Rich and Wealth

Application Examples

To demonstrate how the SEC applies the aforementioned sections and rules of the 1934 Act, specific details of three enforcement actions are provided. The companies involved are America Online, Inc., FastComm Communications Corp., and System Software Associates, Inc.

America Online, Inc. In an AAER dated May 2000, the commission accepted an offer of settlement from America Online, Inc. (AOL), to “cease and desist from causing any violations, and any future violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.”53 AOL made the settlement offer without admitting or denying the SEC’s allegations. During its 1995 and 1996 fiscal years, AOL had been capitalizing certain direct advertising costs that the commission felt should have been expensed as incurred. After a lengthy discussion of the facts of the case, the SEC noted that AOL’s capitalization policy made the company’s financial statements inaccurate and not in compliance with generally accepted accounting principles. Moreover, because the company’s policy resulted in the recording as an asset advertising costs that should not be reported as such, books, records, and accounts that accurately reflect the transactions and dispositions of its assets were not being maintained. Collectively, according to the SEC, these actions violated Sections 13(a) and 13(b)(2)(A) and Rules 13a-1 and 13a-13 of the 1934 Act.

FastComm Communications Corp. In an AAER dated September 1999, the SEC charged that FastComm Communications Corp. “engaged in two transactions that led to the fraudulent recognition of revenue in certain of the Company’s financial statements during 1993 and 1994.”54 According to the SEC, these transactions were entered into with the knowledge and participation of its former vice president of contracts and administration, Charles DesLaurier. In the first transaction, “FastComm recognized $185,000 in revenue on a sale of telecommunications products that were not completely assembled and not fully functional as originally shipped, and that a certain number were packaged and shipped after the close of the fiscal quarter.”55 In the second transaction, the SEC noted:

Taken From : The Financial Numbers Game