UNITED STATES OF AMERICA

UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934

Release No. 95050 / June 7, 2022

ACCOUNTING AND AUDITING ENFORCEMENT

Release No. 4303 / June 7, 2022

ADMINISTRATIVE PROCEEDING

File No. 3-20884

ORDER INSTITUTING CEASE-ANDDESIST PROCEEDINGS PURSUANT TO

SECTION 21C OF THE SECURITIES

EXCHANGE ACT OF 1934, MAKING

FINDINGS, AND IMPOSING A CEASEAND-DESIST ORDER

In the Matter of

CLAYTON “CHARLIE”

THOMAS

Respondent.

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate that

cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the

Securities Exchange Act of 1934 (“Exchange Act”) against Clayton “Charlie” Thomas

(“Respondent”).

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer

of Settlement (the “Offer”) which the Commission has determined to accept. Solely for the

purpose 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

herein, except as to the Commission’s jurisdiction over him and the subject matter of these

proceedings, which are admitted, and except as provided herein in Section V, Respondent consents

to the entry of this Order Instituting Cease-and-Desist Proceedings Pursuant to Section 21C of the

Securities Exchange Act of 1934, Making Findings, and Imposing a Cease and Desist Order

(“Order”), as set forth below.

III.

On the basis of this Order and Respondent’s Offer, the Commission finds1 that

Summary

These proceedings arise out of improper accounting at Synchronoss Technologies, Inc.

(“SNCR” or the “Company”), a New Jersey-based technology company that primarily provides

products, software, and services to telecommunications companies. In July 2018, SNCR announced

a restatement of its 2013, 2014, 2015, and 2016 financial statements of approximately $190 million

in cumulative revenues. As part of this announcement, SNCR restated revenues related to a series

of transactions for which SNCR had recognized revenue improperly and in a manner inconsistent

with generally accepted accounting principles (“GAAP”). These included (1) transactions for

which SNCR, through “side letter” agreements, concealed that the revenue the Company recognized

upfront was in fact contingent on future events and (2) transactions in which the Company sold

software licenses together with multi-year related supporting services, and the Company improperly

recognized the revenue for the licenses immediately, rather than recognizing it ratably over the term

of the arrangements.

Clayton “Charlie” Thomas, who joined SNCR in late 2015 as Senior Vice President

(“SVP”) of Analytics, was involved, along with other company officials, in negotiating and

structuring three of these problematic transactions, for which SNCR improperly recognized a

combined total of approximately $10 million in revenue. As a result, Thomas violated Sections

10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5(a) and (c) and 13b2-1 thereunder, and

caused SNCR’s violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-1,

13a-11, 13a-13, and 12b-20 thereunder.

Respondent

1.

Thomas, age 59, resides in Arlington, Virginia. Thomas was the Chief Executive

Officer of Razorsight, a private cloud analytics company that was acquired by SNCR in August

2015. Thomas served as SVP of Analytics at SNCR until August 2017, when he was terminated.

In his role at SNCR, Thomas operated as a senior salesperson and interacted frequently with

SNCR’s senior management and finance department, including on the three transactions that are the

subject of this order.

Other Relevant Entity

2.

SNCR is a Delaware corporation based in New Jersey whose securities are

registered pursuant to Section 12(b) of the Exchange Act. Its securities are currently listed on

The findings herein are made pursuant to Respondent’s Offer of Settlement and are not

binding on any other person or entity in this or any other proceeding.

1

2

NASDAQ and have been since its initial public offering in June 2006, although SNCR’s common

stock was suspended from trading on NASDAQ from May 2018 to October 2018 because SNCR

had become delinquent in its required filings.

FACTS

A.

Background

3.

In 2015 and 2016 (the “relevant period”), SNCR’s software products and services

included software-based activation, messaging, analytics, and cloud services for its

telecommunications customers.

4.

Under GAAP, companies are required to take into account all material terms of an

arrangement between two parties in recognizing revenue. If, for example, companies enter into

“side letter” agreements that alter the material terms of other transactional documents (such as by

providing that payments under the agreement are contingent on future events), companies must take

such terms into account in determining whether it is appropriate to recognize revenue.

5.

