ 
+ 
+In the Matter of 
+ 
+ 
+VEREIT, INC., 
+ 
+ 
+Respondent. 
+ 
+ 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT 
+TO SECTION 8A OF THE 
+SECURITIES ACT OF 1933 AND 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A 
+CEASE-AND-DESIST ORDER 
+  
+I. 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate 
+and in the public interest that cease-and-desist proceedings be, and hereby are, instituted 
+pursuant to Section 8A of the Securities Act of 1933 (“Securities Act”) and Section 21C of 
+the Securities Exchange Act of 1934 (“Exchange Act”) against VEREIT, Inc., formerly 
+known as American Realty Capital Properties, Inc. (“ARCP” or “Respondent”).  
+II. 
+In anticipation of the institution of these proceedings, Respondent has submitted 
+an Offer of Settlement (the “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, and without admitting 
+or denying the findings herein, except as to the Commission’s jurisdiction over it and the 
+subject matter of these proceedings, which are admitted, Respondent consents to the entry 
+of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 8A of the 
+Securities Act of 1933 and Section 21C of the Securities Exchange Act of 1934, Making 
+Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below. 
+ 
+2 
+ 
+III. 
+On the basis of this Order and Respondent’s Offer, the Commission finds1 that: 
+Summary 
+1. This proceeding arises from ARCP’s violations of the antifraud and books 
+and records provisions of the federal securities laws. ARCP, now known as VEREIT, Inc. 
+(hereinafter, “ARCP” or the “Company”), is a real estate investment trust (“REIT”) 
+primarily engaged in the business of acquiring, owning, and managing single-tenant 
+commercial real estate properties that by February 2014 had grown to be the nation’s 
+largest publicly-traded net lease REIT. ARCP, acting through its then Chief Financial 
+Officer, Brian S. Block (the “CFO”), and its then Chief Accounting Officer, Lisa 
+McAlister (the “CAO”), falsely reported and manipulated the Company’s “Adjusted 
+Funds from Operations” or “AFFO,” a key non-GAAP performance metric relied on by 
+ARCP management, investors, and analysts to assess ARCP’s financial performance 
+from at least May 2014 until the Company’s initial disclosure on October 29, 2014 of 
+their misconduct (the “Relevant Period”).  
+2. On October 29, 2014, ARCP announced that its Audit Committee had 
+concluded that the previously issued financial reports for its full fiscal year 2013, first 
+quarter 2014 (“1Q14”), and second quarter 2014 (“2Q14”) should no longer be relied 
+upon. The Audit Committee’s conclusion was based on the preliminary findings of an 
+internal investigation that ARCP had overstated AFFO in its 1Q14 financial reports and 
+that this error was identified but intentionally not corrected, and other AFFO and 
+financial statement errors were intentionally made resulting in an overstatement of AFFO 
+in its 2Q14 financial reports. The Company also announced that the CFO and CAO had 
+resigned at the request of the Audit Committee, and that the investigation was ongoing 
+and had been expanded to encompass fiscal year 2013 in light of the fact that the CFO 
+and CAO had key roles in the preparation of such filings. The closing price of ARCP’s 
+stock on the day of this announcement, declined by approximately 19 percent from the 
+prior day’s close.  
+Respondent 
+3.  ARCP is a Maryland corporation that during the Relevant Period was 
+headquartered in New York, New York. ARCP’s common stock has been registered with 
+the Commission under Exchange Act Section 12(b) since conducting its initial public 
+offering and becoming a publicly-traded REIT in 2011. ARCP files periodic reports, 
+including Forms 10-K and 10-Q, with the Commission pursuant to Section 13(a) of the 
+Exchange Act and related rules thereunder. ARCP’s stock was traded on NASDAQ’s 
+Global Select Market (ticker: ARCP) until July 2015 at which time it changed its name to 
+                                                 
+1  The findings herein are made pursuant to Respondent’s Offer of Settlement and 
+are not binding on any other person or entity in this or any other proceeding. 
+ 
+3 
+ 
+VEREIT, Inc. and moved its listing to the New York Stock Exchange (ticker: VER). As 
+of June 30, 2014, ARCP reported total assets of approximately $21 billion. 
+Facts 
+A. AFFO and AFFO Per Share 
+4. For financial reporting purposes, publicly traded issuers in the United 
+States must follow accounting standards that are commonly known as generally accepted 
+accounting principles, or GAAP. Additionally, many REITs, including ARCP, report 
+supplemental non-GAAP financial measures utilized by Company management, 
+investors, and analysts in understanding and assessing operating results. One such key 
+measure typically reported by REITs, AFFO, is an “adjusted” version of a standardized 
+metric of REIT operating performance, Funds From Operations (“FFO”), as defined by 
+the National Association of Real Estate Investment Trusts (“Nariet”). Nariet defines FFO 
+as: GAAP net income or loss “excluding gains or losses from sales of property, and 
+adding back real estate depreciation.” 
+5. ARCP, like many REITs, defined AFFO as Nariet FFO with further 
+adjustments to exclude certain non-cash income and expense items (e.g., unrealized gains 
+and losses) and certain “special” or “non-routine” expenses (such as merger and 
+acquisition-related expenses) that are expensed-as-incurred under GAAP. ARCP reported 
+AFFO in its quarterly and annual reports filed with the Commission on Forms 10-Q and 
+10-K and explained that “AFFO is a recognized measure of sustainable operating 
+performance by the REIT industry” and that the ARCP adjustments to calculate its AFFO 
+“provides information consistent with management’s analysis of the operating 
+performance of the properties.” REIT investors and analysts typically consider AFFO a 
+measure of “normalized” residual cash flow after eliminating non-cash and non-recurring 
+expenses, and an indicator of a REIT’s ability to pay dividends.  
+6. Because FFO and AFFO are non-GAAP measures, ARCP was required by 
+Commission regulations to provide a reconciliation of those metrics to the “most directly 
+comparable GAAP financial measure.” See 17 C.F.R. §§ 228, 229, 244 and 249. The 
+most directly comparable GAAP measure to FFO and AFFO is net income. And FFO per 
+share or AFFO per share is most directly comparable to GAAP’s earnings per share 
+(“EPS”) metric. 
+7. Both prior to and during the Relevant Period, ARCP’s senior management 
+considered AFFO per share as an important performance metric. ARCP prominently 
+featured its AFFO per share in its earnings releases, financial supplements, and 
+presentations furnished with Forms 8-K that ARCP filed contemporaneously with each 
+quarterly and annual report. ARCP also provided public earnings guidance in the form of 
+projected full-year AFFO per share. Internally, ARCP personnel regularly prepared 
+models for forecasting performance and evaluating potential transactions in terms of 
+impact to AFFO per share. Externally, analysts also watched ARCP’s reported AFFO per 
+share closely, and many included in their reports their predictions of ARCP’s quarterly 
+and annual AFFO per share. 
+ 
+4 
+ 
+8. ARCP provided public projections of its full-year 2014 AFFO per share 
+beginning in early 2013, in connection with announcements about quarterly earnings and 
+announced transactions. On October 23, 2013, ARCP updated its 2014 AFFO per share 
+projection to a range of $1.13 to $1.19. That projection remained unchanged until an 
+update in connection with a transaction announced on October 1, 2014, and the $1.13 to 
+$1.19 AFFO per share earnings guidance was reaffirmed on numerous occasions during 
+that period, including in ARCP’s earnings releases for both 1Q14 and 2Q14. Throughout 
+the reporting periods for 1Q14 and 2Q14, ARCP’s senior management tracked analysts’ 
+estimates of ARCP’s quarterly AFFO per share and sought to meet or exceed those 
+estimates, as well as to maintain reported AFFO within the previously announced 2014 
+guidance range of $1.13 to $1.19 per share. 
+B. The Operating Partnership and Non-Controlling Interests 
+9. ARCP, like many REITs, conducts substantially all of its business 
+activities through an operating partnership (the “OP”). From 2013 through 2014, ARCP 
+was the sole general partner of the OP and owned in excess of 95% of its equity interests 
+(the “OP units”). The remainder OP units (i.e., those not owned by ARCP) were held by 
+certain affiliated and unaffiliated investors and could be redeemed for a corresponding 
+number of ARCP shares (or cash, at ARCP’s election) after a one-year holding period. 
