Case 1:21-cv-07407 Document 1 Filed 09/03/21 Page 1 of 19
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` UNITED STATES DISTRICT COURT
`SOUTHERN DISTRICT OF NEW YORK
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`U.S. SECURITIES AND EXCHANGE
`COMMISSION,
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`21-CV-7407 (____)
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`Plaintiff,
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`v.
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`COMPLAINT
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`KLAUS HOFMANN,
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`ECF CASE
` JURY TRIAL DEMANDED
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`Defendant.
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`Plaintiff United States Securities and Exchange Commission (the “SEC”) files this
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`Complaint against Defendant Klaus Hofmann (“Hofmann”), and alleges as follows:
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`SUMMARY
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`1.
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`This action concerns a multi-year expense management scheme by Kraft Heinz
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`Company (“KHC”)’s procurement division to improperly reduce KHC’s cost of goods sold1 and
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`achieve costs savings targets that were externally touted to the market and internally tied to
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`performance-based targets. The misconduct resulted in KHC reporting inflated earnings before
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`interest, taxes, depreciation and amortization (“EBITDA”), a key performance metric for
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`investors.
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`2.
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`Specifically, from the fourth quarter of 2015 through the end of 2018 (the
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`“Relevant Period”), procurement employees negotiated agreements with numerous suppliers to
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`obtain upfront cash payments and discounts, in exchange for future commitments to be
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`undertaken by KHC, while improperly documenting the agreements in ways that caused the
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`company to prematurely and improperly recognize the expense savings.
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`1 Cost of goods sold refers to KHC’s direct costs of producing its food and beverage goods. This
`amount includes the supplier costs that KHC expends to produce its goods.
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`3.
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`In accordance with accounting principles generally accepted in the United States
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`(“Generally Accepted Accounting Principles” or “U.S. GAAP”), if upfront cash and discounts
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`are tied to future commitments, then the expense savings must be recognized over the period
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`KHC performed the future obligations. Procurement division employees, however, negotiated
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`and maintained false and misleading supplier contracts that made it appear as if expense savings
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`were provided in exchange for past or same-year actions performed by KHC when, in reality,
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`they were upfront payments in exchange for a future benefit from KHC, in order to improperly
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`recognize costs savings prematurely.
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`4.
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`Over the Relevant Period, KHC entered into approximately 59 transactions
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`which were improperly recognized as a result of the false and misleading documentation
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`negotiated and generated by procurement division employees. Had these transactions been
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`properly documented and accounted for, KHC’s cost of goods sold during that period would
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`have been approximately $50 million higher than reported in its public financial statements.
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`5.
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` These misleading transactions, along with numerous other misstated accounting
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`entries, led KHC, in June 2019, to restate its financial statements in its annual report on Form 10-
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`K filed with the SEC. The restatement included financial data reported for fiscal year (“FY”)
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`2015, as well as the financial statements contained in reports filed with the SEC on quarterly
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`Forms 10-Q and annual Form 10-K for FYs 2016 and 2017 and the first three quarters of FY
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`2018 that were filed with the SEC. KHC corrected a total of $208 million in cost savings arising
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`from 295 transactions and also corrected its Adjusted EBITDA, as reflected in the restatement.
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`6.
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`Hofmann, KHC’s Chief Procurement Officer during the Relevant Period,
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`managed the procurement division and was responsible for, among other things, approving
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`certain of KHC’s contracts with suppliers. In that role, Hofmann and others signed contract
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`approval forms for many of the improperly recognized transactions. Hofmann also certified the
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`accuracy and completeness of the financial statements generated by the procurement division over
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`the first three quarters of 2018. KHC then relied upon this sub-certification in making
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`representations to its auditors regarding the completeness and accuracy of its financial
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`statements.
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`7.
