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SEC v. Int'l Systems and Controls Corp.

SEC v. Int'l Systems and Controls Corp.

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16

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161

UNITED

STATES DISTRICT COURT tOR THE; DISTRICT OF COLUMBIA

Exchange Rules

Act

[15 U.s.C. 12b-20,

78j (bJ. 78m( a)

and 78n( e ll , ha$ promtllgated 13b-2. 14a-3 and 14a-9

10b-5.

130'1-1,130'1-11, 13a-13, 240.12b-20,

[17 C.F.R.
SECURITIES AND EXCHANGE COMMISSION SOO ~orth Ca~itol S~reet Washington. D.C. 20549, Plaintiff, v. INTERNATIONAL
J.

240.10b-5, 210.14a-3

240.130'1-1, 240.130'1-11, 240.13a-13.

240.13b-2, Civil Action No. 793. Section COMPt.AINT rOR INJUNCTION, APPOINTME:lT or RECET/ER AND OTHER ~QUITABLE RELIEf

and 240.140'1-91. Commis$ion brings Act Act this action [15 u.S.C, pur$uant to

Plaintiff

20(b) of the Securities

77t(b))

and Sections

21 (d) and 21 (e) of the Exchanqe to restrain acts, and enjoin

[15 u. S. C. 78 (u) d and 78 {u lel from engagin9 herein. 1.n the

THOMAS KE..'1N"EALLl', HERMAN M. FRIETSCH. RAYMOND G. HOFKER, ALBERT W. ANGULO. and BAi!LAl'l '1. STEIN,

CONTRO~S CORPORATION,

SYSTEMS

&

each of the Defendants of business AND VENUE

practices,

and courses JURISDICTION

alleged

Defendants.

4. to Section Section

The Court

has jurisdiction

of this action Act [15 U.S.C. 78aa].

pursuant 77v(a)] and

22( .. of the Securities ) Act

27 of the Exchange Defendants,

[15 U.S.C.

Plaintiff

Securities alleges

and Exchange

comm Lss ion

("Commiss io,",") .. cept x that: as to

S.

directly

and indirectly.

have made use and in connection herein. Act

for its Com"laint paragraphs 1. ("ISC" ), Albert

upon information are alleged

and belief,

of the means communication

and instrumentalities in interstate practices,

of transporta~ion and the mail~. of business

2, 3 and 4 which Defendants
J,

upon knOWledge. , Controls

commerce, and courses

International

Systems

Cor~oration
:I<:>f"e r ,

~ith the acts, Certain

alleged

Thomas

Kenn .. ll y, Herman a and Harlan

:1. Fr i et.s , !<aymond G, ch

of the acts constituting Act occurred

Violations

of the Securities of Columbia.

W. Angulo,

M. Stein

(collectively directly

refet'~ed to and indirectly, that

and the Exchange

within

the District

hereinafter have engaged, unless

as ·Oefendants"), are engaged,

and others,

and it appears are about which

to the Commission to engage

THE DEFENDANTS
6.

restrained

and enjoined. of business

in, acts, and will constitute

ISC, a Delaware in Houston,

corporation Texas,

with

its principal herein

place was

practices

and courses

constitute

of business engaged

at all times and products

relevant

v 101 a t ions 0 f Sect ion 17 (ill) Act') [15 U.S.C. 77q(a)l.

of the secur ities Act 0 f 19 J:l (" Secur it ies sections LOibl, 13(a), 13(b)(2) and Act")

in providing

services

for the development and the proceSSing, products. pursuant

of energy. storage,

agric~ltural and handling stock 12(b)

and forestry of natural

resources,

14(a) of the Securities
(15 U. S. C. 78j (b),

Exchange

A"ct of 1934

('Exchange

resource with

and agricultural the Commission

78m( a), 78m! b)

and 78n( a)] and Ru.les lCb-3, 14a-3 and 14a-9 [17 C.r.R. 240.13b-2,

The common to Section

of ISC is registered [15 U.S.C.

12b-20,

1321-1, 1321-11, 13a-13, 240.12b-20, and 240.1421-9] plaintiff
10Ib),

13b-2,

78.J:Jb)]of the Exchange stock exchanges. ISC's Stock

Act and traded common stock

240.10b-5, 240.14a-3 2.

240.13a-1,

240.13a-l1,

240.13a-1],

on the London

and Amsterdam

thereunder, pursuant 13(b), to a~thority gran~e~ to

was also traded Since November ISC's common

On the Pacific

and American

Exchanges. tradir.g in has not

Commission, ll(a).

1978, when the Commission stock

suspended

it by Section$

14(a)

and 23 of ~be

for a ten day pe r iod , the stock

163 16" t.caded in the on the proc~$-5 to Pacific of or American Stockexcnange. The !>..'1EX is to its shareholder:; ·and defini repo"tS. and t-i t~f.e i!Tlles~in_g pr'.)~y t.he s<;liciUIlSi period public, press releases. ~nd' annual 197() -to Ailgulo wi in pre-and the and the

d<;o-listifl9

1SC' s stock. over-the-counter

1SC' 5 common stock lIlar!<et.

lilllinary peri-odic

ve-

waterials,

continues 7. of tbe

t.r,ade

in the

During

Eromapproximately Frietsch, in 'Hotker, connection of IS1:,

Kenneally,
a,oard of

who r~s ides

in E:~~H~ston, Texas,
M.arch, 1979. 1979
I

waos·Ch.ai r:"ma,t\
and 'Has Ch'ie.f is still

da t e be.reof, Stei.n
1

defendants oth"rs sale th.e
1

I.S.C, Kenneally, and for indirectly, of

Dit'ectot"s of

0.£ !SC u"ntil January,

and or

directly offer

to

E,xecutiv" a di~e~tor of the

oLHc"r
of

ISC unt-il
He

Kenneally a".,roximately his

pu-rchase

or

sale in

securities. s"olici and ting

public arid in of

rSC. stock ISC's

owns

and/or ?-cior

cont·rols to

42~

til
as

ing:s

"~i th

commission, and by Use of

proxy

mat."r ials

\loting of

o·f ISC. Boar~

resigning and as its

positions Executive

press

r,,_leases,

the

me ans in

instrumen-talities and

Chairman ficer, this

of Directors t.!tat

Chie~ int"nd~

of-

tra"Msp.cn..tation
mails. fice-s ha'Je to

and communication employed and are

inter~tatec-ommerc·~. devices,

t.he
artiof

Kenne. .. Uy .aotion 8.

was

aware him.

t.ne commission

Co commence

employtng and are and

acheme s , and statements to state

"g;l.inst
t

defraud, fact.s,

have and

made

making are

un t rue

~i~t,sch to this

who resides a Senior in

in ·soust.an,

1'-exa.~ ... was of was

at

~11

ti~~s

materi.;!.l facts

ha'Je

om'itted the

omitting (lot

material O·r and

relevant ". rel"vant of

action

Vice-~resident HOUS ton, Texas, and h i-s the
!,OS

ISC. a tall
t

necessary co be

too make
5 ta

statements

made

misleading. mate rials

110 fk~ r, to in his to

who re s id,e"

ir.-.es

requ i.red periodic practices 6pe~",ating other

ted

in. 'such

pr oxy ·so.1 i citing and are

t~i" action
11arch. 197·9,

a vice-E'resident Horker
I

General

COllnSel ISC.

r e po r t s , and n"v" 'and coueae.s as a fraud of and

engaged

engil<; Lng inacts-, opera·ted and are

rsc,

res ig.ned was aware

i e Lon wi th the

busi·ness",bich deceit upon the'

have

P"t-io r to int-ended 10'. rele'lIant Angulo Slaok said this assets

res,igna·tion coilllti.ence this

tlofk·a-r action

tha~ him. Texas ISC.
I

Commission

shareholders

o·f ISC and

against

pe e-sons, l). AS a part as not
0

Angulo, to tnt"

",ho res ides action the

in ilous·ton, Treasurer oE

wa·s at In s.,ring

all

t

Ime s

t

tile to

afor",.

a id

viol

a-t i've. cond ue t by 12 above, and resl'ect mislead to material ingly. the

the facts d i-sclosed

1979, ·subsidiary to the afore-

defendants, either or were were

referred disclosed, by the

i:l para<jraph
"'er'e falsely with

became Sill-alls ~osition 'action of

Ex"cutiv.e-. , he against B-ryson,

Vice--presiden·t Inc. that In
&

o'f IS;:;'" to Angulo",.

former mOiling ·i.ntendea

Prior

omit:ted

defe.ndants

following

was awa"re him.

t.,he Commission 1979, Inc.
t.he

~o comrnence certain its sub s i>Angulo is

matters: Improper ISC and its subsidi"ries and illlcit ",ith On t!le paid payments more than $23,000,000 to of of f"rei9~n in matepersons

June

stock

and of

at ack

Si·Jalls

Brison.

and .ce,;tain

d La r i e s '~e.t"e sold spac Le.L assistant 114 relevant Stein,

t.o another to the

.,..,;:'11c.l:/ of

awned .cot"pa~aoian. the
I

rial,
and

ques_.tion~ble in were

Io.reign· the book

payments

president in

succe s so r was s

entity. at- 4.11 ti:ne~ G~oup ..

entities

connection

securement and records

cont r accs . These ISC and ~_cncealed

who r~sides action

Houston

Te:<as,

payments fi:om

d isguised including

to this

t,h-e I?resident

of

rsc

1

:;n~i:"!.ee:-i:lg

eus t ome t-s

Ecra ig n gove['nmen to disclose
tt-I..Jlt

t.s .and

gOlJer·n.m.~ht-6\11'ned upon ~ nd its the

entit.ies. ~ATURE 12. ISC has. Dudn\! f.~le.d the witb " .. dod

ISC failed

it:

was dependent

or

ACTION

from .ap9t:O)(~matel'{ and di5semiilil

197.0
rted

"_0
and

the

da

t....