+10. Under GAAP, these remainder OP units are deemed non-controlling 
+interests (“NCI”). GAAP requires the consolidated income statement of ARCP to present 
+net income or loss on a consolidated basis, as well as to identify separately the net 
+income or loss attributable to ARCP stockholders and to the NCI. As such, ARCP 
+reported both forms of its net loss: one that included the total operations of ARCP and the 
+OP, without eliminating the portion of the consolidated net loss that was attributable to 
+the NCI interests (identified simply as “net loss”), and one that eliminated from the net 
+loss the portion of the consolidated net loss that was attributable to the NCI interests 
+(identified as “net loss attributable to common stockholders”).  
+11. Similarly, because FFO and AFFO represent net income or loss with 
+adjustments, they may be presented on either (i) a “gross” consolidated basis 
+(stockholders plus NCI) or (ii) a “net” basis (stockholders only). The “gross” basis 
+calculation begins with consolidated net income or loss and excludes the gross amount of 
+the adjustment items. To properly calculate FFO and AFFO per share on a “gross” basis, 
+the share count divisor would include the shares into which the NCI holders’ OP units 
+can be converted (“the NCI shares”). This “gross method” essentially includes both 100% 
+of the consolidated results and 100% of the shares of the OP. The “net” basis calculation 
+begins with net income or loss attributable to the stockholders and excludes only the 
+Company’s portion of the adjustment items. To properly calculate FFO and AFFO per 
+share on a “net” basis, the share count divisor would exclude the NCI shares. The “net 
+method” essentially includes only the results and shares of the stockholders. Both 
+methods are internally consistent and should produce virtually the same FFO or AFFO 
+per share. 
+  
+ 
+5 
+ 
+C. ARCP’s 1Q14 AFFO Presentation 
+12. On April 10, 2014, ARCP announced plans to issue its 1Q14 financial 
+results before market open on May 8, 2014. At the announced time, ARCP reported its 
+financial results for 1Q14 in a Form 10-Q filed with the Commission, along with an 
+earnings release, earnings supplement, and investor presentation furnished as exhibits to a 
+Form 8-K. ARCP reported for 1Q14 consolidated net loss of approximately $321 million, 
+net loss attributable to the Company of approximately $309 million, total FFO of 
+negative $184 million, total AFFO of approximately $147 million (positive), and AFFO 
+per share of $0.26. In its earnings release, ARCP highlighted that “[w]e had a record 
+quarter with earnings coming exactly in line with our expectations of $0.26 AFFO per 
+share, consistent with our previously stated guidance for the year” and reaffirmed its 
+2014 AFFO guidance of $1.13 to $1.19 per share. 
+13. In these 1Q14 reports and its quarterly reports in 2013, ARCP’s 
+presentations of its FFO and AFFO indicated that it was on a “net” basis. Specifically, 
+ARCP’s Form 10-Q for 1Q14 presented a reconciliation of FFO and AFFO to “net loss 
+attributable to stockholders” and stated that the “[a]mounts are presented net of any non-
+controlling interest effect where applicable.” However, ARCP’s presentation of FFO and 
+AFFO was not in fact “net” of NCI effects and instead used an improper hybrid method 
+that overstated its results.  
+14. Specifically, while ARCP began the calculation with the net loss 
+attributable to the stockholders, (in this case, a loss that was smaller than the consolidated 
+net loss), ARCP’s adjustment items to calculate FFO and AFFO (most of which were 
+positive) used for the most part the gross amounts of the applicable items (i.e., both the 
+stockholders’ portion and the NCI holders’ portion of these items, rather than only the 
+stockholders’ portion, resulting in an increase in the total dollar amount of those 
+adjustments and, in turn, an increase in positive AFFO), and divided by a share count that 
+excluded the NCI shares (i.e., a lower share count, resulting in greater AFFO per share). 
+This improper hybrid method misleadingly inflated ARCP’s reported AFFO and AFFO 
+per share.  
+15. ARCP’s AFFO calculated on an actual “net” basis would have been 
+approximately $129.8 million in total and $0.23 per share for 1Q14. ARCP’s reported 
+1Q14 AFFO was thus overstated by approximately $17 million in total and $0.03 per 
+share. 
+16. Shortly before the 1Q14 financial results were scheduled to be announced, 
+ARCP personnel, including a senior member of the accounting staff responsible for 
+financial reporting (the “Accountant”), raised concerns about ARCP’s method of 
+calculating AFFO and AFFO per share—specifically that those metrics may be 
+overstated because it was calculated using an improper hybrid method. These concerns 
+were raised to ARCP’s CFO, CAO, and others. Despite those concerns, and without 
+having a substantive explanation or completing an analysis, the CFO instructed that they 
+file the 1Q14 Form 10-Q and related releases as-is by the previously announced date of 
+May 8, 2014.  
+ 
+6 
+ 
+D. ARCP Personnel Quantified the 1Q14 AFFO Misstatement 
+17. Following the 1Q14 filings, the Accountant continued to analyze ARCP’s 
+1Q14 AFFO presentation. The Accountant repeatedly advised the CFO, CAO and others 
+that the Accountant believed ARCP had made a mistake in its 1Q14 AFFO calculation, 
+and thus, had reported incorrect results by a significant amount. 
+18. For example, by no later than May 23, 2014, the Accountant had informed 
+the CAO that a correct calculation under either the “net method” or the “gross method” 
+yielded 1Q14 AFFO results of only $0.23 per share, rather than the $0.26 per share 
+ARCP reported. 
+19. Notwithstanding the understanding of the significance of this error, ARCP 
+conducted an offering of common stock on May 23, 2014, pursuant to a Prospectus 
+Supplement filed with the Commission pursuant to Rule 424(b)(5) on the same date. The 
+Prospectus Supplement incorporated by reference ARCP’s 1Q14 Form 10-Q that 
+included the false and misleading AFFO results. The offering raised $1.66 billion, of 
+which the net proceeds to ARCP after underwriting discounts, commissions, and 
+offering-related expenses were $1.59 billion. 
+E. ARCP’s CFO and CAO Take Additional Manipulative Steps to Conceal 
+the Inflated 1Q14 AFFO Results and to Further Inflate 2Q14 AFFO 
+20. ARCP was scheduled to file its 2Q14 Form 10-Q and publish its related 
+earnings releases, before market-open on the morning of July 29, 2014.  
+21. Based on the Accountant’s analysis of the AFFO issue, the Accountant 
+determined to prepare the 3-month 2Q14 AFFO results using the correct “net method” 
+and provided numerous AFFO schedules reflecting that calculation throughout July to the 
+CAO and CFO. However, the 2Q14 financial reports would need to report not only the 3-
+month 2Q14 results, but also the results for the first half of the year (“FH14”). The FH14 
+AFFO result adds the first and second quarter amounts for each line in the calculation. 
+Therefore, adding the original, as-reported 1Q14 AFFO would overstate the FH14 results 
+even if the correct method was used to calculate the 3-month 2Q14 AFFO result.  
+22. Instead of correcting the reported 1Q14 AFFO amount, the CFO and CAO 
+ultimately chose to conceal the misstated 1Q14 AFFO amount and make further 
+intentional errors in the 2Q14 AFFO result in order to meet analysts’ consensus 
+expectations for ARCP’s AFFO results.  
+23. Specifically, late in the evening of July 28, 2014, the night before the 
+2Q14 filings would be made, the CFO, the CAO, and the Accountant met in the CFO’s 
+office about ARCP’s AFFO calculations. The CFO began preparing a spreadsheet in 
+which he recalculated AFFO and AFFO per share for 1Q14, 2Q14 and FH14 using the 
+“gross method.” Using this method properly, however, would have revealed the 1Q14 
+AFFO per share overstatement of $0.03 per share. Moreover, the correct “gross method” 
+calculation for 2Q14 AFFO would have shown that ARCP only achieved $0.23 per share 
+ 
+7 
+ 
+(versus analysts’ consensus expectations of $0.24) and $0.46 per share for FH14 (out of 
+the Company’s annual guidance projections for AFFO of $1.13 to $1.19 per share). 