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`Despite numerous warning signs that should have alerted Hofmann that KHC
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`procurement division employees were circumventing KHC’s internal controls in order to achieve
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`artificial cost savings targets in supplier contracts, Hofmann negligently approved and failed to
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`prevent supplier contracts that masked the true nature of the transactions. Hofmann also should
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`have known that the false and misleading contract documentation that he negligently approved
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`and failed to prevent was provided to KHC’s finance and controller groups responsible for
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`preparing KHC’s financial statements (“controllers”), thus causing KHC to prematurely
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`recognize cost savings in its financial statements.
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`8.
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`By engaging in the misconduct described in this complaint, Hofmann violated
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`Sections 17(a)(2) and 17(a)(3) of the Securities Act of 1933 (“Securities Act”) and Section
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`13(b)(5) of the Securities Exchange Act of 1934 (“Exchange Act”) and Exchange Act Rules
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`13b2-1 and 13b2-2. A violation of Sections 17(a)(2) and 17(a)(3) of the Securities Act does not
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`require scienter and may rest on a finding of negligence. See Aaron v. SEC, 446 U.S. 680, 685,
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`701-02 (1980).
`The SEC seeks injunctive relief, civil penalties, and other appropriate and
`9.
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`necessary equitable relief.
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`JURISDICTION AND VENUE
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`10.
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`This Court has jurisdiction over this action pursuant to Sections 20 and 22 of the
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`Securities Act [15 U.S.C. §§ 77t and 77v] and Sections 21 and 27 of the Exchange Act [15
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`U.S.C. §§ 78u and 78aa], and 28 U.S.C. § 1331.
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`11.
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` Venue is proper in this Court pursuant to Section 22(a) and (c) of the Securities
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`Act [15 U.S.C. § 77v(a), (c)] and Section 27(a) and (b) of the Exchange Act [15 U.S.C.
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`§ 78aa(a), (b)], because certain of the acts, practices, and courses of conduct constituting the
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`violations alleged herein occurred within the Southern District of New York. Specifically,
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`among other things, KHC’s 2015 through 2018 financial statements, which were materially false
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`and misleading, were available to investors in this district.
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`12.
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`Hofmann, directly and indirectly, made use of means or instruments of
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`transportation or communication in interstate commerce, or of the mails, or of any facility of a
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`national securities exchange in connection with the acts, practices, and courses of conduct
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`alleged herein.
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` DEFENDANT
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`13.
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`Klaus Hofmann (“Hofmann”), age 63, resides in Zug, Switzerland. Between
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`July 2015 and September 2019, Hofmann served as KHC’s Global Head of Procurement and
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`Chief Procurement Officer. Hofmann left KHC in May 2020. Prior to his employment with
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`KHC, Hofmann was the Global Head of Procurement for H.J. Heinz Co. (“Heinz”), before Heinz
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`merged with and into Kraft Foods Group Inc. (“Kraft”) to form KHC in 2015.
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`RELEVANT INDIVIDUALS
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`14.
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` The following entity, relevant to this action, has been charged by the SEC in
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`separate actions and proceedings:
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`a. Kraft Heinz Company (KHC) is a publicly traded food and beverage
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`manufacturing company co-headquartered in Chicago, Illinois, and
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`Pittsburgh, Pennsylvania. KHC has a class of shares registered with the
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`SEC pursuant to Exchange Act Section 12(b), which trades on the
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`NASDAQ Global Select Market located in New York, NY, under the
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`symbol “KHC.” KHC was created in July 2015 through the merger of
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`public company Kraft with and into private company Heinz.
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`FACTUAL ALLEGATIONS
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`I. BACKGROUND
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`15.
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`Following the Kraft-Heinz merger in July 2015, newly formed KHC made
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`concerted efforts to eliminate redundancies and reduce operational costs. As part of its merger
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`strategy, KHC disclosed to investors that the company would deliver on certain cost saving
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`results throughout the company, including in the procurement division, a large cost center for
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`KHC. The cost savings strategy, including its impact on costs of goods sold, was widely covered
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`by research analysts at the time. Although the company achieved the promised cost savings,
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`individual procurement employees had key performance targets tied to additional cost savings
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`from the procurement division.
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`16.