Eorre 19 n ?a}"r.'Iene s ? r a Ct.ice s here:O'f, ob'ta ining of paymen t a in

::o r t:~:e s ecu r in.9 dE bus iness the orig

add I e Lon to

1.na11y cont:racted

'=.~.e CommL;tsion

made

available

QUES,T_IONA,BLE AllD amounts cccas ',oith and that material ,{"los to its earnings fa~s" and a"d r",venues ,,,,ere statements 14. (al .dat·e he_~eof, t!le $,ec~re;"''''t During the period

!LLICIT from the

f9.REIGN PAYMeNTS 1970 of to the and to those

ap!"r-bximately se·c.uremenr.

i cned the

by such

pr-ac t.i.c e s . .It filed Ex.port-Impor~

misleading

n conneo t I o n '~ith of

contracts

:;"ited

states

<lank concerning

its i:'oreLgn

ccmperrs a t Lon 'for

!. cs s e rv i ce s re1at.-ing

ecnt racc s , .,!SC,
payments. Ea.rnings ISC falsely and misleadingly ccs and ible
t,

directly

or through

one or mcn.-_e of it·s subsi¢ji,at'ies,
s an.i or ,gave rnme n't of f i c La Ls ,

and' /lS'sets recorded o..ve!:'.runs and I?ubliclyrel?octed, p r i ce contract·S,

pa Ld al'P rOJ< ima te 1y 523 'millio"

to

as soc Lat.ss of .senLor go·vernment officials,
to .b~ governm,ent, and and members Sou ch officials rulin9 and associates in lSC Les. to in of seven

per sons it
of government Ei\stecn,

beli-e'.'ec o'fficials, African

as. "unb.iiled claims

t'eceivables"

on f Lxed

E.or escalation uncoll'"c,t contr~cl:s

kickpack .con t r ac

arrangemept.s
t;

·. i!::t\ supp l Le r s. . indicat"d intolosses

or

families,

Middle

/lddi tionally, on fi!{ed 1ated in, or ptt'ice

ccst s wh ich r:olled obligations the finanoial

Ame'r i can

coun t:r i e s , other countr

mad·e 0 ther

p ..-yme n t s 0 f s im i la r

we-re imp:.-operly and reported other in

o ehe r unr erl<lt

nature

-I n the" ",and
Ib)

con t.r ac.t s , liabilities W'~re misleadingly

were

repcrted as for well

The paymen t s ilppro'ximately of similar ~7S0 to' ,date.

ref erred ~10 million

parag ""ph outstanding "'er",

14 ( ,,1 a bove , corn.mitme.nts-

staterqents-.

as

!>"ym nus ..

purport million

and of

object, business

made

in

connect.Lcn

InadeqClate ISC aqco~nts ."flecr. and to
rna

Interna'l keep adequate

Con tro'ls books, records and and

with the

approximately period 1970

Obtained

by ISC during

failed whi<:Ii,

to in

make

and

reasonable in"oi'linq
0

detail, ISC'
5

accl1racely assets.
t trig

fairlY to
511

transactions i" t aIn a sys tern re'asonable as

rsc

Eailed

devise 15. subsidiary, corpocac for the COllUlle i ng nc .s andar son Lcn , engaged design, in
&

Saudi its

Arabia 1975, :ISC' 5 "',hoI J:y-own,ec a New Jersey in ,Saudi Arab'ia

fin

te r na I

acceun tha:t:

con t ro l s

f fit: ien t recorded

E Ls'ca 1 ye,ar
Inc.

provide

aSSllrances to

t::ransactions

were

Porter, fulf

("S&P"j,

p,ropedyand

necessary

permit

preparation

o'f accurate

in

i,11 iog and

two contracts

financial statements.
:-lisu'se persons ISC f or the failed purchase, used as eo disclose decoration a [amil,» o'f CO\7orate Assoc ia'ted and Others that and sommer and mere Assets til' wi th ISC t.han $1,000,000 of for an were Irish e:.:pended

eng'ineerii1g, and

construction

aupe rv is Lon of complex, The contracts $"cu'red contr"cts were in 1976.

a water provide subject

dee a Li na.t.Lon tha't if

pO\o'er generation payrnen t.s were A third

impro!?er cancelled. the

made,

the was

to 'being

contract ISCjS&P

16.

During

pe r i od 1975'-1976,

made payments

maintenance res·id,e·nce trlisle.ading

estate ""nneally. concerning '~as,

of approximately
commitment projects Water to pa for toa

$3 .. million 5
S<ludi

af an approximately
official in

55.4 million
wi'th Sal in"

primarily I\dditionally, the

defendant

gO"ernment

conne-ction BaucH let:

ISC mad e false

disclosures 1965

wh~ch

t;he Saudi

government-owned (""SNCC ~l05
IO ,

.~rabian

Deferred

,comr;>e-ns.a,tion COt"l>o rat ,i,on s wh i.c h since by IS.C t.o ~he extent and co"trolled whom of 1I'0r" than

Con-v~t'si.on totaling tl y to

Cot'pot'ati.on approximately

u·l!:imately These

con t r ac t s

entirely and and and '"h,ich
t-f.'lO

f.unded "as ~i~

~2, 000,000 Kenneally '["SC,

rsc

million.

payments
0

'>le"e

dOtrlina~ed:

by defendant
'ioJ.a,5

ia

'(I i re;c

Ac nam
same

Samma,n, a then Official

Vice-Gove to

r noz his

f SWCC and

c:

as soc La ces , o ne of the principal

a d Ir ec t.o r o f

Lnd i r ec t Ly' to

t,hat

by paY'lIents

designated

th,,¥

",ere

benefiCiaries.

agent banks

;..rho'lIIas loc~t.e:d

his in

E~ther:-i,,-la.w; Switzerland and

and t,o de s Lqnat.ed accounts Lebe ncn , Su,b.::iequentl1l

at

12

below

regarding all

IS·C's
tilY1e!l

sa!"

Ot SH3 in rsc's
h~Let-o,
t

fiscal ISC
I

ye·ar

1978).

g emman

22. _ Du~ing subsidiat;y, Black,

rele'Ia..nt " Bryson,

s

tl't.&n '.wholiy--ol,.{nt2c ;;as a De Lewe r-a

5i'JaUs in the and and

nc ,

("as&s'),
in;

1.7. ;..rere entered

In cer~~in in3~ancas, cont~ects for consultancy se~vices
into betl,.,reen an of iSC/S:~~ entit·y money'
IS

cor'po r a tLon and handling 2~. throIJo;h accounts rIIservice-str of !t"anian 24. that

.,·""aged of ~ases

des Lqn and liquids. 1976, wir~

Inanufactll.r

p"oc:ess~'lg

and

AM

r:1tec-natiOna:!. by
t:.<!

Ove::oseas" said V!.ce-Gev~r~"', The ?t:irlcip~'l the

Establl.sh[ileri.t.. to act a s the was to

(' "'-".An), conduit.

des ignated

S...t.ieen ·BS·&Il, by of ITECli, by t!1e

1970

~pprol(imately tra"sEe~, to

~633, 000 va r Ious

·.as .

<,aid

:~e rno r

he ·..,·as to· ~ec.:~lV.e-. The major

c:heckand a foreign

foreign for pll"t"?crted

o.f AR.-\ services

i:.he v'1c:e-gov9 be perfornled yet; funcs

fa the t:-·i."1.-Law • enti:'.y to

I 1;.'.1 of

en·tity. entit.y in

"!"he payments ccnne-ction with

were the

by thi~ were paid

und e r the t:he

contract

'~et""e d i:-'ect.ly

fo-reign

prccu~S!rn:~nt

no c performe,d,

'5a Ld v lce.;..governor

.government 'the p-r2nc:.lpals of ':he

contracts. of fund·s the paid foreign co "ntity t..h.e ~ntity a(j"is,ed were BS&B Officials pas s ed to I_t"ania.j1

o r \o1er~. d~pC'$iLed
lB. wi ISC; also

to

the

numberec3
eo- pay '"as to

S1r1iss ~~counts
Fe·" mont:'

.:designated
to a Saudi

by. hip.
company

agree<l

~lD,ODO

a po r t Lcn
0

on

which 19·.

~he v ice-gol'·.,rnor

as.soc i e t ed .

qov e r'nme n I:. 15 as and 17 above e:e~"sn.
s

f f ic i al s , has
ot.h·er

Th·"

payments in '~,,,,e
l:.;.'1e.

~eEer~ed financial by

in p~,ta,!raRh5
!SC

25.
t
a

ISC
, or

no detailed Eo~ms
0

infor[ilation, f
d"ocuillentation

vouchers
I
doc ume n

Or expense
t
Lng

were ThE indiv

ceco(de-d payment·s idual

r acoe-d s of i'lofk."~ and

rtco·nsulting otber

t

eraent.s

t

he

authorized

p, Ie e sch . The known oE the

nature 26. '~~re

of

the Th~

~se:-\rices'l
paymen t s

=-o,r which ref"",:·ed
to

it. in

paid

-th!=, t!f'Q·~e_sai.d 24 and

S.63J;OOO. 2-S dbO"" ~s Eees!1 at"

defendants

kne-w Or .should ~S through

have

ac e i.v i ties failed activities ma e e r La l s and

pa~agr"phs

iil.1eg-ed i:l jfa""",,,aphs
and/or failed to cause

18 ..cove , Def,mda,,·ts diselcse in

rscorded

in

t.he. financial

_r;e~orri"5 o,f

rsc as

.,. gent a

ISC to adequately with
t he.

those other

"age_nt's

ccmmissi.ons." In connection with S350 I5C, pte'sent, $22·,) an a.ppr.oKimal:ely co-ntract S"HL and ap~ro~
ill

in its· public

filings the.

COJl11l1issi.on and pu·blic.

27·
an

s 250
.Iran. frolll

mill for 15C's

ion fo,e.st

co n e r a c t;

d Ls.aem Lne t.e d to

investing

approximately co,nplexes t o tlie

million

~
20. app,oximately we"" ISC;'
OJ

produi;:ts

th,ougb [laid mi Ll.Lon

5HZ,

fiscal

sale,s

in Iran
its total

have,
salas. pel:

ill recen~ ISC's y e ar .

years, re~ent

~ept"ese~ sales in

ted Iran

ye·u 1974
an

imately

$U.

J md Ll i on of g,oups of

20% o~

"ppto"ima~ely
CI;'

cOil'.IIlitlne·nt

t.o several to

ap,,-roximatel·y 2i.
(a)

$.60 million wholly-.owned

~·a.ge-nts" SUd.l~r-iillrte" provides Ltd. feas~b!.lity

"co-nsuit_a:ntsn.

P3.y~e·nts

we''Ce made

var Icus

des.i~r:a:t2C.

!SC''l

SlJbsidi.5"Y·, Eir-t'l whic~

foreign
pay '''""e

bank
made

accounts,
in

Othet" simiLar

p-ayments or com.mitmencs
to obtain

:to

(f'tSUL"),

is

a Canadian

e'ngin~srt"i~g
i

connection

wi til ISC' '" attempts

or;;" r

stUdies,
and

p.OC'2SS

technology
fer pallet:

design
the

se rv ices,

9["oj e c t supe rv Ls Lon
with p ar t i cu l a r

ccnt r ae es in Iran.
:2 8 ~ Ce.rta i n 2?
0

m.a,nag~rnent:. in (b-)

.services and

foc-est...:y

industry,

t

t.he' payme n t s and ccmm'i t-mef'l. t.s to a -member hLs of r r an
1:3

to

p~~; de,s~r ioed
I

expertise

,>"Uli>

l'rodu.ctien. 'Z IJ rich
x,

Lr"I paraq''(:3:ph G,~ ~ En z
11 H)

went to

fOI;:-r.e r

r u I in'S! f.ami l~' ce.rt:aln

S tad i-e r--[{at:"te:c i.978 ,
art

ve s , 'l.i.O i 1 I3C' s t. {See para.,raE'h

Prince

.~bdo'rl!2a·,

octafn

i nf Luenc e "Ln getting

f i50.o1:/el1"

!SC Zll.r_ich-based

aubs i.d iary.

of

·t h.e con t r-ae t s "",ard "d

to

I5C.