Similarly, when software companies such as SNCR sell software licenses to their

customers together with related, ancillary services (such as hosting and maintenance), GAAP

required that the sales be accounted for as “multiple-element arrangements” (“MLEs”). Under

GAAP during the relevant period, if a contract or series of contracts was determined to be an MLE,

the fee should be allocated to the various elements based on vendor-specific objective evidence

(“VSOE”) of fair value.2

6.

If certain components of MLEs have yet to be delivered (such as services that will

be performed over the life of the agreement), GAAP required that companies defer revenue

recognition of such elements until they have been performed. And if an MLE has undelivered

components for which the company lacks VSOE of fair value, GAAP generally required that the

revenue from the entire arrangement, including for delivered elements, be deferred until either all

elements lacking VSOE have been delivered or VSOE is established for all undelivered elements, or

in certain cases, be deferred and recognized over time, such as ratably over the term of the

agreement or as remaining services are expected to be performed.3

7.

While SNCR did have VSOE of fair value for certain components of MLEs such as

professional services, critically, SNCR lacked VSOE of fair value for the hosting service it often

provided for customers who utilized its software. Accordingly, the addition of hosting to an MLE

would require that the revenue from the entire arrangement, including for delivered elements, be

2

VSOE is, for example, the price established by the vendor for the separate sale of each

element.

Financial Accounting Standards Board (“FASB”) Accounting Standards Codification

(“ASC”) 985-605-25-9 through 25-10.

3

3

deferred and recognized over time, i.e. that revenue be recognized ratably over the term of the

agreement.

8.

As a result, Thomas and other employees at SNCR undertook efforts to make it

appear as if the hosting services in the agreements described below were not part of the MLEs, so

that SNCR could improperly recognize the license fees in these transactions as revenue upfront,

rather than ratably over the term of the agreement.

B.

Customer A Transaction

9.

Before the relevant period, SNCR’s software business was premised largely on a

“software as a service” (“SaaS”) model, in which SNCR agreed to provide customers with the use

of its software, together with related support services such as hosting and maintenance, primarily

through multi-year agreements. For SaaS arrangements, SNCR was required to recognize revenue

ratably over the life of the agreements, as the services were provided.

10.

In the second quarter of 2016, SNCR sought to accelerate the recognition of revenue

on a number of existing customer relationships in order to generate the appearance of an improved

financial performance in its publicly-filed financial reports. One way it sought to do so was by

breaking a number of its SaaS arrangements with those customers into their component parts and

selling “perpetual license agreements” (“PLA”s)4 to SNCR’s software purportedly separately from,

or without, the other ancillary elements of the previous SaaS agreements, such as hosting. SNCR

then improperly recognized revenue from the entirety of the PLA fee upfront, instead of only

ratably over the term of the agreement.

11.

In connection with this effort, Thomas and others sought to convert SNCR’s preexisting SaaS arrangement with Customer A for its payment processing software5 into a PLA.

Thomas and others simultaneously negotiated separate agreements for the related, ancillary hosting

and support services for the software that SNCR had already been providing to Customer A under

its SaaS arrangement.

12.

The PLA with Customer A was signed on June 30, 2016. Negotiations for the threeyear, related hosting and support services agreements were conducted contemporaneously with the

PLA negotiations; however, SNCR postponed execution of them to January 2017 and made them

retroactive to July 1, 2016. SNCR continued to provide hosting and support services to Customer A

throughout the period, without interruption, just as SNCR had under its SaaS arrangement with

Customer A.

4

A customer purchasing a PLA pays for the license upfront and has the right to use the

software indefinitely.

5

The software processed invoices, automated payments, and sought to improve margins by

optimizing cost and revenue.

4

13.

At the same time it was conducting these negotiations, Thomas and others also

negotiated an amendment to an existing audit services agreement with Customer A. The “audit

services” in question consisted of the review of Customer A’s invoices by SNCR and its

subcontractor to determine if Customer A had been overcharged by various vendors. Customer A

would authorize SNCR and its subcontractor to seek reimbursement from the vendors on its behalf

and, if successful, Customer A would pay SNCR and its subcontractor a percentage of the

reimbursed payments as audit fees. No fee was payable to SNCR until Customer A had realized the

savings identified by SNCR. At the time of these negotiations, SNCR had already identified

potential overcharges, but had not yet negotiated reimbursement from Customer A’s vendors. The

amendment substituted an upfront fee applicable to a set amount of identified potential overcharges

instead of the contingency fees.