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`To implement this cost savings strategy, KHC set performance targets for
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`procurement division employees tied to savings realized through negotiations with KHC’s
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`suppliers. In the period immediately following the merger between Kraft and Heinz, these
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`targets were generally achieved, due to, among other things, synergies from renegotiating
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`supplier contracts in light of the newly-combined company’s increased purchasing power.
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`17.
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` By 2017, however, KHC’s procurement division had largely exhausted its
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`ability to extract synergies from the merger. In addition, the cost of many ingredient and
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`packaging supplies increased significantly due to adverse inflation and unfavorable foreign
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`exchange rates. The combined impact of the increased raw material costs and savings already
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`realized in prior years made it more difficult for procurement division employees to achieve
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`additional, incremental savings in 2017 and 2018.
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`18.
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`The procurement division, under Hofmann’s direction and with the oversight of
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`a more senior executive of KHC (“Senior Executive”), implemented overly ambitious annual
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`budget and division-level savings targets, based on corporate KHC targets. Hofmann and the
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`Senior Executive, in turn, pushed procurement division employees to come up with ideas to
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`generate additional immediate, same-year, savings, and did not adjust the internal targets.
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`III. KHC’s EXPENSE MANAGEMENT MISCONDUCT
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`19.
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` The expense management misconduct was carried out by members of KHC’s
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`procurement division, across multiple geographic zones, and involved several strategies
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`employed to misrepresent the true nature of transactions, resulting in accounting errors and
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`misstatements. Out of the 295 transactions that KHC ultimately corrected in connection with the
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`restatement, approximately 59 were part of the procurement division’s expense management
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`misconduct, including the following types of transactions:
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`a.
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`“Prebate Transactions” – KHC procurement division employees agreed
`to future- year commitments, like contract extensions and future-year
`volume purchases, in exchange for savings discounts and credits by
`vendors (“Prebates”), but mischaracterized the savings in contract
`documentation, which falsely stated that they were for past or same-year
`purchases made by KHC (“Rebates”);
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`b. “Clawback Transactions” – KHC procurement division employees
`agreed to take upfront payments subject to repayment through future
`price increases or volume commitments, but documented the transaction
`in ways which obscured the repayment obligation; and
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`c. “Price Phasing Transactions” – Suppliers agreed to reduce their prices
`during a certain period in exchange for an offsetting price increase in a
`future period, but the full nature of the arrangement was not
`communicated by KHC procurement division employees to KHC
`controller group employees.
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`20.
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` In accordance with GAAP, KHC was required to recognize the savings
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`provided in exchange for future commitments over the period of time that KHC performed the
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`commitments. See Accounting Standards Codification (“ASC”) 705-20 Accounting for Certain
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`Consideration Received from a Vendor. Accordingly, when a prebate was provided in exchange
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`for a contract extension or future-year volume commitment, the savings should have been
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`recognized over the life of the contract extension or the future period in which KHC purchased
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`the goods from the supplier, in accordance with GAAP. Conversely, rebate savings from past or
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`same-year commitments should have been recognized ratably over the period in which they were
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`earned. Finally, clawback transactions should have been recognized ratably over the clawback
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`period—when it was reasonably estimable that KHC would satisfy its repayment obligation.
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`21.
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`Through the relevant period, KHC did not design or maintain effective internal
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`controls for the procurement division, including those implemented by the finance and controller
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`groups, in connection with the accounting for supplier contracts and related arrangements.
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`22.
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`Hofmann, by virtue of his role as Chief Procurement Officer, was responsible for
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`approving certain procurement contracts on behalf of KHC. Based on his responsibilities for
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`procurement division cost savings, his communications with the procurement employees who
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`negotiated these improper transactions, and his communications with suppliers regarding KHC’s
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`desired accounting treatment for certain supplier transactions, Hofmann should have known that
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`the improper procurement transactions during the Relevant Period were not properly accounted
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`for under GAAP.
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`III. 2014-2015: Early Expense Management Misconduct
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`23.