168 Z9. pariOgraph Ce~tain 27 ..ere The ce~t"in 'of the payments and cornrn i t.men t s to pay desc~ibed in ~9't'eecl subccnte to this arr a .,geme.nt Th." aforesaid

lb~

in

order

to

obtain '~"s not

the

fre·ight

forwanling r:ecorded

m",de co persons
-pa.yments "'f the

who '~o~ked
1:0-

prim,o.r11:/

fot'

t'he. IriOnian

ae e .

transaction

ac:curat"ly

g6vernmen~.
ingett.ing

'""'era mad·e contract5 of

ob ca Ln their to ISC

influence and In obtaining

in ISO's

financial
(b) The

record~~
~eb'ates r.,.£~ ...red
tq

" .. arded the

to

in

l'''lOagr'aph acccun

34( a) SHZ I

abOve :n.airttained

add Lz i cna I compens"t.ion amount-s fQr 30. paragr'aph notes. 31. fF.iragraph consultants' Zeiel:', a Swiss 32.. a group 'said dent in the 2eier Swiss of tn Appr'ox i,mate 1 'I
27 I'SC

Lr, excess

or Lq Ina L con t r ac aua L

initially :at the

we r e dePQ~·ited

an of!-bock

e

:of

for of

ce rt a i n
the by

or

"the contraots. and commitments SHZ in the to ionl. p,oy descrl~d of 'be"rer" in

Union· Bank ;_;,-{ w'it~~r:la.fuJ. S r.o Seltec subs Engenh.aris, idiary

Thet:'"eba~e

funds

~heC"ea::::r:et:' were a subsiaia:ry , Inc:::., pE

Certain 27 ...ere

piOyrnents

transferred

S~A.(~Sel~ecn),f and

made

rsc

througb

rsc

I

s wh"Oll:r~owned oocpor (c.) a t Lcn ,

Sa.'1d·ersor;

eo·r:I: e:r

a ~h~o/

Jersey

s 4.. 6
by rsc

rni 11

ion

of

t),e

~aymeri t~ de SC r ibed of SH2, "agen.ts MOl,<

in or suppli~l;'S ag r .. ,,';
t he

,vs ear 1y as 191'3,
connection ';.lith

ISC en ee ced Con-tracts 'and
t.ha

in to Ir-an

ag r e emen ts wh.are-by t.he to

...i th supplier:s SHL
l

wer'" ·.h Lch .

made

t;hroClgh

5HZ

.r o a group director of

in

in

i nc.iuded

the

",anaging

to. i [In a te

the i r i nvo ice-s The araoun has been
t;

the re a Etee r .k ii:kbac.k t t!le invoices
Q

o"toio"a1. 1St
IS

i.nElated

amounts.

wer:e inflated
to

fiscal

'1~at Included

e.nded

June

3iJ, that

1'978" group

ISC 'sold was the the

5HZ to aiorep~ .. si._

aa f·c,;t" as

p la intl"ff

able

to

det.el"'mine. ·s"~pli,,r

t h Ls agreed

·tim·e,

W~S

Lnd i v Ldua.Ls ,

within and

a.pproo<imat~ly app r'ox imat.el 35. 34 ahqv" inclividual and the

~3. 5 million.

At 1"'''51'. one

to. kick;,ack

managing of

d Lr e c t.o r , Ze ier, J:"lated-part'y
On

11. M. lIurte" . was

for:m.e~ly not

'1- s 5 25,000
payments autho"ized

. r-gferred by t-o in paragraphs Ang.ulo have ana 23 and 27 'thcougb The oth.",

SHL. This

t ... ans ac t Ion Eor

disclosed ·pti.dng that a

The were

ISC' 5 An.n";a.l Re.,~ort p"~iod was 1974 to qa·te,

;:'orm lO-?( I5C has also

t.h'" year to as

1:;l78. d'isclose S.A."

2~iet$c.h, should in to

Stein. of

failed known

defe"dants a""r"r:gements ['ailed

'kriew' or de$cr ibed f ailed

known

tone "c·tivttie5 34 abova , di s c l oee with the

t he pt'inc.ipal and to The that

of

an entity the said with co 'in

Em"g,

pat'""graphs cause in Lts !,sc public

21 through to ad"'quately filings to the

entity,

during connection refen:ed the

pe r Lcd' ISC paid securing pa~."graph9 eecc rds of contracts. 27

al"P'roxirnatall'

DeEend~n ts those

"nd/or

$2 mil'lion 33. abov-e were or or 'consulting:

Emeg in payments in

activiti"s and

and 'arrangements in' o·th a r ma·t'er:ia-ls

through

32

tommi$"I-on public.

d Hrseminated

Lnve.s t; ing

recorded fees.'

financial ha9

ISC as

Dcor=trnissions'· voccher s

rsc

no detaiH,.d foc-ms of

i"fo~mlltion, documerrc

e}C,~en_se s·tat.ement..s,

o'e.. other

at Ion , documenting ("Jf'p.

36. ),

rse's is

wholly-owned

subsidiary, Delaware

J.~. !?rltchard
corporation technology, tq -the

• special pL~nt

C".
Lz i nq <:.:n~

a Kansas.

Ci ty 'bas'ed ty

made the payments.

in p rov i d i nq feasibili giMet"ing and construction

s cud.i e s , pt"ocess

supe rv Ls.f.en s e tv Lces emphas i s en SC'!s ~nd

?et:.t:'".Q~hernical natural gas.

$~OQ,ODO in ~2batds· from a Can5di~n frei~bt forward~r, Kuehne

i.'_dustry

w i t h :par-clcul';!r:

liquifi".::d

I.P JF? has, several subs Ld iaries '. including Pr1. t<':hard' International

171

41. (a)
eo a fo'rroer

In 1975, ~pprolCimately
aen.Lor Algeria:> services" a ::our military

$400,000
otfic~r,

wa,s paid Rhasid of The

through JfP
Ze':!har for wlth

37.
t i'PRL" l . s'imilar 3!L

ISC' S '~holly-o"'ned is to a London J~P. 'Iarkor
1S

subsidiary Unitso Kingdom

?r1 tchaxd-Rhode,s,
~orporation .-ith

Limi ~ed oper:at±on"ts

pu.ported
!SC made

"consulting

"hich day

consisted pe.iod.

meeting

based

re,,,,.,sen,r.ati,ves to a Swiss
(h)

ove r account~ not forms

9aym,,~.twas

N.V.

("Verkor"),

an
'Ni zh

ISC '~.holly-o ned .. capabil

3"lg,ian to

subthose

ISC does
0['

have of

detailed

inform"ation,

vouchers, the

ex"erise exact mil i tat'y

an gng ineering

t t rm

i e i e s si:nilar

s t a t.emen t.s , nature of

other services

documentation, by the fot:m,,!::

documenting senior

of J'rP.
39. wh rch des ign, facilities. cen t r.ac't s and Kingdom. The (a) concractm: Sah!3"~a (the (b) 401. contrat::tr Slnce 1971, PRL ha s hadi;hr-e~. contracts T~2 of with 30natr.a"ch tor t " LN!.i" J

tl1e

provided

i'.lgerian

officer.
(e)

i s an

Alge.rian

st.3t::1? .... vne d entity. o «ncl ~o'nst!:'uction th-e cont·racts to be financed

corrt-r a o t s were nacura

The to

$400,000 the Ila'ssi

payment

was

i nc Ludad

b'l' J?P

as

"costs"

eng ineeri:>g' All '"ere of

1 iquified

i ga~

attt'ibut'able 42. l'RL "hd

R' M'el .,roject. acting the on ben,aIr senior of

originally through

t;fere tlxeO-prl.ce sourc"" in

Defendant J~l', Ln I ~ ially

Pr-ietscn, !:"etaine,d'

rsc,
.Ugerian

including mil i t"ry

the Uni :oed

J:urmer

contracts A 1971

were cont r acc

a's follows! under which PRL .",,'placed " french

of~icer. 43. ·ap"roximately (a) !liS more 1971

fully described
to May 1976!

below,

during

the [,eriod trom

",nd '~as

to- complete

a gas

treatment

p.l an t, in the

",GT'pj, ccn crac t l : A 1971 'contract. known
tc

,~pprodmatI21y

$2.4, m'illion Dev,=lopment p,rO'jects. the Hassi J<'P

,""as

[laid

th.rough ('·ADC")

~RL to in. connection

as

tile

"SkD:da "line"

4" Ocr "5k11<<3'a, IV" of

:-Iunib with

~\a£ri the

and his

"Arab

Company'

unde r wh.Lch PRL was

const.ruct

GTP and (b)

Skikd"

ptocuction
(0)

facilities
A July ccnt of

located 4t Sonatrach's
1973

Skikca
the

com~le~· 5/6" ible or for m.at.ely En'lin"'er was the 44. m~n ts

In conriec e Lon with million and
WaS

:<'Mel to

con t racc

, approxr> E.::1 EDCO

ccnt.act,
, under

known

as

"Skikd'a,

~~.1 in9

paid

through

,Iasri

tn.ough

"Ski~da

50/60"

race

"hieh

PRL wOLlld be' respOns the Skikda facility.

De'j,elopm,ent

lIo1dLri<:;s Establishment
ADC. 1971, ices PRL had as a
II

( .. EDCO" ).

construc.ion (<3) ~ 150 million. 40 . In

"lines

V and VI" of
value

·':not,hec company of" By the l4_a:s' i: ( end of June, serv

The cont~act

of these cont~acts

was approKimately

an t e r ad

I n no "gre",t.

·... th . i-

f"c.~

n i.s

s~ 1 e s rep:r:es en ta t i v~

,-e bt'uaty

1975,

J

r?
to

t"ece i ved be installed

a con t rae: t f rom at Hassi

-S'cma t roach (the the "rid subsequen eLy extenced
"til

EOt" a "·~as t r e e tmen t module" "H'ass i "'11. .,1" Hassi was iVM~l !i~anced er .. eyel mg" '.... as the

Rj,~'Iel

JfP~

.cont r e ct, I •

Th~

c,On.tx,ac't.

value of

45.
Skikda

Mast

initlal!y

was ~O' be paid
the pe r Lcd of

2% of Augus't

che 5,

val~e 1971

of

the

GTP

project. th~OD8h

app r o x tjna t'e Ly $170· mi Ll Lnn . Thi.s

contract of the

40 projects.

