Securities And Exchange Commission v. Knapp

Filing 9

FINAL JUDGMENT AS TO DEFENDANT ARTHUR F. KNAPP, JR. Signed by Judge Beth Labson Freeman on 10/13/2015. (blflc3S, COURT STAFF) (Filed on 10/13/2015)

UNITED STATES DISTRICT COURT
NORTHERN DISTRICT OF CALIFORNIA
SAN JOSE DIVISION

SECURITIES AND EXCHANGE COMMISSION,
Plaintiff,

Case No. 5:15-cv-4598

v.
ARTHUR F. KNAPP, JR.
Defendant.

FINAL JUDGMENT AS TO DEFENDANT ARTHUR F. KNAPP, JR.
The Securities and Exchange Commission having filed a Complaint and Defendant
Arthur F. Knapp, Jr. (“Defendant” or “Knapp”) having entered a general appearance; consented
to the Court’s jurisdiction over Defendant and the subject matter of this action; consented to
entry of this Final Judgment without admitting or denying the allegations of the Complaint
(except as to jurisdiction); waived findings of fact and conclusions of law; and waived any right
to appeal from this Final Judgment:
I.
IT IS HEREBY ORDERED, ADJUDGED, AND DECREED that Defendant is
permanently restrained and enjoined from violating Sections 17(a)(2) and (3) of the Securities
Act of 1933 (the “Securities Act”) [15 U.S.C. §§ 77q(a)(2) and (3)] in the offer or sale of any
security by the use of any means or instruments of transportation or communication in interstate
commerce or by use of the mails, directly or indirectly:

(a)

to obtain money or property by means of any untrue statement of a material fact
or any omission of a material fact necessary in order to make the statements
made, in light of the circumstances under which they were made, not misleading;
or

(b)

to engage in any transaction, practice, or course of business which operates or
would operate as a fraud or deceit upon the purchaser.

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in
Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who
receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s
officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or
participation with Defendant or with anyone described in (a).
II.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
is permanently restrained and enjoined from violating Section 13(b)(5) of the Securities
Exchange Act of 1934 (“Exchange Act”) [15 U.S.C. § 78m(b)(5)] by knowingly: circumventing
a system of internal accounting controls; failing to implement a system of internal accounting
controls; or falsifying any book, record, or account described in Paragraph 2 of Section 13(b) of
the Exchange Act [15 U.S.C. § 78m(b)(2)].
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in
Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who
receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s
officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or
participation with Defendant or with anyone described in (a).
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III.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
is permanently restrained and enjoined from violating Rule 13b2-1 of the Exchange Act [17
C.F.R. § 240.13b2-1] by, directly or indirectly, falsifying, or causing to be falsified, any book,
record, or account subject to Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. §
78m(b)(2)(A)].
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in
Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who
receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s
officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or
participation with Defendant or with anyone described in (a).
IV.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is
permanently restrained and enjoined from violating Exchange Act Rule 13a-14 [17 C.F.R. §
240.13a-14], directly or indirectly, by falsely signing personal certifications indicating that he
has reviewed periodic reports containing financial statements that an issuer filed with the
Commission pursuant to Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a)], and that,
among other things, he designed internal control over financial reporting, or caused such internal
control over financial reporting to be designed under his supervision, to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in
Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who
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receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s
officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or
participation with Defendant or with anyone described in (a).
V.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
is permanently restrained and enjoined from aiding and abetting any violation of Section 13(a) of
the Exchange Act [15 U.S.C. § 78m(a)], and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder
[17 C.F.R. §§ 240.12b-20, 240.13a-1, 240.13a-11, and 240.13a-13], by knowingly or recklessly
providing substantial assistance to an issuer which has a class of securities registered pursuant to
Section 12 of the Exchange Act [15 U.S.C. § 78l], or that is required to file reports pursuant to
Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)], that files quarterly and annual reports
with the Commission on Forms 10-Q and Forms 10-K and current reports on Forms 8-K that are
inaccurate or that fail to contain material information necessary to make required statements, in
light of the circumstances under which they are made, not misleading.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in
Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who
receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s
officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or
participation with Defendant or with anyone described in (a).
VI.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
is permanently restrained and enjoined from aiding and abetting any violation of Section
13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)] by knowingly or recklessly
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providing substantial assistance to an issuer that has a class of securities registered pursuant to
Section 12 of the Exchange Act [15 U.S.C. § 78l], or that is required to file reports pursuant to
Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)], in failing to make and keep books,
records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions
and dispositions the assets of the issuer.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in
Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who
receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s
officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or
participation with Defendant or with anyone described in (a).
VII.
IT IS HEREBY FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant
is permanently restrained and enjoined from aiding and abetting any violation of Section
13(b)(2)(B) of the Exchange Act [15 U.S.C. § 78m(b)(2)(B)], by knowingly or recklessly
providing substantial assistance to an issuer which has a class of securities registered pursuant to
Section 12 of the Exchange Act [15 U.S.C. § 78l], or that is required to file reports pursuant to
Section 15(d) of the Exchange Act [15 U.S.C. § 78o(d)], in failing to devise and maintain a
system of internal accounting controls sufficient to provide reasonable assurances that:
(a)

transactions are executed in accordance with management’s general or specific
authorization;

(b)

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
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assets;
(c)

access to assets is permitted only in accordance with management’s general or
specific authorization; and

(d)

the recorded accountability for assets is compared with the existing assets at
reasonable intervals and appropriate action is taken with respect to any
differences.

IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, as provided in
Federal Rule of Civil Procedure 65(d)(2), the foregoing paragraph also binds the following who
receive actual notice of this Final Judgment by personal service or otherwise: (a) Defendant’s
officers, agents, servants, employees, and attorneys; and (b) other persons in active concert or
participation with Defendant or with anyone described in (a).
VIII.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, pursuant to Section
21(d)(5) of the Exchange Act [15 U.S.C. § 78u(d)(5)], Defendant is prohibited from acting as an
officer or director of any issuer that has a class of securities registered pursuant to Section 12 of
the Exchange Act [15 U.S.C. § 78l] or that is required to file reports pursuant to Section 15(d) of
the Exchange Act [15 U.S.C. § 78o(d)].
IX.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that Defendant is liable
for disgorgement of $92,107, representing profits gained as a result of the conduct alleged in the
Complaint, together with prejudgment interest thereon in the amount of $7,893 and a civil
penalty in the amount of $30,000 pursuant to Section 20(d) of the Securities Act [15 U.S.C. §
77t(d)] and Section 21(d) of the Exchange Act [15 U.S.C. § 78u(d)]. Defendant shall satisfy this
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obligation by paying $130,000 to the Securities and Exchange Commission pursuant to the terms
of the payment schedule set forth in paragraph X below after entry of this Final Judgment.
Defendant may transmit payment electronically to the Commission, which will provide
detailed ACH transfer/Fedwire instructions upon request. Payment may also be made directly
from a bank account via Pay.gov through the SEC website at
http://www.sec.gov/about/offices/ofm.htm. Defendant may also pay by certified check, bank
cashier’s check, or United States postal money order payable to the Securities and Exchange
Commission, which shall be delivered or mailed to
Enterprise Services Center
Accounts Receivable Branch
6500 South MacArthur Boulevard
Oklahoma City, OK 73169
and shall be accompanied by a letter identifying the case title, civil action number, and name of
this Court; Arthur F. Knapp, Jr., as a defendant in this action; and specifying that payment is
made pursuant to this Final Judgment.
Defendant shall simultaneously transmit photocopies of evidence of payment and case
identifying information to the Commission’s counsel in this action. By making this payment,
Defendant relinquishes all legal and equitable right, title, and interest in such funds and no part
of the funds shall be returned to Defendant. The Commission shall send the funds paid pursuant
to this Final Judgment to the United States Treasury.
The Commission may enforce the Court’s judgment for disgorgement and prejudgment
interest by moving for civil contempt (and/or through other collection procedures authorized by
law) at any time after 14 days following entry of this Final Judgment. Defendant shall pay post
judgment interest on any delinquent amounts pursuant to 28 U.S.C. § 1961.
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X.
Knapp shall pay the total of disgorgement, prejudgment interest, and penalty due of
$130,000 in two installments to the Commission according to the following schedule: (1)
$65,000, within 14 days of entry of this Final Judgment; and (2) $65,000 plus post judgment
interest, within 180 days of entry of this Final Judgment. Payments shall be deemed made on the
date they are received by the Commission and shall be applied first to post judgment interest,
which accrues pursuant to 28 U.S.C. § 1961 on any unpaid amounts due after 14 days of the
entry of Final Judgment. Prior to making the final payment set forth herein, Knapp shall contact
the staff of the Commission for the amount due for the final payment.
If Knapp fails to make any payment by the dates agreed and/or in the amounts agreed
according to the schedule set forth above, all outstanding payments under this Final Judgment,
including post-judgment 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
Court.
XI.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that, solely for purposes of
exceptions to discharge set forth in Section 523 of the Bankruptcy Code, 11 U.S.C. § 523, the
allegations in the complaint are true and admitted by Defendant, and further, any debt for
disgorgement, prejudgment interest, civil penalty or other amounts due by Defendant under this
Final Judgment or any other judgment, order, consent order, decree or settlement agreement
entered in connection with this proceeding, is a debt for the violation by Defendant 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).
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XII.
IT IS FURTHER ORDERED, ADJUDGED, AND DECREED that this Court shall retain
jurisdiction of this matter for the purposes of enforcing the terms of this Final Judgment.

October 13
2015
Dated: ______________, _____
____________________________________
UNITED STATES DISTRICT JUDGE

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