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`In the months leading up to the merger with Kraft in July 2015, the procurement
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`division of Heinz was faced with a $10 million year-end cost savings gap. As a result, members
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`of the procurement division and Hofmann, who worked at Heinz at the time, took steps with
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`regard to a previously negotiated transaction with a packaging supplier that led KHC’s improper
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`recognition of additional cost savings in 2015.
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`24.
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`The original letter of intent agreement with the packaging supplier, which
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`Hofmann signed in 2014 on behalf of Heinz, provided that the supplier would make a $3.5
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`million upfront payment (commonly referred to as a “prebate”) to Heinz in exchange for the
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`parties’ signing a new three-year contract in 2015. The letter of intent further stated that the
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`supplier was not obligated to pay the $3.5 million prebate if the parties failed to execute the new
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`contract. Consistent with this language, Hofmann delivered a presentation in January 2015 to
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`the Senior Executive (then at Heinz) communicating that cost savings from the $3.5 million
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`prebate transaction was linked to the three-year period covered by the new contract.
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`25.
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`A few months later, Hofmann presented a planning document to the Senior
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`Executive stating that Heinz was in the process of negotiating a new contract with the supplier to
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`generate “improved, backdated impact for CY15” in the form of a “rebate.” The document
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`stated that the parties needed to “align on wording,” without which the company could “book
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`only 1/3 of benefit” in 2015. Hofmann also met with the CEO of the supplier in order to
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`determine if the supplier would be “open to reword” the description of the payment to “allow
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`[Heinz] to book” the full “3,5 Mi[llio]n USD into 2015” and discussed internally that wording of
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`the $3.5 million payment that would enable Heinz to improperly book the amount in 2015.
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`26.
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`In late 2015, following the merger, KHC renegotiated language with the same
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`supplier describing the $3.5 million prebate, entered into a new contract with the supplier
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`characterizing the payment as “a non-refundable 2015 payment . . . for purchases made in
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`2015,” and prematurely recognized the cost savings in 2015. This accounting treatment was
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`improper and violated GAAP because the final contract, which Hofmann approved and signed,
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`mischaracterized the true nature of the supplier payment by not disclosing the fact that the $3.5
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`million prebate payment remained linked to a three-year contract.
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`27.
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`Finally, Hofmann and the Senior Executive understood that a final board
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`presentation regarding procurement, unlike prior drafts, did not contain details surrounding the
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`$3.5 million prebate payment from the supplier.
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`28.
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`In a separate transaction involving the same supplier, Hofmann and the Senior
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`Executive discussed the restructuring of a $2 million retention bonus that the supplier had
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`awarded to Kraft before the merger, in order for newly merged KHC to recognize the full
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`amount in 2015, resulting in a credit to the savings targets of Heinz procurement personnel. The
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`Senior Executive and Hofmann had access to information that was not communicated to the
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`controller group that would have caused the controller group to question whether immediate
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`recognition of the $2 million was appropriate. In this transaction, procurement division
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`employees negotiated two new contracts with the supplier—one in which Kraft returned the
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`bonus back to the supplier, and another, in which the supplier re-conveyed the $2 million rebate,
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`but this time, to Heinz, and purportedly in exchange for purchase volumes in 2015.
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`Recharacterizing the $2 million retention bonus as a supposed purchase volume rebate enabled
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`KHC to improperly recognize the full $2 million in 2015. The Senior Executive and Hofmann
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`were provided a global operations presentation that discussed the transaction as part of a plan to
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`recognize cost savings in 2015, but did not take steps to address whether the rebate was
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`accurately reflected in the new contract with Heinz.
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`29.
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`These rebate transactions from Heinz and the early months of KHC following
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`the merger should have placed Hofmann and the Senior Executive on notice that procurement
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`division employees were misrepresenting the true economic nature of rebate transactions.
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`Specifically, Hofmann was provided with information that should have put him on notice of the
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`importance of not linking payments from suppliers to future contract obligations in order to
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`achieve premature costs savings.
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`30.