+24. The CFO then manipulated several line items of the AFFO calculation to 
+inflate the figures in order to conceal the 1Q14 overstatement, meet the analysts’ 
+consensus expectations for the 3-month 2Q14 period, and report FH14 results that would 
+not require ARCP to lower its annual guidance projection for AFFO of $1.13 to $1.19 per 
+share. First, the CFO added a total of approximately $13.1 million in unsupported 
+plugged amounts to a certain line item in both the 1Q14 and 2Q14 AFFO calculations, 
+which served to mask the overstatement of ARCP’s reported 1Q14 AFFO as well as to 
+meet analysts’ consensus estimates for 2Q14 AFFO per share of $0.24. Second, the CFO 
+also improperly deducted millions of shares from the weighted shares outstanding for 
+FH14 for the AFFO calculation, thereby improperly inflating the FH14 AFFO per share 
+in his spreadsheet from $0.46 to $0.49. 
+25. Despite the Accountant’s objections, the CFO instructed the Accountant to 
+use the numbers and calculations in the spreadsheet the CFO had just prepared in 
+ARCP’s 2Q14 Form 10-Q and related earnings releases and emailed to the Accountant 
+and CAO. The CAO informed the Accountant that she would handle communicating with 
+the auditors. The Accountant followed the CFO’s and CAO’s instruction and prepared 
+the filings accordingly. Prior to market open on July 29, 2014, the CFO and CAO 
+authorized the filing of the Form 10-Q and related earnings releases. 
+26. ARCP’s 2Q14 Form 10-Q falsely reported total AFFO on a purportedly 
+“gross method” basis for 2Q14 of $205.3 million and FH14 of $353 million. ARCP also 
+filed a related Form 8-K furnishing a press release and supplemental financial 
+presentation that falsely reported AFFO of $0.24 per share for 2Q14 and $0.49 per share 
+for FH14. ARCP’s press release further highlighted these falsely inflated AFFO and 
+AFFO per share figures and affirmed the prior 2014 annual guidance range of AFFO per 
+share of $1.13 to $1.19. 
+27. On September 7, 2014, the Audit Committee of ARCP’s Board of 
+Directors was informed by ARCP’s independent auditor of concerns raised by an 
+employee regarding accounting practices and other matters, including ARCP’s 2Q14 
+reporting of AFFO. On October 29, 2014, prior to market open, ARCP announced that, 
+based on the preliminary results of an internal investigation, the Audit Committee of the 
+Board of Directors believed that 1Q14, 2Q14, and FH14 AFFO and AFFO per share had 
+been overstated, with the 2Q14 report “intentionally not correct[ing]” the 1Q14 error and 
+making “other AFFO and financial statement errors … intentionally.” The announcement 
+also stated that at the request of the Audit Committee, the CFO and CAO had resigned. 
+Following this disclosure, ARCP’s stock price dropped by approximately 19% (from a 
+closing price of $12.38 on October 28 to $10.00 on October 29), resulting in a market-
+capitalization loss of over $2 billion. When ARCP ultimately filed restatements on March 
+2, 2015, its stock price closed at $9.90. 
+28. ARCP filed restatements of its Form 10-K for fiscal year 2013, 1Q14 
+Form 10-Q, and 2Q14 Form 10-Q on March 2, 2015. Among other things, the 
+ 
+8 
+ 
+restatements disclosed the Company’s conclusion that AFFO had been overstated for 
+fiscal years 2011-2013 and for the first two quarters of 2014. The restatements also 
+reported that the investigation found that senior management considered AFFO to be an 
+important metric used by analysts and investors in evaluating the Company’s 
+performance and, for the first two quarters of 2014, sought to maintain reported AFFO 
+within the 2014 guidance range of $1.13 to $1.19 per share announced at the end of 2013. 
+It further reported that some members of senior management were aware of AFFO errors 
+prior to the 1Q14 Form 10-Q filing but allowed the report to be filed without completing 
+an analysis of the errors and in the 2Q14 Form 10-Q report, as previously reported, errors 
+were intentionally not corrected and other AFFO and financial statement errors were 
+intentionally made. The restatements also identified other corrections and issues relating 
+to multiple matters, including related party payments to affiliates of the former external 
+manager and issues relating to equity awards made to its former CEO and CFO.  
+29. ARCP’s control environment during the Relevant Period significantly 
+contributed to the fraudulent misrepresentations of AFFO described above. As 
+acknowledged in ARCP’s restatements, including for 1Q14 and 2Q14, the Company had 
+numerous material weaknesses in the design and implementation of controls to, among 
+other things, ensure that AFFO was correctly calculated, ensure that the information 
+contained in ARCP’s periodic reports and other SEC filings correctly reflected the 
+information contained in the Company’s accounting records and other supporting 
+information, prevent changes to the financial statements and supporting financial 
+information by senior management without proper review, and ensure that accounting 
+employees would not be subject to pressure to make inappropriate decisions affecting the 
+financial statement components of the calculation of AFFO.  
+Violations 
+30. As a result of the conduct described above, ARCP violated Section 17(a) 
+of the Securities Act, which prohibits fraudulent conduct in connection with the offer or 
+sale of securities, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, 
+which prohibit fraudulent conduct in connection with the purchase or sale of securities. 
+31. Also, as a result of the conduct described above, ARCP violated Section 
+13(a) of the Exchange Act and Rules 12b-20, 13a-11, and 13a-13, which require every 
+issuer of a security registered pursuant to Section 12 of the Exchange Act to file with the 
+Commission information, documents, and quarterly reports as the Commission may 
+require, and mandate that periodic reports contain such further material information as 
+may be necessary to make the required statements not misleading. 
+32. In addition, as a result of the conduct described above, ARCP violated 
+Section 13(b)(2)(A) of the Exchange Act, which requires all reporting companies to make 
+and keep books, records, and accounts which, in reasonable detail, accurately and fairly 
+reflect their transactions and dispositions of their assets. 
+ 
+9 
+ 
+ARCP’s Self-Reporting, Remediation, and Cooperation 
+33. In determining to accept ARCP’s Offer, the Commission considered 
+ARCP’s self-reporting, public disclosures, cooperation, and remediation, as described 
+below. 
+34. ARCP promptly self-reported to the Commission, and in its Form 8-K 
+filed on October 29, 2014 disclosed to investors the preliminary results of the Audit 
+Committee investigation that the Company incorrectly calculated its 1Q14 AFFO and 
+that “this error was identified but intentionally not corrected, and other AFFO and 
+financial statement errors were intentionally made” for the three and six month periods 
+covered by the 2Q14 reports, and that at the request of the Audit Committee the CFO and 
+CAO had resigned.  
+35. ARCP’s Audit Committee continued its investigation thereafter and 
+provided timely updates to the Commission staff.  ARCP voluntarily produced 
+compilations of documents and other information at the staff’s request, made timely 
+disclosure of relevant factual information, and facilitated making its employees available 
+for interviews with the staff. After issuing restatements in March 2015, ARCP continued 
+to cooperate with the Commission staff’s investigation, including providing certain 
+information relevant to the Commission’s action entitled SEC v. AR Capital, LLC, et al., 
+No. 19 Civ. 6603 (AT) (S.D.N.Y).    
+36. ARCP also promptly undertook a series of remedial measures, including 
+reforming policies, procedures, and controls; instituting enhanced annual trainings; and 
+reporting the remediation as of December 31, 2015 of all material weaknesses identified 
+in its restated financials. In addition, the Company replaced the CEO, Chief Operating 
+Officer, General Counsel, CFO, and CAO—constituting an entirely new senior 
+management team—as well as its entire board of directors (including a new independent 
+Chairman) and numerous other employees.  
+IV. 
+In view of the foregoing, the Commission deems it appropriate to impose the 
+sanctions agreed to in Respondent ARCP’s Offer. 