14.

Throughout June, as an inducement for Customer A to purchase the PLA, Thomas

and others proposed an upfront fee that was significantly less than the amount SNCR estimated it

would receive in contingency fees if SNCR achieved its historical success rate. Thomas explained

in an internal email to SNCR salespeople, “The [audit services] savings will pay for the licenses.”

15.

During the negotiations, SNCR attributed more than $6 million in value to the audit

services, and a significantly smaller amount ($750,000 in SNCR’s final proposal) to the PLA.

However, shortly before the agreements were finalized, a SNCR employee switched the dollar value

between the two agreements. Although the total price to Customer A was the same, the amount

allocated to the PLA was now $6.15 million and the amount allocated to the audit services was now

$600,000. Thomas reviewed the edit, commented that whatever two other SNCR employees said

“works for him,” and asked if $300,000 could be added to the PLA, which necessarily would mean

it would be subtracted from the audit services agreement.

16.

The price in the final contract for the license was $4.3 million, almost 6 times the

price agreed to in the “final” proposal. SNCR added another license for software not even

negotiated with Customer A, nominally for $1.85 million, to reach the $6.15 million total in the

executed PLA. When Customer A questioned the inclusion of the new software, Thomas informed

Customer A that SNCR was including the software for free and Customer A could delete the

software if it wanted.

17.

Thomas structured the deal and spearheaded the concurrent negotiations over the

PLA and the audit services agreement. Thomas and others drafted and revised proposals showing

the values SNCR originally attributed to the PLA and audit services and reviewed and approved the

last-minute switch of those amounts that significantly and arbitrarily inflated the purported value of

the PLA.

18.

Thomas knew or recklessly disregarded that there was no factual basis for switching

the price of the PLA and audit services (or for including the additional software license in the PLA).

In fact, he and others negotiated an agreement to pay SNCR’s subcontractor approximately $4

million for its audit services to Customer A, a figure that was almost seven times the $600,000

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attributed to those services in the contracts, but which was consistent with the amount originally

contemplated for those services.6

19.

Switching these two amounts in the agreements provided the appearance that SNCR

was entitled to recognize significantly more revenue upfront than it would have been entitled to had

the prices in the contracts not been altered. Under GAAP, revenue for the audit services could not

be recognized upfront in its entirety because the audit service fee had not been earned. SNCR,

through its subcontractor, was still required to perform by negotiating the disputes with the vendors.

Furthermore, if SNCR did not successfully negotiate and obtain a set amount of reimbursement

from the covered claims by a given date, SNCR would be required to discount its audit services

going forward until Customer A had realized the promised amount. In contrast, in certain

circumstances, revenue from a PLA could properly be recognized upfront in its entirety.

20.

In its Form 10-Q for the quarter ended June 30, 2016, SNCR recognized $5.25

million in revenue for the PLA sold to Customer A, with approximately $900,000 being allocated to

maintenance. SNCR’s recognition of $5.25 million in revenue for the PLA was improper under

GAAP because the PLA and the ancillary hosting and audit services agreements comprised an

MLE, and SNCR had no VSOE for the fair value of hosting or audit services. According to GAAP,

the fees from these agreements should therefore have been recognized ratably over the life of the

agreement.

21.

The improperly recorded revenue appeared in a press release announcing net

revenues and net income for the second quarter 2016, which was included in a Form 8-K issued on

August 3, 2016, and in SNCR’s Form 10-K issued on February 27, 2017, which included net

revenues and net income for 2016. The improperly recorded revenue from the Customer A

transaction materially inflated SNCR’s revenue in these periods.

22.

SNCR reversed the PLA revenue for the Customer A transaction when it restated its

2016 financial results, reducing revenue by $5,252,000 in the quarter ended June 30, 2016 and

$4,660,000 for the year ended December 31, 2016.

C.

Reseller Transaction with Subcontractor A

23.

In late 2016, sales and finance personnel at SNCR forecasted internally that SNCR

would close on the sale of PLA for several types of software7 to Customer A, for an estimated $4

million in revenue.