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`For instance, in another pre-merger transaction involving a potato supplier,
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`Heinz’s procurement division tried to improperly recognize $10 million in cost savings in 2014
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`by drafting side credit notes which improperly characterized a $10 million supplier payment as
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`being provided in exchange for past purchases rather than for the new multi-year contract (the
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`real reason for the $10 million payment). Although this payment was ultimately recorded
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`correctly—and spread over the life of the contract—Hofmann and the Senior Executive should
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`have understood through this transaction that before the merger, Heinz’s controllers were being
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`presented agreements with vendors that mischaracterized the true nature of the transactions. In
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`an email communication, for example, Hofmann informed the Senior Executive of the need to
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`align on a “story” that Heinz procurement personnel would tell Heinz’s global controller
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`regarding the purpose of the supplier payments and the importance of not linking payments from
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`suppliers to future obligations.
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`IV. 2017-2018: KHC Expense Management Misconduct Continues
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`31.
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` Beginning in 2017 and continuing into 2018, KHC encountered significant
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`headwinds in its effort to meet annual budget and savings targets, principally due to inflation and
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`unfavorable foreign exchange rates, the exhaustion of merger-related savings, and the
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`incremental, year-over-year nature of the procurement division savings targets. The expense
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`management misconduct was more limited in 2016 because the procurement division exceeded
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`its gross savings targets that year. In 2017 and 2018, members of the procurement division—
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`across multiple geographic zones—manipulated 54 supplier transactions (out of approximately
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`59 during the Relevant Period) to improperly obtain premature recognition of cost savings.
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`V. Hofmann Negligently Approved And Failed To Prevent Supplier Contracts For
` Transactions That Did Not Reflect True Rebate Terms, Resulting In Misstated
` Financial Statements
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`Hofmann and the Senior Executive had access to information, including from his
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`32.
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`involvement in the earlier transactions described above, that should have alerted them to the fact
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`that certain contracts with suppliers submitted by procurement division employees to KHC’s
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`controllers did not reflect the true nature of the underlying agreements and would result in
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`improper accounting treatment. Similarly, Hofmann was negligent in not preventing members
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`of the procurement division from entering into certain agreements with suppliers that did not
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`generate any new costs savings, despite purported cost savings being reflected in the company’s
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`accounting books and records and public disclosures.
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`33.
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`In 2017, for example, procurement division employees negotiated a $2 million
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`prebate to KHC from a sugar supplier in exchange for a three-year contract extension and future
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`sugar purchases. In addition, the agreement called for KHC to return the $2 million back to the
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`supplier in the form of paying higher prices for sugar over the three-year period. Thus, the
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`agreement did not produce any actual cost savings. Hofmann and the Senior Executive should
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`have known the true structure of the transaction, including through their participation in monthly
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`performance reviews, during which it was disclosed that the $2 million was tied to a contract
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`extension and future volume purchases, even though KHC improperly recognized the full cost
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`savings in August 2017.
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`34.
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`Hofmann also provided the Senior Executive a “risk mitigation plan,” which
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`listed $2 million in 2017 savings from the transaction and identified three other transactions that
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`were part of the expense management misconduct. Hofmann highlighted in the email that he
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`would “need to find a way to make them count in 2017 by getting them signed off by the
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`controllers.”
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`35.
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`In 2018, the agreement with the sugar supplier was extended to provide KHC
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`with more time to repay the supplier for the 2017 prebate, through inflated sugar prices. To
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`accomplish this, KHC was given an immediate sugar price reduction, but later in the year, the
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`inflated prices resumed, and thereafter, continued over a longer future period in order to
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`effectuate full repayment. However, KHC recognized an immediate price reduction of $500,000
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`as purported new cost savings. Hofmann was informed of the deal’s structure, and both
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`Hofmann and the Senior Executive received presentations communicating the anticipated and
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`improper 2018 savings recognition.
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`36.