+Accordingly, pursuant to Section 8A of the Securities Act and Section 21C of the 
+Exchange Act, it is hereby ORDERED that: 
+A. Respondent ARCP cease and desist from committing or causing any 
+violations and any future violations of Section 17(a) of the Securities Act and Sections 
+10(b), 13(a), and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, 13a-11, and 
+13a-13 thereunder.  
+B. Respondent ARCP shall, within 14 days of the entry of this Order, pay a 
+civil money penalty in the amount of $8,000,000 to the Securities and Exchange 
+Commission. If timely payment is not made, additional interest shall accrue pursuant to 31 
+U.S.C. §3717.  
+ 
+10 
+ 
+Payment must be made in one of the following ways:  
+ 
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+Payments by check or money order must be accompanied by a cover letter 
+identifying ARCP as a Respondent in these proceedings, and the file number of these 
+proceedings; a copy of the cover letter and check or money order must be sent to Sanjay 
+Wadhwa, Division of Enforcement, Securities and Exchange Commission, 200 Vesey 
+Street, Suite 400, New York, NY 10281.  
+ 
+C. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, 
+a Fair Fund is created for the civil penalties paid as referenced in paragraph B above. 
+Amounts ordered to be paid as civil money penalties pursuant to this Order shall be treated 
+as penalties paid to the government for all purposes, including all tax purposes. To preserve 
+the deterrent effect of the civil penalty, Respondent agrees that in any Related Investor 
+Action, it shall not argue that it is entitled to, nor shall it benefit by, offset or reduction of 
+any award of compensatory damages by the amount of any part of Respondent’s payment 
+of a civil penalty in this action (“Penalty Offset”). If the court in any Related Investor 
+Action grants such a Penalty Offset, Respondent agrees that it shall, within 30 days after 
+entry of a final order granting the Penalty Offset, notify the Commission's counsel in this 
+action and pay the amount of the Penalty Offset to the Securities and Exchange 
+Commission. Such a payment shall not be deemed an additional civil penalty and shall not 
+be deemed to change the amount of the civil penalty imposed in this proceeding. For 
+purposes of this paragraph, a “Related Investor Action” means a private damages action 
+brought against Respondent by or on behalf of one or more investors based on substantially 
+the same facts as alleged in the Order instituted by the Commission in this proceeding. 
+ By the Commission. 
+ 
+ 
+      Vanessa A. Countryman 
+      Secretary 

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+ 
+UNITED STATES OF AMERICA 
+Before the 
+SECURITIES AND EXCHANGE COMMISSION 
+ 
+SECURITIES EXCHANGE ACT OF 1934 
+Release No. 89149 / June 25, 2020 
+ 
+ACCOUNTING AND AUDITING ENFORCEMENT 
+Release No. 4150 / June 25, 2020 
+ 
+ADMINISTRATIVE PROCEEDING 
+File No. 3-19835 
+ 
+In the Matter of 
+ 
+NOVARTIS AG 
+ 
+Respondent. 
+ 
+ 
+ORDER INSTITUTING CEASE-AND-
+DESIST PROCEEDINGS PURSUANT TO 
+SECTION 21C OF THE SECURITIES 
+EXCHANGE ACT OF 1934, MAKING 
+FINDINGS, AND IMPOSING A CEASE-
+AND-DESIST ORDER  
+  
+I. 
+ 
+ The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
+and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
+Exchange Act of 1934 (“Exchange Act”), against Novartis AG (“Novartis” or “Respondent”).   
+ 
+II. 
+ 
+ In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
+of Settlement (the “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, Respondent admits the Commission’s 
+jurisdiction over it and the subject matter of these proceedings, and consents to the entry of this 
+Order Instituting Cease-And-Desist Proceedings Pursuant to Section 21C of the Securities 
+Exchange Act of 1934, Making Findings, and Imposing a Cease-And-Desist Order (“Order”), as 
+set forth below. 
+ 2 
+III. 
+ 
+ On the basis of this Order and Respondent’s Offer, the Commission finds1 that:  
+ 
+Summary 
+  
+1. These proceedings arise out of improper activities by subsidiaries and affiliates of 
+Novartis AG, a global pharmaceutical and healthcare company headquartered in Basel, Switzerland, 
+to increase the use of products in several geographic markets between 2012 and 2016.   
+ 
+2. In Korea, Vietnam, and Greece, Novartis or Alcon local subsidiaries and affiliates 
+engaged in schemes to make improper payments or to provide benefits to public and private 
+healthcare providers (“HCPs”) in exchange for prescribing or using Novartis or Alcon products.  
+These schemes varied in method and amount but were known among certain managers of the local 
+subsidiaries or affiliates.  Within Novartis’ former Alcon Asia business, internal accounting 
+controls weaknesses associated with Equipment Financing Arrangements (“EFAs”) in China from 
+2013 to 2015 resulted in forged contracts, missing surgical equipment, as well as a significant EFA 
+accounts receivable balance associated with poor performing EFAs, for which Alcon China 
+recorded large bad-debt provisions. 
+ 
+3.  False books and records were maintained in connection with the various schemes, 
+and Novartis also lacked sufficient internal accounting controls with respect to certain aspects of 
+the operations of these subsidiaries and affiliates.  As a result, Novartis violated the books and 
+records and internal accounting controls provisions of the Foreign Corrupt Practices Act of 1977 
+(the “FCPA”) [15 U.S.C. § 78m], and was unjustly enriched by approximately $92.3 million. 
+ 
+Respondent 
+ 
+4. Novartis AG (“Novartis”) is a global provider of pharmaceutical and healthcare 
+products.  Novartis’ products are available in approximately 155 countries and Novartis Group 
+companies employ approximately 104,000 individuals.  It is a corporation organized under the 
+laws of Switzerland with headquarters in Basel, Switzerland.  During the relevant period, Novartis 
+was the sole owner of Alcon Inc., an eye care company, until it was spun off in 2019.  Novartis 
+issued and maintains a class of publicly traded securities registered pursuant to Section 12(b) of the 
+Exchange Act, which are traded on the New York Stock Exchange under the ticker symbol 
+“NVS.“2    
+ 
+ 
+                                                 
+1  The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other 
+person or entity in this or any other proceeding. 
+ 
+2  On March 23, 2016, Novartis settled a FCPA action with the Commission alleging violations arising from 
+conduct in China. In the Matter of Novartis AG, Sec. Exch. Act Release No. 77431, available at    
+http://www.sec.gov/litigation/admin/2016/34-77431-s.pdf 
+ 
+ 3 
+Other Relevant Entities 
+ 
+             5. Novartis (Hellas) S.A.C.I. (“Novartis Greece”), a Greek corporation headquartered 
+in Athens, Greece, is an indirect wholly-owned subsidiary of Novartis.  Novartis Greece conducts 
+sales and marketing activities throughout Greece for Novartis prescription drugs.  Novartis Greece 
+financial statements were consolidated with those of Novartis.   
+ 
+             6. Novartis Korea Ltd (“Novartis Korea”) is an indirect majority-owned subsidiary 
+of Novartis.  Novartis Korea conducts sales and marketing activities throughout the Republic of 
+South Korea with annual sales of between $300 million and $400 million during the relevant 
+period.  Novartis Korea financial statements were consolidated with those of Novartis. 
+ 
+7. Alcon, Inc. (“Alcon”) was a multinational eye care company with headquarters in 
+Fort Worth, Texas, and was incorporated in Hünenberg, Switzerland.  In or around April 2011, 
+Alcon merged with Novartis, after which Alcon became an indirect wholly-owned subsidiary of 
+Novartis.  Alcon’s financial statements were consolidated with those of Novartis during the 
+relevant period.  Alcon Inc. was spun off of Novartis in 2019 and currently maintains a class of 
+publicly traded securities registered pursuant to Section 12(b) of the Exchange Act, which are 
+traded on the New York Stock Exchange.  Alcon Inc. is currently the largest eye care company in 
+the world with 20,000 employees conducting business in more than 140 countries.   
