UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 40336 / August 19, 1998 Accounting and Auditing Enforcement Release No. 1067 / August 19, 1998 Administrative Proceeding File No. 3-9678 ______________________________ : In the Matter of : :ORDER INSTITUTING :PROCEEDINGS AND IMPOSING FRANK PALUMBO, CPA :A SANCTION PURSUANT TO :RULE 102(e) OF THE :COMMISSION'S RULES OF PRACTICE Respondent. : : ______________________________: I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Frank Palumbo ("Palumbo") pursuant to Rules 102(e)(1)(ii), 102(e)(1)(iii) and 102(e)(3)(i)(A) of the Commission's Rules of Practice.[1] II. In anticipation of the institution of this administrative proceeding, Palumbo has submitted an Offer of Settlement ("Offer"), which the Commission, after due consideration, has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and prior to a hearing pursuant to the Commission's Rules of Practice, Palumbo consents to the issuance of this Order Instituting Proceedings And Imposing A Sanction Pursuant To Rule 102(e) Of The Commission's Rules Of Practice ("Order") and to the entry of the findings and imposition of the remedial sanction set forth below, provided that Palumbo neither admits nor denies the findings set forth herein, except as to jurisdiction and the findings set forth in Paragraphs III.H and III.I below, which Palumbo admits. III. FINDINGS On the basis of this Order and the Offer submitted by Palumbo, the Commission finds[2] that: A.Palumbo is a certified public accountant and has been licensed since 1985. From August 1993 until his resignation in April 1995, Palumbo served as controller of Underwriters Financial Group, Inc. ("UFG"). B.During the time period relevant hereto, UFG was a Colorado corporation with principal offices located in New York, New York. At all times relevant hereto, UFG's common stock was registered with the Commission pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act") and traded on the American Stock Exchange. C.Between August 1993 and April 1995, Palumbo knowingly or recklessly participated in a fraudulent accounting scheme to overstate materially UFG's revenue, income and shareholders' equity in financial statements that were filed with the Commission and disseminated to the public. D.As part and in furtherance of such scheme, Palumbo: 1.recorded fictitious and other improper accounting entries on the books and records of UFG and its subsidiaries; 2.failed to record properly certain liabilities incurred by UFG and its subsidiaries; 3.recorded other improper entries on the books and records of UFG and its subsidiaries that overstated revenue, net income and shareholders' equity; and 4.used falsified books and records to prepare financial statements contained in UFG's periodic reports filed with the Commission. E.As a result of such conduct, UFG filed materially false and misleading annual reports on Form 10-K with the Commission for the year ended December 31, 1993 ("1993 Form 10-K"). Specifically, UFG materially overstated revenue, income and shareholders equity in the 1993 Form 10-K. In addition, UFG reported a profit in the 1993 Form 10-K when, in fact, UFG had incurred a loss that year. F.Also as a result of such conduct, UFG filed materially false and misleading reports on Forms 10-Q with the Commission for the quarters ended March 31, 1994, June 30, 1994 and September 30, 1994. Specifically, UFG materially overstated revenue, income and shareholders equity in each of those quarterly reports. In addition, UFG reported a profit in its reports on Forms 10-Q for the quarters ended March 31, 1994, June 30, 1994 and September 30, 1994 when, in fact, UFG had incurred a loss each quarter. G.Palumbo made materially false and misleading statements to accountants in connection with the preparation and review of financial statements included in UFG's periodic reports filed with the Commission. H.On January 29, 1998, the Commission filed a complaint ("Complaint") against Palumbo and others (SEC v. Donald Ferrarini, et al., 98 Civ. 0629 (SWK)) alleging that Palumbo engaged in the conduct described in sub-paragraphs C. through G. above. On February 9, 1998, the United States District Court for the Southern District of New York entered a Final Consent Judgment Of Permanent Injunction And Other Relief As To Defendant Frank Palumbo ("Final Judgment") that, among other things, permanently enjoins Palumbo from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2. Palumbo consented to the entry of the Final Judgment without admitting or denying the allegations in the Complaint, except as to jurisdiction. I.In October 1996, Palumbo pled guilty in the United States District Court for the Southern District of New York to one count of conspiracy to commit, inter alia, securities fraud in connection with the conduct described in sub-paragraphs C. through G. above. United States v. Palumbo, 96 Cr. 816 (MGC). J.By reason of the conduct and events set forth above, Palumbo: (1) willfully violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2; (2) willfully aided and abetted UFG's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13; (3) engaged in improper professional conduct within the meaning of Rule 102(e) of the Commission's Rules of Practice; and (4) was permanently enjoined from further violations of the federal securities laws. **FOOTNOTES** [1]:Paragraphs (1)(ii), (1)(iii) and (3)(i)(A) of Rule 102(e) provide, in relevant part, as follows: (1) The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice of and opportunity for hearing in the matter . . . (ii) to be lacking in character or integrity or to have engaged in . . . improper professional conduct, or (iii) to have willfully violated . . . any provision of the Federal securities laws (15 U.S.C.  77a to 80b-20), or the rules and regulations thereunder. (3)(i) The Commission, with due regard to the public interest and without preliminary hearing, may by order temporarily suspend from appearing or practicing before it any . . . accountant . . . who . . . has been by name (A) permanently enjoined by any court of competent jurisdiction by reason of his misconduct in an action brought by the Commission from violation . . . any provision of the Federal securities laws (15 U.S.C.  77a to 80b-20) or of the rules and regulations thereunder. [2]:The findings herein are made pursuant to Palumbo's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding. IV. ORDER IMPOSING SANCTIONS Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the sanction specified in the Offer submitted by Palumbo, and accordingly, IT IS HEREBY ORDERED, effective immediately, that Palumbo is denied the privilege of appearing or practicing before the Commission as an accountant. By the Commission. Jonathan G. Katz Secretary Service List Rule 141 of the Commission's Rules of Practice provides that the Secretary, or another duly authorized officer of the Commission, shall serve a copy of an Order Instituting Proceedings on each person named in the Order as a party. The attached Order has been sent to the following parties and other persons entitled to notice: Honorable Brenda P. Murray Chief Administrative Law Judge 450 Fifth Street N.W., Stop 11-6 Washington, D.C. 20549 Alma M. Angotti Securities and Exchange Commission 450 Fifth Street N.W., Stop 4-8 Washington, D.C. 20549 George N. Stepaniuk, Esq. Chief, Branch of Enforcement No. 6 Securities and Exchange Commission Northeast Regional Office 7 World Trade Center, Suite 1300 New York, NY 10048 Richard Friedman, Esq. Giordano, Halleran & Ciesla 125 Half Mile Road Middletown, New Jersey 07748 Counsel for Respondent Frank Palumbo