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`In 2017 and 2018, KHC’s procurement division entered into additional
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`agreements with suppliers which provided KHC with upfront payments that were recognized
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`prematurely, even though they were tied to future commitments and allowed the suppliers to
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`“clawback” an agreed-upon percentage of the upfront prebate. In one such transaction, Hofmann
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`was sent a presentation reflecting that KHC obtained a $4 million price reduction and $7.5
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`million in other efficiencies in exchange for committing to a new contract with a “5 year term”
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`for the purchase of new cardboard grades from the supplier, and the supplier could “claw back a
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`portion if any of the implementation is delayed after 2018.” According to the presentation
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`provided to Hofmann, the supplier could recoup the prebate through increased pricing for 2019
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`KHC purchases.
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`37.
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` Hofmann acknowledged that the cost savings from the agreement would be
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`“booked in July [2018]” in his self-evaluation that he provided to the Senior Executive in
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`connection with his performance review. He also was informed by one of his subordinates that
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`there was potential “upside in the year [] if we get the wording correct[].” Thereafter, Hofmann
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`had a call with the CEO of the supplier, during which they discussed contract wording for the
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`two supplier payments which did not link either of the payments to a contract extension or a
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`clawback obligation. Hofmann approved the final contract, which did not reflect the true nature
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`of the transaction because it did not link KHC’s future payment obligations or the supplier’s
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`right to clawback the prebate, while understanding that KHC’s controllers would rely on the
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`contract to make an accounting determination.
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`38.
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` Thereafter, Hofmann signed, and along with the Senior Executive, submitted a
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`sub-certification of the accuracy and completeness of the financial statements generated by
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`KHC’s procurement division over the first three quarters of 2018, during which the majority of
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`the savings from this transaction were improperly recognized. KHC then relied on this sub-
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`certification to prepare representations to its auditors regarding the completeness and accuracy of
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`its financial statements.
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`39.
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` Hofmann also approved “price phasing” supplier transactions, which created
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`the illusion of immediate cost savings through price decreases from suppliers, but, in reality,
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`were structured to include an offsetting price increase later in time. These “price phasing”
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`transactions violated GAAP because they purported to recognize cost savings that did not
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`exist.
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`40.
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`In 2017, for example, Hofmann unreasonably did not prevent the execution of
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`a transaction in which KHC improperly reduced its costs by $600,000 in earlier quarters
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`through a price phasing deal with a sugar supplier. The transaction produced no real savings,
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`however, because it required KHC to remit the same amount back to the supplier in the form of
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`higher pricing in later quarters within the same year. In connection with this deal, Hofmann
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`was aware that his team was contemplating sugar pricing strategies to address pressures from
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`the Senior Executive to narrow the gap between forecasted and expected expenses to date.
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`Hofmann and the Senior Executive also reviewed presentations highlighting that the $600,000
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`in positive impact to KHC’s budget was tied to “sugar price phasing.” Similarly, a draft
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`presentation that Hofmann reviewed in advance of a trip he took with the Senior Executive to
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`visit the supplier highlighted that the deal would “[m]ove some negative impact from Q1 CY17
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`through price phasing.”
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`41.
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` The improper recognition of savings for the 59 transactions caused KHC to
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`issue materially false and misleading financial statements in reports filed with the SEC on
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`annual Forms 10-K for FYs 2015, 2016 and 2017, on Forms 10-Q for the quarterly periods in
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`FYs 2016 and 2017 and the first three quarters of FY 2018, and on summary KHC financial
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`data for the fourth quarter of 2018 furnished to the SEC on Form 8-K. By improperly
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`recognizing savings from the 59 transactions, the financial statements falsely and materially
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`underreported KHC’s costs of goods sold during the Relevant Period.
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`VI. Hofmann’s Internal Accounting Controls and Books and Records
` Violations
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`42.
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` Hofmann knew or should have known about the following KHC internal
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`accounting controls, which included: (i) the preparation and signing of contract approval forms
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`which were required to communicate the key commercial terms of procurement transactions to
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`the controllers, (ii) the review of contract documentation and contract approval forms by
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`KHC’s controllers, and (iii) the completion of accurate sub-certifications affirming that there
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`were not material transactions, agreements, or accounts that had not been properly recorded in
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`KHC’s accounting.