+ 
+8. Alcon Pte Ltd (“Alcon Singapore”) was an affiliate of Alcon between 2011 and 
+2014.  Among other functions, Alcon Singapore provided management oversight over two Alcon 
+representative offices in Vietnam (collectively, “Alcon Vietnam”).  Alcon Singapore’s and Alcon 
+Vietnam’s financial statements were consolidated with those of Novartis during the relevant 
+period. 
+ 
+FACTS 
+ 
+Conduct Relevant to Greece 
+ 
+9. From approximately 2012 through 2015, Novartis Greece engaged in a scheme to 
+corruptly provide improper benefits and things of value to HCPs, including employees of state-
+owned and state-controlled hospitals and clinics, to obtain an improper advantage and to increase 
+sales of Lucentis in Greece.  In addition, from approximately 2009-2012, Novartis Greece 
+conducted certain Phase IV and epidemiological studies that were primarily designed to promote 
+sales of Novartis products in Greece, resulting in improper payments to HCPs. 
+ 
+10. The misuse of seemingly legitimate educational and scientific activities for 
+improper purposes included the Novartis Greece Ophthalmology franchise (“Ophtha”), and was 
+known and approved by Novartis Greece Ophtha managers of various levels, including brand 
+managers and sales managers, who provided guidance to subordinate staff on the use of 
+“investment” activities.  Novartis Greece improperly recorded the payments related to these 
+activities as legitimate advertising and promotion or marketing and sales expenses.   
+  
+ 4 
+11. Certain Novartis Greece Ophtha employees ranked HCPs by their prescribing 
+product preference and volume and, based upon their likelihood to prescribe, provided them with 
+improper inducements as “investments” to increase their use of Novartis products.  This was 
+internally described as a return on investment ("ROI"), and sales and marketing staff were 
+encouraged to plan their activities so as to maximize ROI.  In strategy planning documents within 
+the Ophtha business franchise, sales staff remarked that HCPs were reminded of their investment 
+and obligation to prescribe.  If an HCP was not meeting their return on investment, investment 
+activities were reduced or eliminated.   
+ 
+12. Novartis Greece’s Ophtha franchise misused international congress sponsorships to 
+induce HCPs to write prescriptions for Lucentis, a drug sold by Novartis Greece that was used to 
+treat neovascular (wet) age-related macular degeneration, among other indications.  Novartis 
+Greece targeted Greek HCPs that it designated Key Opinion Leaders (“KOLs”) and paid their costs 
+to attend the congresses, many of which exceeded $5,000 per HCP.  Internal documents written by 
+members of Novartis Greece Ophtha franchise and minutes of meetings within the ophthalmology 
+business discussed use of international congresses, including to the United States, to “undermine [a 
+competitor company’s] aggressive congress policy,” and described the need to increase pressure on 
+HCPs to prescribe Lucentis, including stating that HCPs “must understand that their participation 
+in [specific congresses in the United States and Europe] will be cancelled if sales performance is 
+not improved significantly.”  An internal document went on to describe that Novartis Greece sales 
+representatives “must make clear to their [HCP] customers that Lucentis is facing real difficulties 
+in the market and for this reason there will be serious consequences.”  In his 2013 Action Plan, the 
+Novartis Greece Ophtha KOL manager wrote that he would convey to one ophthalmology KOL, 
+“to get you must write.  No presents any more.”   
+ 
+13. In certain instances, sales representatives also demanded that KOLs agree to “NON 
+USE of [a competitor’s product and] TOTAL COOPERATION,” in exchange for Novartis Greece 
+considering “DOUBLING THE GIFT IN 2014.”  Those Greek HCPs that were perceived to have a 
+lower potential to prescribe Novartis drugs, and thus lower potential ROI, were excluded from 
+obtaining sponsorships and other ostensibly educational and scientific activities. 
+ 
+14.  Novartis Greece also engaged in improper conduct with respect to Phase IV and 
+epidemiological studies.  The Phase IV clinical studies were supposed to be used to assess the 
+safety and efficacy of the studied prescription drug with a publication announcing the results of the 
+study in order to inform medical decisions.  In a phase IV clinical study, HCPs are selected by 
+Novartis’ Medical Affairs group.  However, in certain instances, sales personnel made the selection 
+of HCPs to participate in order to inappropriately promote particular products or induce HCPs to 
+increase prescription sales.   
+ 
+15. As described in a 2012 Novartis Internal Audit review of the phase IV studies 
+conducted by Novartis Greece, there was a lack of transparency outside of the Medical Affairs 
+function in the planning, design, and execution of clinical studies in Greece, and it determined that 
+weaknesses in process and control design in execution did not ensure that the studies were of a 
+non-promotional nature.  The review identified numerous control deficiencies surrounding Phase 
+IV studies conducted in Greece, including (1) unsupported medical or scientific rationale to 
+ 5 
+perform the studies; and (2) indications the studies were promotional and designed to achieve 
+commercial advantage.  Internal audit also found controls weaknesses in the collection of data and 
+publication of study results.  In response to the internal audit review, Novartis Greece agreed to 
+engage in a remediation plan, and to improve the Finance Department’s oversight of clinical 
+studies.   
+ 
+16. Internal audit reported its findings to Novartis corporate security, which conducted 
+its own review in 2012.  Among the studies that Novartis corporate security reviewed were 
+EXACTLY related to the products Diovan, Exforge, and Rasilez; OBVIOUS related to product 
+Aclasta; and REGINA related to product Xolair.  Novartis corporate security had similar findings.  
+In summary, corporate security found weak scientific rationales for several clinical studies, 
+suggesting that some clinical studies were used primarily, and inappropriately, as a marketing tool 
+to increase sales of Novartis products.  Corporate security also found control weaknesses that made 
+it difficult to ensure that HCPs were paid the correct amounts for their participation in the clinical 
+studies.  For example, in the EXACTLY study, approximately four times as many HCP names 
+were submitted to the local health authority than actually received payments.  Additionally, some 
+payments were made to HCPs using a vendor named “dummy vendor.” 
+ 
+17. Of the patient medical information submitted on 42,000 clinical research forms, 
+25,500 forms had mistakes.  Further, an audio recording of a debrief following the EXACTLY 
+study showed that some Novartis Greece employees were aware that some HCPs who participated 
+in EXACTLY believed that they were obtaining payments in return for their prescriptions of 
+Novartis products and not for their role in the study.  For instance: 
+ 
+ “you all know this very well, I just repeat, that the doctor believes that he/she 
+participates in a study and gets paid for what he prescribes in reality and not for 
+what he/she write in the study…” 
+ “To be honest, the studies were conducted in a similar way in the past as well; they 
+were conducted as marketing projects.  That’s within quotation markes.  Between 
+us.” 
+ 
+18. From the perspective of Novartis Greece’s Finance Department, clinical studies 
+were a “black box,” in that the Finance Department lacked visibility into clinical study budgets and 
+due to a lack of internal accounting controls there was no proper reconciliation between budget and 
+actual spend.  Moreover, in some instances, because of deficiencies in Novartis Greece’s internal 
+accounting and supplier management controls, Novartis Greece used “dummy vendors” to try to 
+track which HCPs were paid for which studies and to monitor payments relative to the approved 
+budget.  Some HCPs received approximately 60 euros (then approximately $83 USD) per patient 
+clinical form and some received as much as 38,000 euros (then approximately $52,820 USD) for 
+completing clinical forms.  A follow-up Internal Audit review in 2013 concluded that Novartis 
+Greece addressed many of the deficiencies identified in the 2012 review.  Over the next several 
+years, Novartis Greece reduced the number of local Phase IV studies it performed and eventually 
+stopped conducting them altogether. 
+ 
+ 6 
+19. As described in a 2013 Novartis Internal Audit review, Novartis Greece also lacked 
+sufficient controls around grants provided to HCPs, and they were sometimes provided without 
+complete due diligence of the recipient, without clear details regarding the use of the funds, and in 
+circumstances where there was an improper connection to sales strategies.  In response to the 
+internal audit review, Novartis Greece agreed to improve internal controls over the grant approval 
+and governance processes. 