<or

throll<;;h

u.s~ Expo:t-Irnport

Sank.

Portions

17Z 46. ( a) general of of In or SOl'atrach about; August 1~7;l, t..he pn,s~den" PRL that un Le s s the ~hey they diret:torrisked loss the.i. r Skikd" as
n

advised with

ISC "nd Sonatrach with

48.

Ce-rt.,ain

o~

the

?ayments

to

Masri

in

connection

wit.n

che

t.he i, r r e l ac Lnn sh il? dealings bu~iness the in

conducr ed
t;

40 ami

31l/60

ilroj e c t s '''ere

end uded

on ·PRt.' s cost

C.~flO.-ts

business and

aocccdance telati~nships. r ach
5

s t r Lc t e s

r u l e s o'f m.orality

E Inane lag
49. La)
WaS

i nau r arrce " costs. As de sc r i hed ~~ecuted in ~aragraflh ~·O above , the 19~1. Ba.ss i R' :1e1 of that

honest (b.1

scnar
}\~5r:i_.'

off1ch.l in

.. as

aS5u.,e·d·

that wi ch the

the

.~ature

contract

in F~bruar'l

1375. ·Section

and

PLrrPc;:J."S 9

q::

services

connection by

GT·P ana official. wit,h

con t r.ac t, ~t::ovi de s : T~is ·~dn·tt"ac;t was ccnc Luded Vilithptft t~fe: as"sistancE! or the use" d Lr ac-t; or inc ir-=c:-t of arty bro_ket" r inE:t"dle.d"ia,ry, comm Ls s ro n ag_ent. ·bu.~,L'l~iSSa-gent or che 1 ike (;11get"ian ot""_nan-A.lge:r ian) . NO f~es, nor any r emune r a t Lc n , comm Ls s i:on f d Lsccun t or ot..'1~r payment., has ~E?en pa Ld , is. or; sn.a:1.J" o.s .:iue ::0 anv b rcke r, ini:.ar'med i.ary corem i ss ion asen t, bus i ne s s agen t ·t:h'a 1 ike (Alger can 0"1' non-Alger:i.an). The pat"ti.,s agee'" to deal di",,,,U,, bet'fle"''' ~he~se!'les concerning any Olatt-:-t" d i r ec t Ly or indiLeetly ~onnectea ~ltH the Contract. The partIes shall not ?ermit, tn their "elations 0::; in the '-.2lations of one of them wi~h ·anv governOlient Or adm In is c r a t Ion , the .i n t e t-v an t Lon of any "brok~L' i:1te.trnediaty I COrum i s s ion agent, bus i~iB--S·S. aq en t: 01: the 1 ike (.;lge t" i a:n or nou- 1\1 ~e.i::' i a n ) ~ -T!le Cont.z acco ~ unde rtakes to ccm,tlens~te to.he Owner '"1: I:.h·eCo_nt.'::,'a:ctbr sha I I i"ray~ cotJt.r-aV'ened One of the P'-O'l is ion's of the ?resent paragraph.
I 1 I

S~ikda

contracts

had

been

misunderstood would

~h~ Algerian

He 'Nas fut"th~r; ISC/PRL's (c) ae z forth a-dvise!c and t~e in

as aur ed tha_t. :·tasri in Algeria. Kenneally 46(a) offici-al and of

ha~e no connection

operations D<\fl!ndarot

·.,,,.s macle 46(bl ISC'S

",\.late

of

the in -of

facts turn, the to ~rie s i cu a e Lon his cscb

or

i? a ra'3raphs
sonat rach

abcv .. and ,
a~a:G'en_ess

assured

cha t of fie.ial Defen,dant

th a t. I SC '~olJld be res-pons i ve arranged in for Defendant 1972.

concerns. to meet: with

Kenneally

the

Sdo·atrach

official 1972, that

Septemb'er

(b)

A pr ov Ls.Lon subs;antially was con t.a Lned 'Neither ISC in t.he

'si:nil~r

to

the

afoLesdid 50/6"0. JFP,

(d.) At informed use of

th~ Sep~embec

meeting,

the Sonatrach was o,>,?osed with to the

official
the

S~ct.ion

19.7 (c)

ccnt rac c EoI' S.kikda ~-t1bs_idiQl:"ies! to PSL or

Defendan!;;Frietsc.h • intecmediaries· riot to uti.lize and
1.

Sonatrach failure
'ii

nor its payments
included Mas.-!

in-

tha.t

to

comply in

foemed Sonatrach
"ar"'graph t.h a t, and for U that

(i) that

M~s.L,

and Zeghar cosc the

(see
r~l?ortSi

undet'tak.i~g result count.".. that had

intet"mediari.es fut'ther

Algel-i-a

would in LOll

ebov e ) were payments to

on Has s i, R'Me! ~ere irocluded on

in. Isels

exciusion
t

fl:om

bua ine a s act:;ivity the SOrlatracn he expres,,"ed off.ic

{iii

cost

cepo~ts

Defeo,jan

rr letseh

ass -, ored about;

Skik<ia 5"0.

50/60. Certa

ac t i v Lt i e s <i.E t'hetype not and (e) would not be

which in by

d isapp·ro,,·al

Ln pro" IsIons

e

Algedan
I

l'aw

proscribe llSI2 of Al~erian

·.'to·t on l y
inter:ned t ar i es

engaged

!SC or nor

i·t·~ subsidiaries.
De'fendant had ·~ith been the frietsch nd were GT!' and

payT~ents to Oc ~gents contracts~ 51. (,,' pcovide

government bidding

off iciaLs fc~ or

b:.J t a Ls c th~ of

lle.i che r Defendant scna t r acn b.e made of f i c La I to ~!a.sri

Kenne.ally that in

in the

negoti.tlon

90vernment

nf orrned contlnuin<] Skikda

th'" to

payrn~nt;;

conriec t i on

In

mid'-1976, as 5uth a to

PRL arid -rFP we"" the use of

a"ked by Sonatrach
in

to

cohtracts. 4 i. Subsequent;. to in the ccnne Se p r.embe r- 1972.. :neetingJ c e Icn Nasri Skikda con r i nued 40

af:idavits

t:.hit"q-par;~.ies

the-·ir dealir.gs
HOfker.

'....th i

So-natrqch. (b)

f:: ida

..... t.s ·..,r~r= e:tecutec;l i

by Defendant ~ep~E5ented

to

r e.ce Lv e iJayments

wi th the

"CT"I' and

Defenodnt Lod
fr'r~ced

nofker's
tAg
t.he

af~±davit~
ion of r:.~e

~ba~
con-

fOt" th.e!' Skiktl" 50/60,

pa

r

~;'(eC'..lt

ve

r

t

ous

ccn c r ac

t-

"nte~ed

into

in

19.73.

tracts, neither

and

du r i nq

t.he

con t r ac t -s nd post~~optr-a-{:-t;ja:: ~RL or J~?,

·pel:::.-ods

j

ISC nO~

its SUb5iji~~i~5,

Mer persons

associ~t~d

1i,II wi th th"e1ll 'had
1

1:F.

re·ceived
,I

o:r pai d

t,Q

an:; b·::,ck~'::r , .pe::'5br: o r

r'e~;rSS2;"'Ltat.iv.e!!.,j

55.

Bet' ..... e o e

1~7 $ and

1977, v~~ko'!:' p::1id .S'8S J 9.GO

to,

a .s~iss

eJDPl.oy,~e

age:1,t

of:: i ci.a I

o r ·ctl'Jer

ccr po r a t e ~Qd:;.. dom~L ~le~

donati-orts with

or. ot~et"

pay;n_e.l1ts .o r cCI!--~iQe!:'~.ti·on~ GT? an~ ~kikda ?rqj~cts_ t!1e r e in
'1/

I

in The

connect;

~c'n

the ~~ssl

R!M~lj

affidavits
0

ac:kn·ol,..lled_ged· t~,a t. the· o

s.ta tem.en t s made

con s t -i tu te-c.

r.e

j,.,In·icn am·our: t t"epre$E!nt'~

,e.~?:;"ox i,;tLa.t"~!! 2·% o~ bt v~·t·.kor.

!:h·e v!:!Ilue· of

t·ne

e
e

t.he' ft! !"'...da t a 1. ba.5~ s o f mer.. i naccuracy ccnse

tn e

con t rae t s

i t h Sona t r ac~ r

.. ~I"'':''9,e!:' con tr.ac e s ob t.a ih'ed i an

th

0.': the- a. f ,f ida v U:.:s wou Ld cons t. i t ute: th.e p·t""~voca t ion
11 t

o f f.ault'/ ar-.e .s uh j act

c .. spna tr.~"!:11 ~~d t.b a.t t· arid U'ni t·ed Kiri9dom.

wi H

III

fali! ",

'8

til t;om'''''

es

to
6f

AI.ge·rt·?tn

?e-nal

l~.'~Ts~ not; to s en Lo-r

(,,)
Sona.trach mi 1 it·a ~y terminate
0

ISC and cet~ain

ISC off icial,.

dec tded f;6~~t

in~or.:t
Algeria,:'l· ~;:juld .pe r sons

the· pa.yment.s, 'to !o!ast.""land t~e

ff ice'~. ISt-'·S

IS·C of f i c ia 1"5 we t~· corice ra~d. w~t""k in A1.ge·'¢'ia if the p-a.yments

t.ha to Son a trci;~:,
t,'O

t:i!3Se

t'JO

(d) Ma5r i and

·Proj act t h e fo:;ner

cos t t""epo['t~

w.hi ch reflectedl:he mil i ta\:r~' .off ieee

~a.y.il."!-e!:" to •. s t we~e ad ju s t·ed 5·7 ~bo"e J
0

.se.I1j..ct:'" Alge"(' ian

f t,he .pre se n t ag L"e·eiti,en t, ....

~he'se pa)'menr s •
52.

ISC obea i ned U. s. E,Xport-Import
!'!."'S5

B'ank 'finall'dng r aqu i red

'i.~ ccn-

e-xact,

ne tu t"e o·f th e ,aCt Iv it i 2·S O~ th":: C i S?OS it:. ion

a:E

e und

s by

nee t ion "i t'h the
to th:e

i it· Me .. ro ject. 1~ 9a.n.~· ce;rtificates in

1SC ""s
as to

to pro·.... ~ id
6.0. L'a,a9r~ph's 49'

E:xEJot't-Impbrt e-ees

ce r c a i n payme·n e s of ,~al·e or ob.r::,al~in~

a:r.a

SO us:

re.Hr~ged

"r.d

lllc"rpora~.;,c

commission :of the cont

or. ot.h~r-flis~ sale for

connecr-i.cn

1,,;.1:ch the
1

he ~e'i n b)' oHe·rence·. 61. Wi.th

r ac t 0·£

t;inanced

aqu ipl'\Ient -.

ma:te"t'"i:a~.5 .~Li.r,;j

['e:garc
to

to ver"k·or

-,!.