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`43.
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`Hofmann’s approval of supplier agreements and signing of the inaccurate 2018
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`sub-certification violated Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2
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`thereunder.
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` TOLLING AGREEMENTS
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`44.
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`Hofmann and the SEC entered into tolling agreements suspending the running
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`of any applicable statute of limitations from December 7, 2020 through April 5, 2021; from
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`April 6, 2021 through July 8, 2021; and from July 9, 2021 through September 10, 2021.
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`COUNT I
`Violations of Sections 17(a)(2) and 17(a)(3) of the Securities Act
`(Negligence-Based Fraud)
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`The SEC realleges and incorporates by reference here the allegations in
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`45.
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`paragraphs 1 through 44.
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`46.
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` Hofmann, in connection with the offer to sell or sale of securities and by the
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`use of means or instruments of transportation or communication in interstate commerce or by
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`the use of the mails, directly or indirectly and with negligence, obtained money or property by
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`means of any untrue statement of a material fact or any omission to state a material fact
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`necessary in order to make the statements made, in light of the circumstances under which they
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`were made, not misleading, and negligently engaged in a transaction, practice, or course of
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`business which operated or would have operated as a fraud or deceit on purchasers of KHC’s
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`securities.
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`47.
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`KHC issued debt in securities offerings during the Relevant Period, the
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`offerings for which incorporated by reference the inaccurate financial reports that were later
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`restated, and offered the Senior Executive and Hofmann, among other employees, stock options
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`and other stock-based compensation during the relevant period, and bonus compensation that
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`was tied to their success at generating supply chain and operational cost savings. Specifically,
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`the bonus criteria given the largest weight for Hofmann was reaching a metric referred to as a
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`purchase price variance target that was based on the amount of year-over-year savings the
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`procurement division obtained from its supplier contracts. Similarly, the Senior Executive was
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`assigned responsibility for operational costs, which not only were a key factor in determining
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`the company’s annual budget, but were also directly impacted by the year-over-year savings
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`achieved by the procurement division.
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`48.
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` By engaging in the conduct described above, Hofmann violated, and unless
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`restrained and enjoined will again violate, Sections 17(a)(2) and 17(a)(3) of the Securities Act
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`[15 U.S.C. § 77q(a)(2), (3)].
`
`COUNT II
`Violations of Rule 13b2-1 of the Securities Exchange Act
`(Books and Records)
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`49.
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` The SEC realleges and incorporates by reference here the allegations in
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`
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`paragraphs 1 through 48.
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`50.
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` Section 13(b)(2)(a) of the Exchange Act [15 U.S.C. § 78m(b)(2)(a)] requires
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`issuers of registered securities make and keep books, records, and accounts, which,
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`in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets
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`of the issuer. Rule 13b2-1 [17 CFR § 240.13b2-1] issued thereunder prohibits any person from
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`directly or indirectly falsifying, or causing the falsification of, any book, record, or account
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`required by Section 13(b)(2)(A).
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`51.
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`By engaging in the conduct described above, Hofmann violated, and unless
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`restrained and enjoined will again violate, Rule 13b2-1 of the Exchange Act [17 CFR
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`§ 240.13b2-1].
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`COUNT III
`Violations of Rules 13b2-2 of the Securities Exchange Act
`(Directly or Indirectly Making False Statements to Accountants and Auditors)
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`52.
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`The SEC realleges and incorporates by reference here the allegations in
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`paragraphs 1 through 51.
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`53.
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` Exchange Act Rule 13b2-2 prohibits an officer or director of an issuer from,
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`among other things, making or causing to be made a materially false or misleading statement to
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`an accountant in connection with any required audit of the issuer’s financial statements or the
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`preparation of a report required to be filed with the Commission.
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`54.
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`By engaging in the conduct described above, Hofmann violated, and unless
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`restrained and enjoined will ag