+ 
+20. During the relevant period, Novartis was unjustly enriched byover $70.1 million 
+from sales in Greece of Lucentis and products related to the OBVIOUS and REGINA studies. 
+ 
+Conduct Relevant to Alcon Vietnam 
+ 
+21. Alcon conducted its business operations in Vietnam through two representative 
+offices (collectively “Alcon Vietnam”).  Alcon Vietnam’s management and financial reporting  
+were overseen by the regional management team of Alcon Singapore, which was an indirect 
+wholly-owned subsidiary of Novartis.  In light of local laws, Alcon Vietnam conducted all sales 
+and marketing activities of Alcon surgical equipment (e.g., phacoemulsification and refractive 
+surgery lasers) and consumables (e.g., intraocular lenses (“IOLs”)) through a Vietnamese 
+distributor (“Distributor Company”).  Under a 2006 distributorship agreement, the Distributor 
+Company was guaranteed a margin of 24.7% for “importation, technical service, product 
+registration, and distribution services.”   
+ 
+22. Beginning in approximately 2007 and continuing into 2014, Alcon Vietnam and 
+Distributor Company engaged in a scheme to make improper payments to HCPs, both private and 
+publicly employed at Vietnam state-owned and state-controlled hospitals and clinics, to increase 
+the sale of Alcon’s IOLs.  In connection with the scheme, from 2008 to late 2011, the Distributor 
+Company implemented a “consultancy program” through which it paid bribes to HCPs in 
+exchange for their agreement to recommend the benefits of Alcon products to patients and thereby 
+increase sales of Alcon products.  Distributor Company made the improper payments directly to 
+the HCPs with the approval of Alcon Vietnam managers and employees, who reimbursed 
+Distributor Company for up to 50 percent of the costs associated with the payments through the 
+use of credit notes.  
+ 
+23. Alcon Vietnam personnel and Distributor Company coordinated the amounts of the 
+improper payments to HCPs through the consultancy program and also coordinated which types of 
+doctors to target for the payments.  For example, in July 2008 the Distributor Company proposed 
+payments to, “Doctor in consult[ation] room,” “Doctor in the exam room,” “Nurse in 
+consult[ation] room,” “and the “Chief of [Operating Room] in certain eye hospitals in Vietnam.  
+Other communications made clear that the purpose of the payments was to “encourage[] doctors to 
+introduce and use Alcon’s IOLs and … speed up IOLs sales.”   
+ 
+24. Following the 2011 merger of Novartis and Alcon, Novartis failed to take sufficient 
+steps to ensure the improper payments to HCPs halted.  After 2011, the program was instead 
+revised and referred to by different names (e.g., “patient education”), and Distributor Company’s 
+payments to HCPs continued.  For example, a profit-and-loss statement provided by the Distributor 
+ 7 
+Company to Alcon Vietnam Representative Office personnel in June 2014 showed a line item for 
+“[c]onsultant cost” through mid-2014.  Despite awareness by some personnel at the representative 
+offices of ongoing payments to HCPs by Distributor Company, Alcon Vietnam approved 
+Distributor Company’s inflated requests to Alcon Vietnam for reimbursement for marketing, 
+human resources, and margin reconciliation funds. 
+ 
+25. Up until June 2014, Alcon Vietnam allowed for the Distributor Company to be paid 
+annually as partial reimbursement for payments that it made to HCPs (for instance, reimbursing up 
+to approximately $180,000 in 2010, and up to $100,000 in 2013 and 2014), pursuant to the 
+consultancy program and the post-2011 variations of the program. 
+ 
+26. During a phone call in or around late summer 2014, a Distributor Company 
+executive told an Alcon Singapore executive that it had used up all of its funds to pay for Alcon 
+surgical equipment and could no longer pay the “usual considerations” to HCPs to ensure they 
+purchased Alcon products.  A former Alcon Singapore executive who was aware of the improper 
+payments signed and transmitted two false Sarbanes-Oxley sub-certification letters to Alcon’s 
+Chief Executive Officer and Chief Financial Officer in which the executive did not  identify the 
+improper reimbursements to the Distributor Company.  The payments were falsely recorded as 
+legitimate consultant payments in the consolidated books and records of Novartis.  
+ 
+27. During the relevant period, Novartis was unjustly enriched by approximately $8.4 
+million as a result of improper conduct in Vietnam. 
+ 
+Conduct Relevant to Korea 
+ 
+28. Between 2011 and August, 2016, Novartis Korea employees made corrupt 
+payments to HCPs to increase prescriptions and sales of Novartis products over that of its 
+competitors.  These payments were made through one of several means, and each of which was 
+improperly recorded in Novartis’ consolidated books and records.  One scheme to make improper 
+payments to HCPs was disguised as payments made for ostensible medical journal activities 
+organized by a third party vendor.  Under local law, pharmaceutical companies are prohibited from 
+making any type of payment directly to HCPs for the purpose of promoting sales.  One intent of 
+the local restriction was to discourage pharmaceutical companies from concentrating more on 
+marketing and promotional activities towards HCPs rather than on competition based on product 
+quality through research and development.   
+ 
+29. In an effort to circumvent local law, certain employees of Novartis Korea made the 
+improper payments to HCPs via certain third-party medical journals that forwarded the payments 
+to the HCPs for participating in roundtable meetings organized by the medical journal.  Novartis 
+Korea sales personnel selected HCPs to participate in editorial and roundtable meetings, at some of 
+which Novartis Korea sales representatives marketed Novartis products, and some meetings were 
+followed by recreational activities with the HCPs.   
+ 
+30. HCPs who participated in the round-table meetings received honoraria in amounts 
+ranging from $268 to $447 USD per event, and the amount of fees paid to HCPs averaged $2550 
+ 8 
+USD per journal.  The honoraria came from advertising fees Novartis Korea paid to the medical 
+journals and were improperly recorded in the books and records as such.  Novartis Korea paid the 
+medical journals over $16.3 million between 2011 and 2015, some of which was improperly 
+passed on to HCPs as honoraria.  As these events were conducted through a vendor, they were not 
+subjected to compliance review as otherwise required by Novartis’ policies.   
+ 
+31. For the conduct described above, the Korean Ministry of Health and Welfare and 
+the Korean Ministry of Food and Drug Safety imposed in 2017 civil administrative fines totaling 
+approximately $50.3 million USD on Novartis Korea and suspended sales and reimbursements of  
+certain Novartis products for 3-6 months.  In 2020, criminal proceedings by the South Korean 
+authorities against Novartis Korea and several former Novartis Korea employees found Novartis 
+Korea and one of its former sales staff guilty for the same conduct, and Novartis Korea was fined 
+approximately $35,000 USD. 
+ 
+32. In another scheme, Novartis Korea sales managers and employees organized the 
+sponsorship of HCPs to international medical conferences as an inducement for HCPs to increase 
+their prescriptions of Novartis products.  Between 2011 and August 2016, Novartis Korea provided 
+funding for 2,032 HCPs to attend 381 international conferences at a combined cost of 
+approximately $7 million.  Of those conferences, 645 HCPs attended 112 conferences in the 
+United States at a cost of approximately $2.5 million.  The types of conferences varied across 
+therapeutic area, including oncology, cardiometabolic, neuroscience, and ophthalmology.  As a 
+result of internal accounting controls weaknesses, certain of these ostensibly legitimate congress 
+sponsorship fees were used to improperly influence HCPs.  In connection with some congresses, 
+Novartis Korea employees took into account the prescription sales activities of certain HCPs when 
+targeting them for sponsorships in an effort to encourage the HCPs to increase their prescriptions.   
+ 
+33. Novartis Korea incorrectly recorded the improper payments on its books and 
+records as legitimate advertising and promotional fees.  Novartis Korea failed to have in place a 
+control system reasonably designed to ensure that its sales staff were not using sponsorships as 
+improper inducements.  Novartis Korea also failed to have adequate internal accounting controls 
+over its payments for these trips.  In June 2017, Novartis Korea was charged and fined 
+approximately $446,000 by the Korea Fair Trade Commission with unfair trade practices for the 
+conduct described above.   