6

Because SNCR provided the audit services primarily through its subcontractor, the

subcontractor was entitled to approximately 2/3 of the $6.15 million audit services fee.

7

The software assisted telecommunications companies with managing invoices, including

paying vendors, auditing invoice charges, managing invoice disputes, and analyzing billing data.

6

24.

As the close of the fourth quarter approached, however, Customer A informed the

sales and finance personnel at SNCR that it would not close the deal until 2017.

25.

In response, Thomas, Marc Bandini (“Bandini”), then the Senior Director of

Communications and Media at SNCR, and Daniel Ives, then the Executive Vice President of

Investor Relations at SNCR, with the approval of senior SNCR executives, embarked on an effort to

persuade one of SNCR’s subcontractors (“Subcontractor A”) to agree to acquire the software PLA

originally intended for Customer A before the end of the year for $3.6 million, and then resell it to

Customer A in 2017 (the “Reseller Agreement”). Subcontractor A had never previously been a

customer of SNCR, had never purchased any of its software, and had never been a reseller of

software. Rather, Subcontractor A was a party to a consulting agreement with SNCR under which

it performed services for licensees of SNCR’s software products in exchange for consulting fees.

26.

In addition, Subcontractor A was not financially capable of paying SNCR $3.6

million, a fact its president told Thomas, Bandini, and Ives before the end of the year.

27.

To get around that obstacle, on December 28, 2016, Thomas and Bandini prepared,

signed, and sent a side letter (“first side letter”) to Subcontractor A stipulating that (1) Subcontractor

A did not need to pay SNCR under the Reseller Agreement until it had resold the software, and (2)

SNCR would make Subcontractor A whole for any losses incurred in the resale by adjusting the sale

price and awarding Subcontractor A additional consulting services.

28.

Thomas was entitled to a bonus tied to certain revenue earned by SNCR, including

for the Subcontractor A transaction and a transaction with Customer B.8

29.

By the morning of December 31, 2016, Subcontractor A had not yet agreed to sign

the Reseller Agreement. In a last-ditch effort to close the deal in time for SNCR to include the $3.6

million as revenue for the fourth quarter of 2016, that morning, Thomas met with a representative of

Subcontractor A and proposed that SNCR pre-pay the fees it expected to owe Subcontractor A on

the long-standing consulting agreement between them, so that Subcontractor A could use those

funds to pay the $3.6 million it would ostensibly owe SNCR under the Reseller Agreement.

Subcontractor A agreed to that proposal.

30.

Following the meeting on that same day, Subcontractor A emailed Thomas, Bandini,

and Ives to confirm that they were working on memorializing the terms of the proposal in a draft

agreement (“second side letter”). This second side letter, which was drafted with the assistance of

others at SNCR, amended a previously signed agreement between Subcontractor A and SNCR9 and

provided that SNCR would prepay $4.05 million in fees to Subcontractor A by February 28, 2017.

8

The Customer B transaction is discussed supra at Section III.D, paragraphs 36-43.

Thomas ultimately did not receive his bonus for the Subcontractor A or Customer B transactions.

9

The previously signed Auditing and Consulting Services Agreement was executed

between Subcontractor A and a company which SNCR acquired prior to the relevant period.

7

Thomas reviewed, revised, and circulated the second side letter internally for comment. Thomas,

Bandini, and Ives negotiated the second side letter with Subcontractor A throughout the day on

December 31, 2016, and the parties agreed to formally sign the document in early 2017.

31.

In the meantime, on the afternoon of December 31, 2016, SNCR and Subcontractor

A signed the Reseller Agreement, which ostensibly provided that Subcontractor A would pay

SNCR $3.6 million for a PLA for three types of SNCR software that it could then resell to other

companies. The Reseller Agreement on its face did not contain any contingencies, made no

mention of the first or second side letter, and purported to require Subcontractor A to pay for the

software PLA by March 31, 2017.

32.

In February 2017, Subcontractor A signed the second side letter.

33.

SNCR included the $3.6 million fee under the Reseller Agreement as revenue for the

quarter and year ended December 31, 2016, in a press release and Form 8-K issued on February 8,

2017, and in its Form 10-K for the year ended December 31, 2016, filed on February 27, 2017.

