S. E. C.



567 F.Supp. 724 (N.D. Ga. 1983)




VINING, DISTRICT JUDGE. This is a securities fraud action in which the Securities and Exchange Commission (SEC) seeks a permanent injunction against World-Wide Coin Investments, Ltd. (World-Wide) and the individual defendants as well as an order for a full accounting and disclosure of wrongfully received benefits. .

. .


World-Wide Coin Investments, Ltd., is a Delaware corporation with its principal offices in Atlanta, Georgia, and is engaged primarily in the wholesale and retail sale of rare coins, precious metals, gold and silver coins, bullion, and, until 1979, in the retail sale of camera equipment. Its operations also include the sale of Coca-Cola collector items and certain commemorative items. Its inventory of rare coins comes from its purchases of collections from estates and private individuals, purchases from dealers, purchases

on domestic commodities exchanges, and purchases at coin shows.


The Foreign Corrupt Practices Act, 15 U. S. C. 5 78m(b)(2) (Amend. 1977) ("FCPX') was enacted by Congress as an amendment to the 1934 Securities Exchange Act and was the legislative response to numerous questionable and illegal foreign payments by United States corporations in the 1970's. Although one of the major substantive provisions of the FCPA is to require corporate disclosure of assets as a deterrent to foreign bribes, the more significant addition of the FCPA is the accounting controls or "books and records" provision, which gives the SEC authority over the entire financial management and reporting requirements of publicly held United States corporations.


The FCPA was enacted on the principle that accurate recordkeeping is an essential ingredient in promoting management responsibility and is an affirmative requirement for publicly held American corporations to strengthen the accuracy of corporate books and records, which are "the bedrock elements of our system of corporate disclosure and accountability."


The FCPA reflects a congressional determination that the scope of the federal securities laws and the SEC's authority should be expanded beyond the traditional ambit of disclosure requirements. The consequence of adding these substantive requirements governing accounting control to the federal securities

laws will significantly augment the degree of federal involvement in the internal management of public corporations.


Section 13(b)(2) contains two separate requirements for issuers in complying with the FCPA's accounting provisions: (1) a company must keep accurate books and records reflecting the transactions and

dispositions of the assets of the issuer, and (2) a company must maintain a reliable and adequate system of internal accounting controls. In applying these two separate requirements to the instant case, the court will examine the requirements of each provision and the problems inherent in their interpretation.


The "books and records" provision, contained in section 13(b)(2)(A) of the FCPA has three basic objectives: 1) books and records should reflect transactions in conformity with accepted methods of reporting economic events. (2) misrepresentation, concealment, falsification, circumvention, and other deliberate acts resulting in inaccurate financial books and records are unlawful, and (3) transactions should be properly reflected on books and records in such a manner as to permit the preparation of financial statements in conformity with GAM and other criteria applicable to such statements.


The second branch of the accounting provisions-the requirement that issuers maintain a system of internal accounting controls-appears in section 13(b)(2)(B). Like the recordkeeping provisions of the Act, the internal controls provision is not limited to material transactions or to those above a specific dollar amount. While this requirement is supportive of accuracy and reliability in the auditor's review and financial disclosure process, this provision should not be analyzed solely from that point of view. The internal controls requirement is primarily designed to give statutory content to an aspect of management stewardship responsibility, that of providing shareholders with reasonable assurances that the business is adequately controlled.


The evidence in this case reveals that World-Wide, aided and abetted by Hale and Seibert, violated the

provisions of section 13(b)(2) of the FCPA. As set forth in the factual background portion of this order, the internal recordkeeping and accounting controls of World-Wide has been sheer chaos since Hale took over control of the company. For example, there has been no procedure implemented with respect to writing checks:

employees have had access to presigned checks; source documents were not required to be prepared when a check was drawn; employees have not been required to obtain approval before writing a check, and, even when a check was drawn to "cash," supporting documentation was usually not prepared to explain the purpose for which the check was drawn. In addition to extremely lax security measures such as leaving the vault unguarded, there has been no separation of duties in the areas of purchase and sales transactions, and valuation procedures for ending inventory. Furthermore, no promissory notes or other supporting documentation has been prepared to evidence purported loans to World-Wide by Hale or by his affiliate companies.


Since Hale obtained control of World-Wide, employees have not been required to write source documents relating to the purchase and sale of coins, bullion, or other inventory. Because of this total lack of an audit trail  with respect to these transactions and the disposition of World-Wide's assets, it has been virtually impossible to determine if an item has been sold at a profit or at a loss. Furthermore, there are

more than $1,700,000 worth of Checks drawn to Hale or to Hale's affiliates, or to cash, for which no adequate source documentation exists. Furthermore, Hale and Seibert knew that the medallions that were sold to World-Wide by Hale in 1979 were overvalued and unmarketable. Even so, they allowed the incorrect value of the medallions to be entered on the books of World-Wide. They also knew that the company's books and records were neither accurate nor complete. Pursuant to their directives, source documents were not prepared with respect to the transfer of funds; additionally, no audit trail was maintained for the acquisition and disposition of inventory. Furthermore, it appears that there were numerous false and misleading statements and omissions in the company's numerous reports to the SEC, many of which were filed late or not at all.


[judgment for the SEC.]