~BC submitted
to

a,·n atfitlav~t ia~,.,r .~.:1C stat·i::g

::'0

!?onQ t·L.3.ch at testing 5.3. to
di

4ciherenee

~l~~r

f.Q_[l

ISC' S filir.g~· payments

·~ith

t·he U. S,. EK~o:rt,~Impo~t. per:son·s '1;efer.r.ed to
'01:"

Benk
it'l

fail

sc l'os e the

·t.o the

p ar a-« ~n<lult.

q t apb s 16, ~ef~'~re:d

17,

rs.

23., 2-5, 29-32,

41-45,
54, 70,

48,51
1'1, 7"

~ll~ ?"i'lI'e~t·~
and n bel" ...

1:9 L-, pa r aqcaph s 'S5'-S~,

74,

116 ~cti'littes, through adequately activities CommiSSion public. Ivory 63. oration in in ISC's ("Lang ") wholly-ownea Coast subsidiary Lang Sngineedng, COl:"P61. and representations fa ilea l:"eIerred a.n%r: ~o in paragraphs' ISC 36 68.. in lSC's The pa·i·~e.'1Cs r~f~['t"e!d

!77 .t·e in paragraph 64 above wete ISC has recorded no aa ......

Def,mdants disclose and and those

failed ar r anqernen

to cause
t.s , filings the

to

financial iniorj'Jat"ion,

recorcs a.~ ~interventian
voucpet"sJ the expens_e o.t

expenses." state-me_nts

payments, in its

filings, wittl the

detailed

c r other t.ies of, o.r

docuraen the

representations

p..,blic:

z Len , do-cu.meating

exac t natur-2

the

a.cf;ivl

in ot.ae r materials

d i s sern Lrrat.e d to

investing 69, During th~ pericd

1972-1973,
Ivorienne which the

Lang de

paid

~pproxlm<ltely et Finance-

nlO,
rne9t of

470 by che ck s to So.cieta
("SID"'·), stock· of a corporate

Develo[J:tlents "'ngagea. ~.mbassador ,of

entity, by

La'1g rvor.ian

One. half to the a Lsc

is

an agricultul:"al Lang ana reI<iteil

engineering

f i rm Lnco rpo ra t.ad
ISC
"'ilS

the

SIDF was owned

De11lw"re, 1.972 to

Th,augh provide

subs i.d Le r Le s , rrocurement, in

"".gaged man<lgethe

United had an 70. corded Individu<ll in

Sta r.:es, T t",othe" interest The in

Ahoua , Th~ !vo,ian

I,Enister

Finance

design,

en'gineeri.ng, s e rv i ce s of and

rroject wtt.h

in

SI~~, ~e:fe\:"re.d to Ln 'p<lragr<l"b 69 a_bove ~'el:'e. reexpenses,·' at: failed the fac.!:s <lnd/or in lOS

me~t,

cons t ruc'c rcn and of in

a.nd s t ar c-up implementation production Coast. and 1975,

een junc t Lcn contract corsp Le x

pay",,,nbl financial

establishment struction comp l e x "} 64, arrd

a ~50

million

Eo", con(·sug ...r

ISC's

r'ecot ds as ·'inten'ention
knelol or should have known

'rb..
alleged failed pub Li c to ~he

a sugar the

l"rocessing

defe·ndants 63 through to the

IVQry 19'72

paragraphs caUSe ISC wit"h

69' above. distlos.e and

OeEend.ants those

Between

Lang

paid to

approximately Gil ch re The
5

01, C;?3,711

to f

adequa·tely Comm"i.ssion

acti'liti",s

pzov ided

a nsw Li ncoI n Con ti ne n t.a I Of <In i\f\:ican nation.

t OIl''''r

to ,
to

5.0[1 0

filings inve.s ting

ion ott- .. e!;' mat e r i a Ls d issem:inat~d

·a formel:" "'ere

E'resi.clent
tQ

mon i.e s paid

Olymp·i.o

publ rc ~ Nicaragua

deposi.ted

a Swiss that of time,

accoun c which Olympio

he des 19n3 ted, as managing director ret.ain'ed by in

65.
of the a British Ivo1'ian

During firm

sel:"ved

71. i971 to

rsc,

through

Lang and. rei at ed s,,~p1.¥, and

subSidiaries, erect

.. as

engage-d

consulting to assi..st

engineers, i't rn for bids. f i rm was complex for

Lonnt'o dete'l:mining

C.td.,
the proj

de$ign, facility

"ngine~r,

a $~,2 ~illion

government

qua l it Lca t Lons e c t anq to

g.r<lLn sto'l:"age

in Nicar"gua.
an.d 1975, Lang i~ to

of· the assess

variausH,rmsc' th~ sUfficiency The British of aIso

competing of th~ir tin9

thc~ re.ferenced

72.
to

Setween

lnl agents paid

paid apptoximately
with Y» the proj.ect. Ltda., and

S238,5Ja Approxi" company his of wi!:;:; ~~E'loyee's

two Nicat""9uar.
~25,OOO was

connection
A. Somoza pt'es-icent

66. the selection

consul for the

in

a pas tt ion The the

to

incfluence cori-

mateiy

Campania of Nica..ragua,

rsc
w~s

sugar-

contract.

Bl:"icisll

Ow,'1.ed by General the of re'nainder oth.c entities was

3.omoza, paid
00

t he

suIting of the 67. tial

firm project.

responsible

ove r see i nq

con s t r uc t Lcn

CcrndecOsa,

a company

<:omposed

cont~olled

by the SOmozas.

Qu.ring

thL" and

pe r Lod , O.lympLo p cov i ded a s si s t ed i':. in m~eting

Lang

with ot: its

confLdenobliqatic~s

7].Addltlonall~, these two ~gcn~s.
74. lSC~s financial ~~cd~ds.

Ipproxi~.tely

$127,000 W<lS ;a~d

to cn.

of

inEcrmat.icm

certain

Th~

individu~l

d~fendants

knew

or

17;;)

should

nave

·1(r\'OI"';

"f

t.n

e

ma t

en
t.e r s

~aragtaph9
~o cause fili~g5 the

71 through 73
1SC's ISC to

78.

The' gay:m;",t.s 'eco~ds o. 75 ISC

c""fel:r;,;d as

to

in

£>aragraph The the

77

wete

record~.d

on

accoun~in9 k""w

a "commission". k.nown of

indiVidual referred EaL1.ed and/o'r Ln

Defendants

'l d .0 d._·.~lose fa i e ~ -~
thOSe!

and/or
in d'
.1.

~aLied public

D"fendants wi~h

should through

h"ve

matters

adequately
the

disclose

activiti2S

its

Co)runi5 s rc n ana .

i,n ocne r ma-te!!·t 15 La

.' t,,·c to sse.m~na .'

i,we·".,ting

·to

in

parag:-aphs to cause filings

77 abova , Defendants d i scLcae and

fai.lsd its

t.o adeqlJ~te!y '~'ith the investing

t.:b.os.e matters in ot~,er

~ubLic

plloli",

ccmrai.s sIon public.

matedals

~
75. of ISC, lSC D,evelopment in

disseminated a \olholly'~o;"'ned ""nCJilged
w

to t~e

:o-cpo"Cation,
Delaware,
15

subsic1ar-y financial. ions in ',6th time, 79.. s<!curihg the During the 197~, aid of fo·r

incorporat'ed ! t so l i'c i t.s

.

in

providing,

Certain
5&1:' .,aid the

Otner Payments
$50,000 fo" !·funib 11as"..i.' s assistance ·.iCI connec e Lon waS', at that

SHt"V"'ice,s.

joint

~J'\'~·r.turesor hO.i. ISC's . ds

otbex

equit,y

.par--t.ic ipat

i.n ~";i:>jec t.s of and p rov i de s

IS'C clients,

Lnt~re5ts
~Q

in sucb

~t~je~ts,

;Wilb Dev~lo~ment le·tt.ec bank to of

Corporation r'.asri

f io.ancial and

l1\anagem~nt

services

ISC

subsidi~Lie5,
wbolly-O',med

arranging

a bank.

c.r-ed Lt ,
th

afEilia ces,
subsidiary 76. Chilean

clients.

ISC do Brazil

Ltda.

is a

also: a di.rector
8·0. 'The payment

of the
r eEerred

issuing in
rIO

e letter 79
n

o f c:redit.
above '''<is r"He.ct.ed

of

rsc

Development
to

Corporation.
Ln 1975, ne"atively project ('5"e :net Leigb
J

paragt"aph

Subs,~quent Junta

r ec .. i v Lnq noc Lf Lcation
(",Jtmta") had reacted

t.h .. t the to ISe's

on lSC

I

S acccun t i ng- t'ecords DUI;lng 197·6, SHL,

as as
<:0

a.

com:m iSS ion. i its

de Gobierno

31.

pi:lt"t of certify r.ega"a, it denied

agreement contract

wir:h

an

Iraqi

pt:oposal to construct
StraIts ISS and 0'r ISS ,~"gellan, below) M~ I ~~ief Junt.a, to

a S3iS million
IEC dispatcbed Chile. .Economic

LNG 9""doction
i\lf",ed M. Lerner ,. ~e!'ner Gene-ca.l

in the
paragt:aphs .Dani~l

st.at· e ".g"ney,

'olas r equ Lr ed In

ce·rta.in upon the

c.i a Ias
")1

'oi o.t:he::- con br ac eor s .
agen·t I.talian 82. tram to t~e

this

ins e ruc t Lon of clai.m of

'_ o·ng ot...~er$ ' . ~ ..

with

of the I,aqi gO'Je.rnment,
contractor.

a certain

f1u~nzalida' o.f. the

.o\ovisorLeigh

to

a Ulembe:-

ruling

and General

himsel~. a Chilean Another. in

Ler_ner encouraged company individual Ifouston, of

Thet""eafter. the Italiqn f.und

cpntracto~

sought and

reimbursement askeD S...H

i;'u.e"zalidaarid Pedro
Chileo wibh S. A. Chilco to

:.:omat.o .organize

know"

as

an insurance
its

C."

the that of

rtalian purpose.

government SHL agxeed

cepr .. sent

rsc

in

th ile.

involved,

valid'ate contrac.tc'" 83.

c La ijn for fot' a fee

co assisl

was, the ISC viewed

Cbeile"n

Conslll as

Genet'al the "key

6.""jaiain
its 'groop.