34.

SNCR’s inclusion of this revenue was improper under GAAP because, as reflected

in the first and second side letter and as Thomas knew or recklessly disregarded, the fee was

contingent on Subcontractor A reselling the software. Because of this contingency, the Reseller

Agreement was in substance a consignment agreement, revenue for which, according to GAAP, can

be recognized only when the sale to an end customer is complete (provided all other revenue

recognition criteria have been met).

35.

The improperly recorded revenue from the Subcontractor A transaction materially

inflated SNCR’s revenue for the quarter and year ended December 31, 2016 and was reversed when

SNCR restated its 2016 financial results.

D.

Customer B Transaction

36.

In the fourth quarter of 2016, Thomas and others at SNCR also sought to convert a

pre-existing SaaS agreement with Customer B into a PLA and other component parts, in order to

accelerate the recognition of revenue for financial reporting purposes. To obscure that these

separate agreements were in fact component parts of an MLE arrangement (and, indeed, that they

were merely a repackaging of an existing customer arrangement), SNCR employees arranged to

have the agreements for the ancillary elements, such as hosting, be executed separately at a later

date.

37.

On December 12, 2016, Bandini informed Customer B that SNCR needed to

recognize license revenue for the software that Customer B was using in the fourth quarter of 2016

and that to do so, it needed to exclude the hosting and service elements from the PLA.

38.

Customer B refused to sign the PLA without knowing the cost and terms for the

ancillary services that had, to that point, been provided under the SaaS agreement. In response,

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Bandini provided two draft statements of work (“SOWs”) to Customer B, one for hosting and one

for services.

39.

Customer B preferred to sign all three agreements together and objected to signing

the PLA without a guarantee that the price and terms for hosting and services would not deviate

from those presented in the draft SOWs. To assuage Customer B, Bandini sent Customer B by

email, a side letter stating that the hosting and services SOWs that were negotiated

contemporaneously with the PLA would remain unchanged until they were signed in the subsequent

quarter. Bandini and Thomas both signed the side letter. The draft SOWs referenced in the side

letter specified hosting and all the other services to be performed and the fees to be paid.

40.

Customer B signed the PLA on December 29, 2016, which provided for payment of

a fee for the PLA alone to SNCR in the amount of $1.3 million. Several months later, the hosting

and other services SOWs were executed and were unchanged from the previously agreed to drafts.

SNCR continued to provide its hosting services to Customer B during this entire period, including

from the time the software PLA was signed to the time the hosting SOW was executed.

41.

SNCR included the $1.3 million PLA fee as part of its net revenue and income for

the quarter and year ended December 31, 2016, in a Form 8-K and press release issued on February

8, 2017, and in its Form 10-K for the year ended December 31, 2016, filed on February 27, 2017.

42.

As Thomas knew or recklessly disregarded, SNCR’s inclusion of this fee as revenue

was improper under GAAP because the PLA and the ancillary hosting and services agreements

comprised an MLE, and SNCR had no VSOE of fair value for hosting. According to GAAP, the

fees from these agreements should therefore have been recognized ratably over the life of the

agreement. The improperly recorded revenue from the Customer B transaction materially inflated

SNCR’s revenue in these periods.

43.

SNCR reversed the revenue for the Customer B transaction when it restated its 2016

financial results.

E.

The Above Transactions Resulted in a Material Overstatement of SNCR’s Financial

Performance

44.

The revenue from the foregoing transactions that SNCR improperly recorded for the

quarters ended June 30, 2016 and December 31, 2016 materially inflated SNCR’s revenue for these

periods. SNCR also understated its pre-tax loss for the quarter ended June 30, 2016 by

approximately 57% by improperly including revenue from the Customer A transaction. SNCR

understated its pre-tax loss from continuing operations for the quarter ended December 31, 2016 by

approximately 14% by improperly including revenue from the Subcontractor A and Customer B

transactions. Based on its improper inclusion of revenue from all of these transactions, SNCR

understated its 2016 pre-tax loss from continuing operations by approximately 11% in its Form

10-K for the year ended December 31, 2016.

9

VIOLATIONS

45.

