U.S. Securities and Exchange Commission

Securities Exchange Act of 1934
Release No. 46627 / October 9, 2002

Accounting and Auditing Enforcement
Release No. 1646 / October 9, 2002

Administrative Proceeding
File No. 3-9793

The Commission issued the attached order on July 18, 2002 in the matter of Jean-Paul Bolduc, et al.

Administrative Proceeding
File No. 3-9793

United States of America
before the
Securities and Exchange Commission

July 18, 2002

On July 2, 1999, an administrative law judge granted a motion by Robert W. Armstrong, a vice president and controller from 1985 to 1997 of National Medical Care, Inc. ("NMC"), a wholly-owned subsidiary of W.R. Grace & Co. ("Grace"), to dismiss proceedings brought against him pursuant to Rule 102(e) of our Rules of Practice (the "Rule"). ¹ On November 4, 1999, we denied the application of the Division of Enforcement and the Office of the Chief Accountant (collectively, the "Division") for interlocutory review of the law judge's order dismissing proceedings, but determined to review the law judge's ruling on our own motion. ² We also had earlier granted the Division's motion for a partial stay of the hearing pending our consideration of the Division's appeal. ³

The Division alleges that, from 1991 to 1996, various Grace personnel, including Armstrong, manipulated and falsely reported the earnings of NMC, resulting in Grace making materially false and misleading statements in Commission filings and press releases, and at analyst teleconferences. Armstrong was charged with willfully violating, or causing violations of, Sections 10(b) and 13(b)(5) of the Exchange Act ⁴ and Exchange Act Rules 10b-5 and 13b2-1, ⁵ and causing violations of Sections 13(a) and 13(b)(2) of the Exchange Act ⁶ and Exchange Act Rules 12b-20, 13a-1, and 13a-13. 7⁷ Armstrong also was charged with "willfully violat[ing] the federal securities laws or the rules and regulations thereunder pursuant to Rule 102(e)(1)(iii) of the Commission's Rules of Practice, or engag[ing] in improper professional conduct by intentionally or recklessly engaging in conduct that resulted in a violation of applicable professional standards pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice." ⁸

Although Armstrong had been licensed as a certified public accountant ("CPA") in Massachusetts from 1977 to 1983, he allowed his CPA license to lapse in 1983 and never renewed it. Based on this fact, the law judge concluded that neither of the charged provisions of the Rule applied to Armstrong.

This is a complicated case, involving numerous parties and various provisions of the securities laws and accounting requirements. Under all the circumstances, we believe it would be premature at this point in the proceedings to determine the extent to which the Rule may apply to Armstrong. Rather, the parties should be permitted to develop before the law judge a record regarding all of the Division's allegations, including those relating to the Rule. ⁹ After that record is developed, Armstrong may renew his motion to dismiss proceedings under the Rule. We believe that consideration of such a motion should be substantially assisted by a more fully developed record. ¹⁰

We recognize that the parties' efforts to address the Rule 102(e) allegations may ultimately prove unnecessary in the event those allegations are dismissed based on the undisputed fact that Armstrong's license had lapsed. Nevertheless, we believe that, in light of the overlapping nature of the factual matters at issue, the resulting burden will not be excessive, and, in any event, is amply warranted by the importance of the issues involved.

Accordingly, it is ORDERED that the administrative law judge's order dismissing Exchange Act Rule 102(e) proceedings against Robert W. Armstrong III be, and it hereby is, set aside and the motion of Armstrong for dismissal is denied without prejudice to renewal after the close of the taking of evidence; and it is further

ORDERED that the partial stay issued on August 31, 1999 be lifted and that hearings in this matter be recommenced in accordance with the foregoing opinion.

By the Commission.

Jonathan G. Katz
Secretary

Endnotes

¹ 17 C.F.R. § 201.102(e).

² Jean-Paul Bolduc, Securities Exchange Act Rel. No. 42096 (Nov. 4, 1999), 70 SEC Docket 3224.

³ Jean-Paul Bolduc, Exchange Act Rel. No. 41812 (Aug. 31, 1999), 70 SEC Docket 1492.

⁴ 15 U.S.C. §§ 78j(b) and 78m(b)(5).

⁵ 17 C.F.R. §§ 240.10b-5 and 240.13b2-1.

⁶ 15 U.S.C. §§ 78m(a) and 78m(b)(2).

⁷ 17 C.F.R. §§ 240.12b-20, 240.13a-1, and 240.13a-13.

⁸ Rule 102(e) permits the Commission to "censure . . . or deny . . . the privilege of appearing or practicing before it . . . to any person who is found . . . (i) Not to possess the requisite qualifications to represent others; or (ii) To be lacking in character or integrity or to have engaged in unethical or improper professional conduct; or (iii) To have willfully violated . . . the Federal securities laws . . . ."

⁹ Among other things, the parties should address the question of, if Armstrong is subject to the Rule, the nature of any professional standards to which he was subject during the period at issue. Similarly, the parties should address whether Armstrong's actions constituted "appearing or practicing" before the Commission and whether they threatened the integrity of the Commission's processes.

¹⁰ Armstrong's motion for oral argument is denied. See 17 C.F.R. § 201.451.

http://www.sec.gov/litigation/admin/34-46627.htm