$700,000. aforesaid fee, SSO,OOO was ",ith >:,eb.ateo

Re"coret.

f'uenz'alLda

",embe!;'''

llpon ind·ividuill in

payment

Elf. the

To avo i d po s s LbLe conflict.

anot.he r be ~aid

ind~iiiclllal half

waS Inaoe

pr,"si.dent of

to

the

who negotiated 8.2 abcva

!Ohe tran,s.ac!::ion i nd i.v Ldua I '~as

5HL a~

bf ehilco.
v a.Lue of E"ue.nzalida from,

Chilco was

to

on*

of one pe~eent
in Chile. :fot'

the

:sl:.at:ed

pa.~a:g.tapii

, Tha t

an em"loyee

any
to

corrt t-a c t s '"nich ?~eselit to, and

1SC secur·e.d

rSC e xp .. c t ed
its proposals

ar agent
8·1. ;'IiUnts, or

of th·e· ItalLan

c<i'ntr~etor. informaticn
t

g;ain- accepta.nce

rsc

h.~~ no detailed for::ts of

vouche

rs

t

e xpe nae exact

s·tatenature,

the Junta. 77.

q-t!'=.Bt"

documen c a t Lon , doc ume Lnq the nb fOt" ·,.,hi ch tf=e said

During the

?erlod

whe:; ?d id

1st

wa-s att"'m,,ting .:l?Pt"_oxl)~,a tely

U"
S]O

obtain
I

<!'Ie

Of the

acti

'iJ'1t i.e s' or

s e rv lees

i nd Lv i dua I w.=.:s ?a

ia

L~~G pcoj-e-ct

een t r.ac t , ISC

Chilco

cno.

th~ said

$80,000.

rae
85. the facts 'rhe and individual activiti.,s end/or defendants 'alleged failed in to ;;'ne'~ or ?aragrapns cause ISC to the' shouid 79 h"ve througb known of 34, above. d lsclose and

IdJ

fii.th tho"e

go·vel"'run~.nt OEficidls c,ow, tr ies, (b) ISCl,$
..

or

members with have the ability 1978 to

of the l:'IJUng f.Hllilies of the not

in

t;onnect.i.on shareholde"rs ' S- i< or

Sscuremen~ of Contracts.
b~een inF lO-K,

Defend-ants I:hos'"

failed

aa.equa.tely Commissi,on public.

i'niorrned financial and its· foreig"

bv t~e"

_O_~e
t-hat

,..- 'd
I

and are not

"'''',,"CI'1

F'or:n

,activi~i"'s

1:1 Lt s pub.l Lc fil i.l:1gs with disseminated to the

condition "es..:alationJt g~e$tio"able

a,nd its

1St' s"r-"caci.ous receivables.

in o che r m""terials

investing

COllect

its"

clai_;~s Ls fu-rtner

unbilled by

jeopardized i C5 ,at'ore.sai'd ~e and kick an"; the .eba

ISC"5 an<:l 36. Quaderly ilIaterials hold'er-s paragraphs Prior

esc's

Curre"t

Report on ?orm <l-~ .>.nnual Reoore' on !'orm 197.8, '"i th ISC <:lid not: the Commis';; i cn and

for l1arch 1978 iQ-I{ for 19,7,<l d Ls c Los e in
O.t'

anu Ulici it enter~d
Morch ISC's i '3-1\ and the 3-r; into

..

t

payme.~ t s with
l'~S'

back arrangement
ilnnua1 solid shar,,.and that tne 0" ting risks ~ctivi (c) in'/olved ties Th" in

to, A"ril f ilea with as the

its p,ro:cy

~

sUPP,liers. D-f( fail types

,ma

the to

1978

Fot'm 1 in

~,eports

in

its

ceasing

to desc'rihe

the

Eiled
t.h e facts

Commission in

disseminated 13 cn eouqh

t,o

its

desc"; !led "-

en9;1.g"

the,

ot

f

n, 9a,ra"lral?hs the

13' thrOugh
1978

85 abo';'e.
fa.it to

or~ ign

st.a t.e d 166.

paragraph"

85 above

(0) 'rhe ~larch
cessal:ion of

88 t'h~ough On or on

~or:m lO-K

s t.:!:te

a 7.
Curren.t

abou t ,~pr il Form 8-K for

.. ,197 B,

ISC

f ilea of

with

the 1973 1978, yea"

Commiss ion ("Mat'ch ISC

a

In the

,

afor-esaid

for2i.gn

activitl''''$

comp.any' s demise. rn 1976, in-to, c;f ,and ISC ;;ng,aged amon-g ether Special Couns,el to

~

coul~ reault

Re5'ort

I:he month

Maxc!!. 22, fiscal

!)-K" l

89.(a) ~n inve:sti"g~t±on

l~
',/'ith on

17 C.?R. the

249.3(Ja).
its "1978

on or
Annual

abou t December Report for its

filed

conduct
e LOt".elg:n

Commission

1978 inS be ffi.=Jiled . l' g~Qlcity alHe. o f ~e (b) and The di

E'orm 10-1( (t.h'"

~or:m 8-K"). ts . ISC to its

The March the 1978

S-K and the Farm and the filed

fo-eig t· ... n na lon~ls ;>ayments to

thing·s .. guestion.abl:: •

,

ih connectL~r: ~i th foreign "in nationals.

t-es

lO~K and

ar~ .p~b.l.ic
othen.,is<l

documen distr-ibuted

c::au:sed

.1.0"';'~ t.o

those that to

,'fal.""h ' sc osur~s

a-'!{

states relating

sh'areholoer-s caus ed to to

investing and filed the

v iew of t~e widespread
-

public. with the

Qef~ndants C'1!Mlission

IS-C and -and

Kenneally

be

p ymen t.s and . practices company co~~enced

inIJblvinq a [>rcgl."a'm of with

distributed ,501icit.ing

.ISC· s shareholde~s for the years

and

domEstic a.nd foreign quest-io,. :"_ .. th a el:' co..... Pot'ations, management inqUiry

investing Kenneally 88. findings
t he

puo l i c proxy StOOd (a) The for

rlIaterials a directo'". fully or counse discloses to

Defend,mt.

pn"

""",,",<Ole'S, (c)

,

Pt"Ocedllres a.nd practices Soth the 1978 E'orm lO-R arrd

-

into to

its these

eXisting Su.bj'ect"." t.estate

r ee Lect Lcn as 8-1\ of 1976 ,or in does the'

~~sP""t

Harch

not Special

accurately L (see the

r epor t the below). N"itbe,," IS;::

th~ !·jar'ch 8-!( fail

o'r conclusions 8-'1( nor the,

rlarch

Form 10-;(
continuing nor the
Iv.a..=;

risks,
t es

>lhich

f aces in part ~er:~ the

rr'om ope r a t inq above c)escr
r

operate tha
t,

business •

90. -::-d:nsmitted

In Or about i cs Draft

0'

ibed

",ann'er

,fact

a suns t anr LaL

ecember

1977, to· a

the

Special

Co"n--l
W

~c

neport

qE

rs.c

S

overseas government

bus Lnes s

depe:ndent "a'ssociates

on pay'ment:.s wh Lch of gov.errllnent. ot: assoc.iate:Q

OE ttt."<:ttl~.a.

made

·tv

o t fi c La Ls or Cc;;l'be

of.Ei"Qi~L::;,

pers.ons

b~lieved

qrovecnmeqt

'o_f=icials

nn
132 Tne counsel Committee su.bmiLted Marcil H-I!: stat."s t:hat repor"t inco!llplete. in Decembe'r 1977, 1 ·.;hich 1975 Spe.ci.al 10M; 5pecia1 makes in Ib) paragC"apil·" 7), nona Ttl .. :·Iarch 13, -'17, 79 14, and

a-I<

failS 27,

1:.0 di.sclolle 31-34, The ~1,

the 43, 3-K

amounts 45, fails SSJ' to

alleged

::"6, 23, BJ

t.O ISC

a draft
and

(".Report" The

69,72, that

above , where

Ma.-cn

st.ate di.d bus i rres s.

dee·m.ed i:el1~ative

I:'orm l(l-'K

o f t h a countries by to

!SC· or

Lt s subsidiaries of

:?ermi:.t-ed, was made in t.he The March M.arch 8-K. S-!\ t a i Ls '"era th,de
(i)

Loc a L Law , b.ribe-t"y secure

o e ::.he use

und Ls c Loaed

nint:.eran entity

;ne.diaries" to st""a I:",at to arid Special examine audil:; counsel into
(ti)

bus Lne s s f r om t.he by the for."ign to to
'N'h o!fl

f¢t"eig· n coun t r y or

(b) and

own.ed or certain

CO[lt'tolled Th" Harch

coun try. s t a os t.h"
I

!SC' 50ul:si.de in

audi.tors caurs"" of

nol:

perml.tted

a-R.rails

the

name s of ~~

the

for"ign '~era,

",at.te,"s

t""

inv".stigation

to

dis,c10<,e

coun t·r i e 5 and or t.o '.whom rsc t!ie

t-he pe r sons

que s tiqnab1e I~e

payments

be! i·a,lledt·hey amoun cs of or on its foreign

w.ere

b-ein·g made.
tQ

11.;1c.dj 8-1< E .. il~

a SE'ecial as to and and

Com:nittee che pot)

cE

it:s

Board

of

D;'recto["s and

had

ch.osen
,U)

to treat op'PQrtuni to

eo .r;el.at_B

for~ign t·Ile effect

pay~ent:s o"f tbe to

t':1e

tcntracts
in

Of-ith

which

keep

?epcirt

"tentative" with

ha-::i "not Counsel"

had

ty

t.he:; wer-e aS59ciar:ed 13 through '65 above

facts

alle9'ed Eurther1;;0

parag,apns s in

,,"eview

i~. detail
Report.

5-[lecial

i" orde.r

Einalize

!SC' S ~b]_ll ty ., ab iIi t.v .I to

~.;c~re
t.

cuafnas

ucmp Le t e the (cl The

t.hos e coun t r ie 5 or lO-l{ fails to state ~·~a~, OO·e year afb.r claiming fz:-om th.e Th.e ,1ar:ch

collec and state

men ~S it ",ra ..••. ... sand

i 5-

19'73 form

en.citii::!.s

na t Lons , in ies d i s cus's i.on of .. t.a.'<e!s",

had

been

made,
r

95.
if anc a ny '",era report. ne ce ssa.:-y
r

8-K dce s not .deductio. to h~rein

to. ccrn~l e_te and fin aL i z~ i n ·fu.ll to 1St's

the

'.hich of

countries

permit referr~d

,. ~. ns b y ISCls subsidia~!~s fer
or not its in state leq·al • flow were that the Hat"~b that 3~iC
r

irLV~5l:igal:.icn and

I;.hl::''re a u.Lt.s

shareholder::::

payments 9.6.

~'~e pub Li c . ..

':'he Ma·rch 8-K do~s times, in fjayments· of

ISC I"'as i.n a r r ea.r s Counsel to

at. and pay L.

