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UNITED STATES OF AMERICA
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In the Matter of SALVATORE T. MARINO, CPA Respondent |
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ORDER INSTITUTING PUBLIC PROCEEDINGS AND OPINION AND ORDER PURSUANT TO RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE |
I.
The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be, and hereby are, instituted against Salvatore T. Marino ("Marino"), a certified public accountant, pursuant to Rule 102(e)(3) of the Commission's Rules of Practice.1
II.
In anticipation of the institution of these public administrative proceedings, Marino has submitted an Offer of Settlement 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, except that he admits to the Commission's finding that a Final Judgment of Permanent Injunction and Other Relief ("Final Judgment") has been entered against him as set forth in Section III.C. below, and also admits the jurisdiction of the Commission over himself and over the subject matter of this proceeding, Marino consents to the entry of this Order Instituting Public Proceedings and Opinion and Order Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").
III.
On the basis of this Order and Marino's Offer of Settlement, the Commission makes the following findings:
A. Marino, age 48, is and has been a certified public accountant licensed to practice in the State of New York since 1977. He previously served as the Chief Financial Officer of Spectrum Information Technologies, Inc. ("Spectrum"). Marino has practiced before the Commission within the meaning of Rule 102(f) of the Commission's Rules of Practice in connection with the preparation of Spectrum's financial statements and other documents.
B. Spectrum was a publicly held company headquartered in Manhasset, New York. Spectrum's common stock was registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") and traded on the NASDAQ system. During 1992 and 1993 Spectrum held patents that it maintained covered technology that made it possible to transmit data over cellular telephone networks. Spectrum was also engaged, through its subsidiaries, in various aspects of the computer industry during 1992 and 1993.
C. On December 3, 1997, the Commission filed a complaint against Marino in Securities and Exchange Commission v. Peter T. Caserta, Salvatore T. Marino and Dana C. Verrill ("SEC v. Caserta") in United States District Court for the Eastern District of New York, under case number 97 Civ. 7091(FB)(ARL). On May 24, 2001, Marino consented to the entry of the Final Judgment in SEC v. Caserta, without admitting or denying the allegations in the complaint, except as to jurisdiction, which he admitted. On August 21, 2001 the United States District Court for the Eastern District of New York entered the Final Judgment, which:
(1) permanently restrains and enjoins Marino from violating Sections 17(a) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77q(a)], Section 10(b) of the Exchange Act [15 U.S.C. § 78j(b)] and Rules 10b-5 and 13b2-1 thereunder [17 C.F.R. §§ 240.10b-5, 240.13b2-1]; and
(2) permanently restrains and enjoins Marino from aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act [15 U.S.C. §§ 78m(a) and 78m(b)(2)(A)] and Rules13a-13 and 12b-20 thereunder [17 C.F.R. §§ 240.13a-13 and 240.12b-20].
D. The Commission's complaint filed in SEC v. Caserta alleges, among other things, as follows: Marino participated with others in a scheme to inflate Spectrum's financial results and the price of its common stock. Between May 1993 and November 1993, Marino and others fraudulently overstated the worth of three license agreements that Spectrum had negotiated. The complaint alleges that in order to convince the public and other potential licensees of the value of Spectrum's patented technology, Marino and Spectrum's President and Chief Executive Officer set out to obtain "seven figure" licensing fees from Megahertz Corporation, Apex Data Corporation and U.S. Robotics, Inc. However, when each prospective licensee refused to pay seven figures to license Spectrum's technology, Marino and others at Spectrum conceived and implemented a cash in/cash out scheme whereby the vast majority of the "seven figure" fees to be paid by the licensees would be offset by equal payments from Spectrum to the licensees under companion advertising agreements. After the agreements were signed, Marino participated in the issuance of false and materially misleading press releases that touted the licensing fees without disclosing to the investing public that theses fees would be offset by Spectrum's financial obligations under the companion advertising agreements.
The complaint further alleges that, under Marino's direction, Spectrum improperly accounted for the "seven-figure" licensing fees as revenue and profits, and incorporated this improper accounting treatment in Spectrum's filings with the Commission on its Forms 10Q for the quarters ended June 30, 1993 and September 30, 1993. Because of the improper accounting treatment, Spectrum was able to report a profit of $410,244 rather than a net loss of more than $2 million for the quarter ended June 30, 1993. With respect to the quarter ended September 30, 1993, the improper accounting treatment allowed Spectrum to materially overstate its income by a least $1,250,000 and thereby report a profit of $646,374. After each of the above noted Forms 10Q were filed, Marino participated in the issuance of press releases that falsely stated that Spectrum had experienced profitable quarters.
The Complaint further alleges that Marino and others caused Spectrum to file on December 1, 1993, a registration statement on Form S-8 which incorporated by reference the false and misleading Forms 10-Q.
As outlined in the Complaint, Marino benefited from the scheme by exercising options and selling Spectrum stock while in possession of the material nonpublic information that Spectrum's technology was not worth what Spectrum's filings and press releases claimed it to be, and that Spectrum continued to experience significant losses during the two quarters for which Spectrum had improperly reported a profit. Marino avoided significant financial loss by trading while in possession of this material, nonpublic information.
IV.
Based on the foregoing, the Commission deems it appropriate to accept the Offer of Settlement submitted by Marino and accordingly,
IT IS HEREBY ORDERED, effective immediately, that Marino is suspended from appearing or practicing before the Commission as an accountant.
By the Commission.
Jonathan G. Katz
Secretary
| 1 | Paragraph (3) of Rule 102(e) provides, in relevant part, that:
...(i) The Commission, with due regard to the public interest...may...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. |
http://www.sec.gov/litigation/admin/34-44761.htm
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