As a result of the conduct described above, Thomas violated Section 10(b) of the

Exchange Act and Rules 10b-5(a) and 10b-5(c) thereunder, which prohibit fraudulent conduct in

connection with the purchase or sale of securities.

46.

As a result of the conduct described above, Thomas violated Section 13(b)(5) of the

Exchange Act and Rule 13b2-1 thereunder, which prohibit any person from knowingly

circumventing or failing to implement a system of internal accounting controls; knowingly

falsifying any book, record, or account, which, in reasonable detail, accurately and fairly reflect the

transactions and dispositions of the assets of the issuer; and 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.

47.

As a result of the conduct described above, Thomas caused SNCR to violate

Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 13a-1, 13a-11, 13a-13, and 12b-20

thereunder, which require every issuer of a security registered pursuant to Section 12 of the

Exchange Act to file with the Commission accurate information, documents, and annual and

quarterly reports as the Commission may require, mandate that periodic reports contain such further

material information as may be necessary to make the required statements not misleading, and

require issuers to make and keep books, records, and accounts that accurately and fairly reflect the

transactions and dispositions of the assets of the issuer.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions

agreed to in Respondent’s Offer.

Accordingly, it is hereby ORDERED that:

Pursuant to Section 21C of the Exchange Act, Respondent cease and desist from

committing or causing any violations and any future violations of Sections 10(b), 13(a), 13(b)(2)(A)

and 13b(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, and 13b2-1

thereunder.

Respondent shall, within 365 days of the entry of this Order, pay a civil money

penalty in the amount of $90,000.00 to the Securities and Exchange Commission. Post-Order

interest shall accrue pursuant to 31 U.S.C. § 3717.

Payment must be made in one of the following ways:

(1)

Respondent may transmit payment electronically to the Commission, which will

provide detailed ACH transfer/Fedwire instructions upon request;

10

(2)

Respondent may make direct payment from a bank account via Pay.gov through the

SEC website at http://www.sec.gov/about/offices/ofm.htm; or

(3)

Respondent may pay by certified check, bank cashier’s check, or United States

postal money order, made payable to the Securities and Exchange Commission and hand-delivered

or mailed to:

Enterprise Services Center

Accounts Receivable Branch

HQ Bldg., Room 181, AMZ-341

6500 South MacArthur Boulevard

Oklahoma City, OK 73169

Payments by check or money order must be accompanied by a cover letter identifying

Clayton Thomas as a Respondent in these proceedings, and the file number of these proceedings; a

copy of the cover letter and check or money order must be sent to Lara Mehraban, Division of

Enforcement, Securities and Exchange Commission, New York Regional Office, 100 Pearl Street,

Suite 20-100, New York, New York 10004.

Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a Fair

Fund is created for any penalties referenced in paragraph IV(B) above. The Fair Fund may be

added to or combined with any other fair fund created in a related district court action or

administrative proceeding arising out of the same violations. The Fair Fund will be distributed to

harmed investors in accordance with a Commission-approved plan of distribution. Amounts

ordered to be paid as civil money penalties pursuant to this Order shall be treated as penalties paid

to the government for all purposes, including all tax purposes. To preserve the deterrent effect of

the civil penalty, Respondent agrees that in any Related Investor Action, he shall not argue that he is

entitled to, nor shall he benefit by, offset or reduction of any award of compensatory damages by the

amount of any part of Respondent’s payment of a civil penalty in this action (“Penalty Offset”). If

the court in any Related Investor Action grants such a Penalty Offset, Respondent agrees that he

shall, within 30 days after entry of a final order granting the Penalty Offset, notify the

Commission’s counsel in this action and pay the amount of the Penalty Offset to the Securities and

Exchange Commission. Such a payment shall not be deemed an additional civil penalty and shall

not be deemed to change the amount of the civil penalty imposed in this proceeding. For purposes

of this paragraph, a “Related Investor Action” means a private damages action brought against

Respondent by or on behalf of one or more investors based on substantially the same facts as

alleged in the Order instituted by the Commission in this proceeding.

V.

It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section

523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and admitted by

Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other

amounts due by Respondent under this Order or any other judgment, order, consent order, decree

or settlement agreement entered in connection with this proceeding, is a debt for the violation by

11

Respondent 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).

By the Commission.

Vanessa A. Countryman

Secretary

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