92.
"contains

The no

March

3-K

s~ates •.•

that: tha_t

t!:ie Special 1Jl'I.t'E!Gcrded does not

coun.sel' tr~nsactions

5

R.. port of a

va-rious

fee ..= to·o Special ~_ proble", and

COAclus-ion.'S n e t.ur'e

thai: ISC was its no r
t he

experiencIng" with notes

"ash which

at.1:empted 5.,eci,,1

'Cl.ue5tiona,bl.e fort.h ~ny of in

o"Ccur"Ce!:onbut 13 tMt"ou'lh during in

~:tate: Neieh",,"

the: fact.s

s.e.t

legal 97.

fees

rejecte'd spec i at

h_y the _ Courrss I

counse

"ara.,l;aph
Ell~ngs allege'a

85 above. t.he pericd

t;h ... )1arcn 8-~, <;late, di.sci"cses

The ':"~arch

8-K states'

.~ect y- questlons "'d";:·1 .
~ploye2 t<> d i ac Lo s e
qlJ;:'S

15C'"

1911

to

a~"i."ities of

paC"agraphs

1'3 th~augn or
n

35 abov e

0'

the

cr:ed·ibU.i.-ty not

o~ ce rt.a Ln Lnd Lv i dua La

i.nc Lud.i.nc_ ~ senior "'"" ~\ar"h 8-;K .faiL; was inqui

i:".Ci e know.ledg" there.in.

(woho is the

a corporate of the

.o~ficf:rr)
Lnd Lv i dua.Ls 8-K st:"t~'S

."

The

hh-e inoividual 9<3. {a) The

defendantf?

thereoE

tlleir t.h~

pGrt.ici?a.ticn com9any
IS

ide.'"'.tity 98.

l...rhose

'1t::~e,JLo~li_o.'I"

t

Lon ed

I

~tarch S-:< s c a te s and IO'roposals

t-ha t

ope:tation$ whe r.e bu~i"eB;;

Th." l1a·rch to I llsg aI

in

par t : "cont Inu Inq tha1: certain of

r:y :na1'
C:5
!'
I

involve

projects

in de""iopi.ng

eeun t.r Lea

!e ..d ultima~ely ar e ne I t.he.r

the

cQnclusio~

th·e ?aymen to

no r tmo ..'Co... r ~ ~ D.E! was
r

.,.,... :'~at'ch .:. . B_€ t.ht:) dat.e

.s~·K fa ils nos

s tai:..e

imlustrializeu

nat:ions,

"

The $7

.'larch
f

8'-K IIt.tes

I:r.~t

the

sp""Lal

tha ~ no .5~ac i f. i o e v Ide nce

0[" to

b_esn, dev€Lo~ed

ccunse 115; R.epct"t ~5.

IIj-a f er s t~

628,65..\

Ln commi t:·n·ent·s·

t o~

wh iC:1 '.,a$ pa~'d

7Sa,

B4
[Lj

has

oeen s

1>ai<l)" ~n ·.;hid,
0' [

a' ,·tsnl.ticQnt

per.t·io"
tI

t.c o c

r 0 E f t c ial

E"cn."e!"lgn

g.ov?'t'";u •• t: agel'\c.~e~. eo

135 o che r s , the· governments of rra", ~a.ud i A,abi vt'ha
t;

.. and 1976,

~lg.eria. ISC' s, B"u<, di.r-:!:!ctCr'stl

99.
directors vat'ious "",ay fore i.gn 100. Paymen ts 101. fact'-lal
.ha ve

!lad

aL:·tual but

or

c·onsr.ruc:tive identify those persons. d app~oved of the

105. Director's panded 1 the

Thei978 "t.hrough 5COf'e of

~ormic-s .s t a t.e s

in

o!
ex-

"av.ments
e-

fails to

a spe c i a L comm i e t.e e of an inte:-nal of

outside be ing

In fact, !SC1S senior manaqemen~ knew an
a Co t.he
t

inquic':_I then

conduo t ed t-o

irne

or

'shortly

after

they amollg

occurred.
t

include
?,,,ymen~s" (fOrmerly

'the and the

possibility that spedial "a

ill~gal.

i.mproper.or «lldit ana

.ques t i cnab.l s

Tne

March

8- v cor. t ..ins, ~

0 t;;'er s ,

h

e

eo 1 10 'ditl9

:ria.

tel:'

La

pe rrnanen t Board

practices

COlnmi•. tee

omissions: (al t:he (b) the

Alldi t:. Comra k t e e , r .. spon s i b Le Eor i composed of 10-K

conducting been ..fore said

identity persons

of the
and

f01::eig" of

countries the

invol·/ed; off!ci~15

the

special

review) The

two cut s Lde d i.r ec t.or-s " had fail",d to disclose and thd.t the

positions

governmEf!.t

establi.shad.
II

1978

~"rm

~eeeiving the

lcl

~~yments.;
the subsidiades whi~h t.hey IoIhich were iliad" made; the payments "nd the pra-je.<::ts

cu t s ide

d! r e c.t or s"

'Her-e

~_ustill·

c~

rl'iil SOn

oRo-Cet"t. f.

~.edina, ~e~eiv·ed
I

whose
dUl;"ing which tivelY.

r e s'pe c c i v e 1 aw fir(n

ar.d aanaqemen t con su Lt Lnq' .iEi t"'r-t),5

in

connection (d)

with
the

and, h seoier ISC officials t. e

th... period
~h~y In were

<::overed overs.sing,

by the

Speci"l

C"unsel's
and

investigation $604,000 of the respecaoard. W..L.

persons

and positions
~ and .91(b), 1979,

0<

fee5 of $430.000
became

i;1vol V'ed .Ln these 102. g,aphs known ~ith "1 of .......

?ra,c t ices the' 35, facts

Xar<::h lf79, also

Medina

~SC's Chairman
that in

t'h'! omitted 92-95, when it 97,

facts 93, its

set

f"rth

i" I?a~a',;~""

The

1978 .lI,

forTI! lO-oK

:ails to disclose

mid-.l97B,

.13 through to ISC the 103. by

aa ,

e nd 100 above 1978 ~orm

ROss,

rep~Gc~d Wi!,son in detail that ·the

as a membe~ of. the at para<ll,aphs has been

Boa~d Audit. t~rougfl the

Ccmm"ittea. 1St

Decelllb"~

filed

lO-K

,'oS discussed· has

bel",,,

154 one of

156,

Commission. Since gene~alized m-aterials it <::ouched 1976, to. the dlscl"s~~e of matters ex~,"rit in ie. that

~ot disclose~ iaties of

~r6

Ross

~hr~e: major

rsc peciodically
1

has made
re""rts

'benefic 106. the

DeierrEd
""",m .10-K

Compens~·t!on states of the t.ha t,

Corporation.
in connection forei.g.n Staff wi~h payments

generic, and proxy counsel, that the

annua_ by n
d

"nd

'pe"iocic Specia). ~o

ISC's 1978

uncovered i an

the

said

Commission's other mat!:!:'rs

invest:.igation ISC "has

company's with the

such

disclosures ~~ndings

a. way

designed

indicate
II

and

cooperated records

i n 10'S

Special

counsel's

c"nclusions

w~re
a.

t~ntat::.i.,e·r,

investigation as requeste·o

and ha.$ futn ish.ed

arid other in

documen r.q subs t ance t.he Commission

had not to make special knowledge

been EI n a I Lz ed ,

and ,

t~lerefot'~

r sc '",as no t ir.
I

pos i r.ion. to In t.he. the ebe aLlag.e":d

by t he sta.f.~.11 St.~t"_emEnt.$ similat" in o t.har documents filed

c0nc~ete, detailed counsel's
'of both

d.isclosure ISC's t&e .

of

ma.~~ers

ref_S!r'red to disclose "E,

hav·e be~n made by ISC

'",ith

~eporc. ISC and

re~ert. failed

,and disseminated
10'1 .. Th e disc

to the ~~blic.
1<:>$r e ref erred u co cr. p a t"ag rap"n HI.6 ab""e

indiv. idual

deEenea"ts

ane

~.art.i_citJ.atibn in paragraphs 104. 1rlg materials on its I5C s
l

o f the ~ 1]

i.nd LvLdue L d~fendants. 35 above.

in,

the

act.i'lities

th~ough
sa

ve.stiq.;ltion 1:"2POr:tS an' d'i

rsc
f"

r~£u.$ed

to

produce

ce

r t a i n dac~.m~nts certain

fI;2.5

:.-~q~e5t'2d

Ld armee L an-d periodic to

cs

proxy

soli~i-

by the
t.o,

s

t-a .f

and

omLl;:.l:.ed t.c s ta t.a [.ha~

de f e nde n ts
0

dec':'ir.ed
t:1~

.Eai1

s ~a"t~ t.ha t. i e s cO.nt·lnued

v i ab i L i oj" depends against, amo'og

tes t i f.y co th.';

C~m...1li~s Lon "s 3t.a-': C du r ins. t,:,~ ccur se

E"

ab i I Lt.y to

recove'r

.' o n c l.a Lms made esca 1 a ...1,

Com.miss ion ~s· Lnve s tigat1on.

_ISC' 5 BANK LINE 108. ated
Q

OF CREDIT , 1976 Eis_Gal Credit. year, ISC negoti(tl.;gre_e~ w i t.h a E.
J

reported" 1976. million mill ion

growt.!i :;;"r"in9,5

in

e",rning"

and

,,,venue million, $8.4

for on

;:'Y 1973

tproug.h of

?'L

During'

!:_n9

cou r se of ~ts

increased to

E::-om $2.9 of

eavenues

$178 of 5339 1,977,

~~a m-i!lion

Hulc.i·,:urren·cy
of

ae!.lolving pu~s~ant

-

.~9reement

d n ?Y 1973 f or
:0

earr.ings Elow"v-er,

million "ith

on -.-event.:e,s

m~ntU) the its to

with a con50ct~u~

baAks.

to l~s Agreem~ITe
percen t:. iog t:.age

<Y

1975.

beg,inning

i he

.1:

i.s"el

'le·ar ~o(

. was required too onai.nt.ain banks . ISC unde r .tke -1Lne of credit l:ior-rowings ,. " ma.i.n.t.ain a specifie.d n_et ',..Iot""th and to

a cet"r.ain, a5 c.o~?ensa

!S-C beg an ISC

report

subs'tantial logge·s to lo~ses

and l.nc"_"<lsing
of S'9. 9 millio'n on

losses. of

'f'I 1~i7, of $233

bal·ances ,,.,rorking

odgin,ally

repo.tea

revenues
of

meet

sp.ecLEied

million,
million

increa~ing in

of '43 million
lO-K, thaL also These tor

~evenues In its

$276
Porm
f

capitel

rsquirelllents. 109Du~ing 'tilth included ~
'0

i t s Le.t e s.t; Form

~y 1978. its

1978

the

cour se

of

its

1977 ~E

fiscal ths

yeaJ:";

IS.C 'l'iaS no:' non-

lO-K, equit.y and

lSCt s fiF1ancial
G.S .3

stace·ments
ion.

r-eported

s t ockho lde r s r epo r t s were

in

aomp..i.ianc~

"maJoc the

covenantsR

A.'9r'e.e.i:J~nt. such

de f Lc Lt, $5 •.3 mil· In

fin~~cia..l year~ ~sc

false

com[1li~n"e '1' f'j1 ur"
j

nor. ...e,'/-rt'i:erit of int.er.est .p
'Ot.her fin.anci.a.l cr.=rt.air.
!:"E!

as well as the
ISC ~5 banY~
0

misleading
aod

that

in

the

earli@~ While

ove~steted

profits, and conti~uing

.ne e t. ce('~,ain

co: ... ··enan:t.$. !?t:'o.~.ri~ ions th·e

assets to

sharehOlders

eq~ity

in

the losses

later

years

ande.ea

~greed

t.c ~etlegotia.te ~ene'goti'atior. ISC~~.. aS$ets_r the line of

r

t.he

line ,v;:

the

pz e s e n t time rsc
end

has ·~naers,t,at·ed
th 'Cough

and cve r s t a e.ed
0

of

c r ed Lc . 'such ·all df

So ul

ted.. in

ap9.!..iea tio;n

as se ts leading

sh a -reh_ol-de r ' 5 equ I ty of finan.cial to be

tn'" us e
The

f f a I S1'!, and

mis-

vit:t.:":.;Iollj I:;ollate':".:ll

Lncl~ding -cr~dit

_5vailable

c~sh, as

methods and

repo~t:ing.