+ 
+34. In yet a third scheme, Novartis Korea employees in the neuroscience business unit 
+devised a local non-interventional clinical study with 17 pre-selected HCPs to improve 
+relationships with those HCPs.  The study was organized in May 2013 through a local medical 
+journal with Novartis Korea providing the list of HCPs to participate and the $100,000 funding 
+necessary to complete the study.  Novartis Korea recorded the funding to complete the study as 
+advertising expenses and failed to have the study reviewed and approved by medical affairs as 
+required by internal procedures.   
+ 
+35. Over the relevant time period, Novartis was unjustly enriched  by over $13.8 
+million from the improper conduct in Korea. 
+ 
+ 9 
+Conduct Relevant to Alcon Asia 
+ 
+36. In 2011, Novartis merged with Alcon, which until that time had publicly traded 
+securities in the United States.  After the merger, Novartis operated Alcon as a separate reporting 
+segment through which it sold vision care equipment and other products, such as IOLs and other 
+consumables.  
+ 
+37.  From 2013 to 2015, within Novartis’ Alcon Asia business, including its  operations 
+in China, employees placed Alcon surgical equipment at hospitals or clinics for no or little money 
+down in exchange for contractual assurances that those hospitals or clinics would either pay for the 
+equipment directly or finance it over several years through payments associated with the purchase 
+of Alcon’s IOLs and consumables during the contract’s term.  
+ 
+38. This business model was in place both before and after Novartis merged with 
+Alcon, and it facilitated long-term relationships between Alcon and its customers.  Beginning in 
+2013, Alcon called these agreements “equipment financing arrangements” (i.e., EFAs).  Certain 
+Alcon Asia managers used aggressive sales techniques and employees in China at times falsified 
+documents in order to enter into these EFAs. Novartis lacked adequate internal accounting controls 
+to ensure the appropriate accounting treatment for the arrangements and to appropriately record the 
+transactions in its books and records. 
+    
+39. Before 2013, Novartis generally accounted for Alcon’s equipment placement 
+agreements as operating leases, and recognized associated revenue as payment was received, 
+whether on the equipment or on associated sales of Alcon IOLs and/or consumables.  In 2013, 
+Novartis generally started accounting for Alcon’s EFAs as finance leases or sales, recognizing 
+revenue up front at the time of placement (after installation and training). 
+ 
+40. Novartis lacked sufficient internal accounting controls needed in light of the 
+degree of accounting, contractual, and financial complexity presented by EFAs.  For 
+example, in connection with Alcon EFA’s in China, Novartis lacked appropriate internal 
+accounting controls to ensure that a written instrument reflected the terms negotiated with a 
+hospital, that agreements were signed or “chopped” by the counterparty hospital, and that 
+agreements contained the price of consumables to be purchased or the premium to be paid.  
+Other controls issues existed with respect to Alcon China’s credit assessments of 
+counterparty hospitals, allowances for bad debt established at inception, compliance billing, 
+equipment repossession, proof of delivery or installation and completion of required 
+training associated with EFAs.   
+ 
+41. Particularly in markets such as China, where the customer base of Alcon’s 
+local subsidiary (“Alcon China”) was dominated by public hospitals and state HCPs, EFAs 
+presented issues of validity, profitability, and misaligned incentives.  A significant portion 
+of Alcon’s surgical sales in China were derived from EFAs  with state HCPs.     
+ 
+42. After the switch to finance lease accounting, sales personnel – who until mid-2015 
+were compensated, in part, based upon the amount of equipment placed under EFAs rather than 
+ 10 
+upon how EFAs ultimately performed – entered into certain EFAs that did not satisfy relevant 
+revenue recognition criteria or that inaccurately projected future IOL and/or consumable purchases.  
+Despite knowing that customers’ “compliance rates” with respect to EFA contractual purchase 
+obligations were sometimes very low, Alcon China continued entering into certain EFAs that 
+lacked adequate profitability safeguards. 
+   
+43. In late 2015, a new management team of Alcon China initiated a 
+comprehensive review of most equipment placed in hospitals and clinics and the associated 
+contractual paperwork.  The on-site check was completed in the summer of 2016 and 
+revealed that of the 1348 pieces of equipment in scope (with about 700 customers) that 844 
+pieces of equipment had been placed pursuant to 466 contracts, with which Alcon China 
+had identified potential issues.  Nearly half of the 844 pieces of equipment in question had 
+been placed pursuant to contracts that lacked a formal hospital “chop” but had been 
+validated by the hospital; the remaining pieces of equipment either could not be located, 
+had been moved to other hospitals, or were obtained pursuant to forged or unverified  
+contracts.  Group, Division, region, and local management became aware of the controls 
+deficiencies through various internal audit reports, remediation exercises, and local 
+financial certifications, including the 2016 internal audit of Alcon China, which resulted in 
+a “Needs Major Improvement” rating for the second consecutive audit. 
+ 
+44. Over time, efforts to ensure that EFAs in China were properly executed and 
+recorded were unsuccessful, and Novartis management became aware of EFA-related controls 
+deficiencies.  As described by a senior Alcon executive in a letter to several senior Novartis 
+executives in response to a 2016 internal audit,  
+ 
+A historically high pressure sales culture that prioritized meeting sales targets over 
+compliance and a high tolerance of unacceptable risks still persists residually in the 
+organization.  A very poorly executed legal EFA remediation exercise characterized 
+by high pressure and coercion to obtain remediated contracts resulted in a large 
+number of fraudulent, falsified, invalid and unenforceable contracts.  This resulted 
+in a number of non-performing EFAs that are difficult to remediate commercially 
+as the underlying agreement itself is in question. 
+ 
+The letter observed that “[d]eveloping a strong compliance culture requires a 
+comprehensive program and holistic approach with clear commitment from senior management” 
+and then laid out the specific actions that Alcon’s new management team intended to take in late 
+2016 to implement enhanced compliance processes to address the historical issues.   
+ 
+45. During the relevant period, Novartis and Alcon attempted to strengthen controls to 
+address these issues through various remediation exercises.  Novartis and Alcon ultimately 
+abandoned the EFA business model for surgical sales in China and moved to a cash-sale business 
+model beginning in late 2016.  The lack of appropriate internal accounting controls throughout the 
+relevant period contributed to Novartis and Alcon ultimately provisioning over $50M in bad debt 
+due to the poor performance of its EFAs in China. 
+ 
+ 11 
+Legal Standards and Violations 
+ 
+           46. Under Section 21C of the Exchange Act, the Commission may impose a cease-and-
+desist order upon any person who is violating, has violated, or is about to violate any provision of 
+the Exchange Act or any rule or regulation thereunder, and upon any other person that is, was, or 
+would be a cause of the violation, due to an act or omission the person knew or should have known 
+would contribute to such violation. 
+ 
+         47. As a result of the conduct described above, Novartis violated Section 13(b)(2)(A) of 
+the Exchange Act, which requires issuers that have a class of securities registered pursuant to 
+Section 12 of the Exchange Act and issuers with reporting obligations pursuant to Section 15(d) of 
+the Exchange Act to make and keep books, records, and accounts which, in reasonable detail, 
+accurately and fairly reflect their transactions and disposition of their assets.  [15 U.S.C. § 
+78m(b)(2)(A)]. 
+ 
+48. As a result of the conduct described above Novartis violated Section 13(b)(2)(B) of 
+the Exchange Act, which requires issuers that have a class of securities registered pursuant to 
+Section 12 of the Exchange Act and issuers with reporting obligations pursuant to Section 15(d) of 
+the Exchange Act to devise and maintain a system of internal accounting controls sufficient to 
+provide reasonable assurances that (i) transactions are executed in accordance with management’s 
+general or specific authorization; (ii) transactions are recorded as necessary (I) to permit 
+preparation of financial statements in conformity with generally accepted accounting principles or 
+any other criteria applicable to such statements, and (II) to maintain accountability for assets; (iii) 
+access to assets is permitted only in accordance with management’s general or specific 
+authorization; and (iv) the recorded accountability for assets is compared with the existing assets at 
+reasonable intervals and appropriate action is taken with respect to any differences.  [15 U.S.C. § 
+78m(b)(2)(B)]. 
+ 
+Cooperation and Remediation 
+  
+49. In determining to accept the Offer, the Commission considered remedial acts 
+promptly undertaken by Respondent and cooperation afforded the Commission staff.  Novartis’ 
+cooperation included providing translations of certain relevant documents, making current or 
+former employees available to the Commission staff, and timely providing facts developed during 
+the course of its own internal investigation.  Novartis’ remediation included the termination of 
+select personnel and third-party entities involved in the misconduct and certain additions to and 
+strengthening of its internal accounting controls.  Novartis also retained a dedicated chief 
+compliance officer, improved its due diligence and business justification process for third parties, 
+and enhanced training provided to employees. 
+ 
+Undertakings 
+  
+50. Respondent shall report to the Commission staff periodically during a three-year 
+term, the status of its remediation and implementation of compliance measures, particularly as to 
+the areas of due diligence on prospective and existing third-party consultants and vendors, FCPA 
+ 12 
+training and the testing of relevant controls including the collection and analysis of compliance 
+data. During this period, should Respondent discover credible evidence, not already reported to 
+Commission staff, that questionable or corrupt payments or questionable or corrupt transfers of 
+value may have been offered, promised, paid, or authorized by Respondent, or any entity or person 
+acting on behalf of Respondent, or that related false books and records have been maintained, 
+Respondent shall promptly report such conduct to the Commission staff.  During this three-year 
+period, Respondent shall: (1) conduct an initial review and submit an initial report and (2) conduct 
+and prepare two follow-up reviews and reports, as described below: 
+ 
+a. Respondent shall submit to the Commission staff a written report within 360  
+calendar days of the entry of this Order setting forth a complete description of its 
+FCPA and anti-corruption related remediation efforts to date, its proposals 
+reasonably designed to improve the policies and procedures of Respondent for 
+ensuring compliance with the FCPA and other applicable anticorruption laws, and 
+the parameters of the subsequent review (the “Initial Report”). The Initial Report 
+shall be transmitted to Tracy L. Price, Deputy Chief, FCPA Unit, Division of 
+Enforcement, Securities and Exchange Commission, 100 F St., NE, Washington, 
+DC 20549-5631.  Respondent may extend the time period for issuance of the Initial 
+Report with prior written approval of the Commission staff. 
+ 
+b. Respondent shall undertake two follow-up reviews, incorporating any comments 
+provided by the Commission staff on the previous report, to further monitor and 
+assess whether the policies and procedures of Respondent are reasonably designed 
+to detect and prevent violations of the FCPA and other applicable anti-corruption 
+laws (the “Follow-Up Reports”). 
+ 
+c. The Follow-up Report shall be completed by no later than 720  days after the Initial 
+Report. The second Follow-up Report shall be completed by no later than 1050  
+days after the completion of the Initial Report. Respondent may extend the time 
+period for issuance of the Follow-up Reports with prior written approval of the 
+Commission staff. 
+ 
+d. The periodic reviews and reports submitted by Respondent will likely include 
+proprietary, financial, confidential, and competitive business information. Public 
+disclosure of the reports could discourage cooperation, impede pending or potential 
+government investigations and thus undermine the objectives of the reporting 
+requirement. For these reasons, among others, the reports and the contents thereof 
+are intended to remain and shall remain nonpublic, except (a) pursuant to court 
+order, (b) as agreed by the parties in writing, (c) to the extent that the Commission 
+staff determines in its sole discretion that disclosure would be in furtherance of the 
+Commission’s discharge of its duties and responsibilities, or (d) is otherwise 
+required by law. 
+ 
+e. During this three-year period of review, Respondent shall provide its external 
+auditors with its annual internal audit plan and reports of the results of internal audit 
+ 13 
+procedures and its assessment of its FCPA compliance policies and procedures. 
+ 
+f. During the three-year period of review, Respondent shall provide Commission staff 
+with any written reports or recommendations provided by Respondent’s external 
+auditors in response to Respondent’s annual internal audit plan, reports of the 
+results of internal audit procedures, and its assessment of its FCPA compliance 
+policies and procedures. 
+ 
+51. Certify, in writing, compliance with the undertaking(s) set forth above. The 
+certification shall identify the undertaking(s), provide written evidence of compliance in the form 
+of a narrative, and be supported by exhibits sufficient to demonstrate compliance. The Commission 
+staff may make reasonable requests for further evidence of compliance, and Respondent agrees to 
+provide such evidence. The certification and supporting material shall be submitted to Tracy L. 
+Price, Deputy Chief, FCPA Unit, Division of Enforcement, Securities and Exchange Commission, 
+100 F St., NE, Washington, DC 20549-5631 no later than sixty (60) days from the date of the 
+completion of the undertakings. 
+  
+Deferred-Prosecution Agreements 
+ 
+ 52. Novartis Hellas S.A.C.I., a Novartis subsidiary, has entered into a three-year 
+deferred prosecution agreement with the U.S. Department of Justice, in which it acknowledged 
+responsibility for criminal conduct relating to certain findings in the Order.  See United States v. 
+Novartis Hellas S.A.C.I, Crim No. 20-CR-538 (DNJ Jun 25, 2020) (SDW).  Alcon Pte Ltd, a 
+current subsidiary of Alcon Inc. and a former subsidiary of Novartis, independently entered into a 
+three-year deferred prosecution agreement with the U.S. Department of Justice, in which Alcon Pte 
+Ltd acknowledged responsibility for criminal conduct relating to certain findings in the Order.  See 
+United States v. Alcon Pte Ltd, Crim No. 20-CR-539 (DNJ Jun 25, 2020) (SDW). 
+ 
+Non-Imposition of a Civil Penalty 
+ 
+ 53. Novartis acknowledges that the Commission is not imposing a civil penalty based 
+upon the imposition of a $233,925,000 criminal fine as part of the above referenced resolutions 
+with the U.S. Department of Justice. 
+ 
+ 14 
+IV. 
+ 
+  
+ In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
+agreed to in Respondent Novartis’ Offer. 
+ 
+ Accordingly, it is hereby ORDERED that: 
+ 
+ A. Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from 
+committing or causing any violations and any future violations of Sections 13(b)(2)(A) and  
+13(b)(2)(B) of the Exchange Act. 
+ 
+B. Respondent shall comply with the und ertakings enumerated in paragraphs  50-51 
+above. 
+ 
+C. Respondent shall, within fourteen days of the entry of this Order, pay disgorgement 
+of $92,300,000 and prejudgment interest of $20,500,000 for a total of $112,800,000 to the 
+Securities and Exchange Commission for transfer to the general fund of the United States 
+Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not made, additional 
+interest shall accrue pursuant to SEC Rule of Practice 600. 
+  
+Payment must be made in one of the following ways:   
+ 
+(1) Respondent may transmit payment electronically to the Commission, which 
+will provide detailed ACH transfer/Fedwire instructions upon request;  
+ 
+(2) Respondent may make direct payment from a bank account via Pay.gov 
+through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
+ 
+(3) Respondent may pay by certified check, bank cashier’s check, or United 
+States postal money order, made payable to the Securities and Exchange 
+Commission and hand-delivered or mailed to:  
+ 
+Enterprise Services Center 
+Accounts Receivable Branch 
+HQ Bldg., Room 181, AMZ-341 
+6500 South MacArthur Boulevard 
+Oklahoma City, OK 73169 
+ 
+ 15 
+Payments by check or money order must be accompanied by a cover letter identifying 
+Novartis as a Respondent in these proceedings, and the file number of these proceedings; a copy of 
+the cover letter and check or money order must be sent to Tracy L. Price, FCPA Deputy Unit 
+Chief, Division of Enforcement, Securities and Exchange Commission, 100 F St., NE, 
+Washington, DC 20549-5631.   
+ 
+ 
+ By the Commission. 
+ 
+ 
+ 
+Vanessa A. Countryman 
+Secretary 
+ 
+