IS-C f Lnanc i a.l ISC ha$ the

1:''''0'06.$

unde-r

;\g:t'e~en\ent. .

we""
lander's and

con t i.nue

fa.l"!!e and for
I

Illisl"aciing end
othe-r

maid fel~'" afollowing:

"g"!"";:!o.emer-l: ct('"ants 110. ~he r~ne~otiatad .~ _~ "pro~edu!"E5 proceeds and t'ights
il

~.SCj s bank over and

rnisl·e,ading (al

d i ac Lo.sur e s

among

t·hings-;

as

to

the

ucori'!:.rol

use n·f net

cost

f~orn t.h·e s a.Le,

liquidation. ·ot"" ollection c

of certain
(b)

over r uns on ISC's contract. '",ere ilQPt"ope:r;:ly reflected as ilunbilled r ece i vab Le s " wd t-hou t; a.ny r ea.aon ab Le aaau r ance tha.t ISC cus t.omel:,"$1,o1gul\';l reimbllr'se such costs;

cOllat~~alized a~5et~.~ 111.
fully ii:s
t

n its the

E"il in~S

with and

the eff.ec -h
LL

'Cqm.l~ iss ion r rsc t o·f e
I

.fail~.a

t.o
({l)

improper and que s t Lon ab Le pa yman t.s. were i.nc Lude d in "unb Ll Le d receivable,," as le'litimate rei.~bursable con.t r ac t. CC-5-tS: lia:bH ities <It'ld obligations wet'\! no't pl::O[1erly rec-o:r;:dea ~no account ed :ot:;-, add i,tiofl.al cos t_ te irnbu-rse.'IH!n·t. :5oug-h t:. OJ] a Eixedpr i ce con t r ac t; '~as mLs p r-e s e n't ed as an escalation payme-ntft ;
II

di~close

nature

these

aJ;u:ndO:H3n·t.5 to and cight$'·

revolvi.!".~
to

credi t. .~greemen_t,

~prQcedure~ .or

,e £ ~r·red its

i rs ~a ["·ag ap h 1.1.0 aocve r
.....

t h e: e f fr==ct: l:ner9o opera.-t.iom;..

r.

on

(d)

a nd ope r ac i on s .. l..O ~ ISC'~S nNANCIAL ISC ::iied

ie s

abilit·'l

t.o c on t Lnue

(e, REPOR'!'5 with ."~D tNTERl'lAL (ommiss·ion CONT.RcOLS and d i;;seminated t.c (g)

profits

wer·e prematurs-ly

r'.2cognizeci;

(E)

the

~undq received through kickback imp~ope~·y accounted ior~

~rra~gements

were

ces e s ·..hich we~enot . "o.ll~ctoibl~ uncal:' the contract T.rIh ch :he:r i were a t c r ibut.abla ·..,ret'"~;:r imr;:rropet:"l~ r o l Led in to ct.he t: con r.r ac 1::5 .and c·ar.ried as as se rs , and
Sha.IT1
'I

~o

{h )

csc.:::Jlation

lt

cLa i ms Were

and .are

S

tl L],

b-ei nq

~ar~i·ed~s ~eceivabl~$~

..

139 113, for 1976 the I5C used the percenti'l9,e-:of-com[:>le'tion m,ethod 6£ a cccunt.Lnq G,TP co 5 t overruns, GT" costs f.om Sona t r ach

p'f f i c i 111 s
on the

rep"a

ted II'

e xC~!Jded

che

Gip project.
lO-K'S,

ISC'& sca cas

1978 Pbrm 10-"
"the

a~ does

its

1977 and
rne tticd :.nd!. vidual

eonsider!'t"lon
i'(

gtound~

t,h"t the to

a'wa:,d o"t' the 40 a!;love, Sonatr:acb

scrm

tha·e

perce'ntage-oi'

completion tel y proj ected

S170 miUion
was made

8ass i

'Mel proje,c t,
bid:S

referred or pt"i:ce. ing

i n pa'iagr~!;lh

r equ I ees

th~ t th e en ti r", a'm 0 un t 0 f any- ul tim" be r,.,cogn i.~ed "'hen k ""IO,n, " the

w itt-iout

cornpe ti"t;ive

negoti.atiol1s.

con t r<!c t losses In project ISt',s not had

s t ac e d to GTP proj ed. The GTE 118.. ""'ro'toco

!SI: -i t would

not, pay

anyth

.. dd I tional I:
5

on GTP.

!<it .. 1974,

PRL completed
0';

The Ski);:" a riegO tia ti on s r~ 5u.lteil

a Decernba r 1975,

bee'n

u,nd'ertaken ,,.',,a.ren,ms

a, ,fixed contracts

p'''' l-ce" bas is
with

notwiths,tar,d

ing
were

1 ,. wh Lcb (a)

P eov idee

3;nO"ngo ch er t,o
10'$

th in'g

t,ha t: t.e pr'oj,,'ct
5,

and ?Rt.'s on a fixed

that

sub-cont.ac,tors tha~ of labor, they

ISC'~as

nc'qilired

tablish

separa

b .. nk ~Ia.ch

price

bas is.

ISC and increas'ed to

PRL under~taod t'he' EOrce. i

fa'ced

accoun ts for Pt:"oj ec t
a'CCQU

e:aerr ?t"oj'ec t a no !;n:"e.pae r n t.

open ing

ba lan~e

for

10S,5e5

if the

subcontractors" w,~ e pt'ovidln9 r the

services' !?urported

"ba sed

.. upon

a

l"'~

cone il ~a t ion

o.f a 11. 't t",a-nsa·ct i.ons

or material COS t overruns, did net;

they all

them,

~RL experienced t<!ly

GTE ,p,roj act beoks of the arid as

0 f' appzoxima

$ 3 mill ion.

ISC
the

contracts. (b) fo,,, the 119, Jt'P '" scans trans{".rred !Ia.$'si ,R "~el 'Sona trach had the,
10

r"cord

On its

a,nd recot:ds the

e p rovt s-i on

EO,r lc<>se,s, on lSC, transterred

igh t

to exam i.ne

PRL,' s cos t .. epor ts

GTP con t.t.ac t; as a re,,.,ul t the G'T? ccs c over-runs. above) ,,,:co',rds to

G'I.'P cos t ove r t'uns .
R

S,kikd a proj e cus , In O,r a.bou t, August contrac tor whic,h ce In.6, Sona,tra,~h th ~ 8.as,s'i de.eide,d
,R'

1'I"5si continued "unbilled the

"Mel cosc to carry

repor'ts th'"

(,s,"" paragraphs

to, >;eplace ISC

40 <J.l1dEo.Uo',;.lng en of its bo.oks and

G.TP cos t cva r.cuns The' ernountss ",e'(e S2.:9 m'il-

tru t'tion the

,,'n
it

Me1 EO'r,o c:t. j'B ,into the

."·ceivables."

GT!' loss, back

h-.. d ti-an'~fe't,ed

• unbi LLed r e ca Ivab.Le s " fat on June,

completed as at

'G.TI' contract, from

proj,ect,

?I<L e,ncl continued an asset clas-s,Hied

to ,,,h.,,,w the as

Lca.s

~"f1e.cted lion at lIS, (mately

rsc' s

books

'and

re'cords'

"incre'"sing June

On its
rece

nilancial
..

st a ceraen t as

"unbl11e,d

30, 1>176 to

~J, 5 mill ion

3D, 191,8,.
ref,lect appro~-

I ,-,:,ables.,

ISC' s l,S7B ~3Q.a .llllo~ ~rovision

~or-m 10-K in accounts

financi-al and

.s tatements

uo.
Due

I,I1 o r about

la te

.1976, i
11

the

opening'

ba Lanc'es '" it h the and

fot

the .

·unbill~d certain

tWceiv~bles",

5k il>d a proj e.c ts

we,re prep .. red 0'[ ",requ,a-te

acco rdanca

PtO tocol

a $6 niillion
other

ror

s e t t Lemerrt; of
m'atte"~, and

clairr..s

and

tp the

Lick

and' ,a.c.cura te Z,8 the milliOn

books

r~"o"ds,., ('·Br, "j pounds

un:resolVi'jd

contract

show Of t~.e

a defici.t ~30.

'stockholdi="'s" ion

it: "ppe,arecl advanced

ttiatappraxi.:nately for

British

equi tl' of

approx imate-ly

$5.3

million.

il mill

in

by Sbna',tt'ach
0

S'k'i;{da proj',;cts

ha,d 'be"n

d ive r t ed

'~unbilled rec~iva~le$·11~ appr9x.imat~ly. s14~~ ~ill!on
pro j ects 116, ga,,"ding Sk fkda i n i'.l<;er~a. In /lay 1,975" negotiations "ere :begun with

.arises ~~om

by I SC Eo'r to~

the r

~""rpo se s , The re'fore'"

ESC "s, open in,9 .ba l e nee

Sk"lJ<;.d'a, was

reflected

es. a d e f i c it op,enin,g

ba lance

(" the,

s'cna e each on t'h~

r~'121. Our i 1"19 1976 and 1977-, P RL arid
t he r-e ct.Lon

in.creased p.oj e c t.s

cos r s pur,potte41y (., th,e the S k ikd'a Skikda

w.as, experienced

S'ona tr ach

'cond uct; e"d t he i, ~ a,,, ope n ing
l·raud

r.-egt;;>i a t ions ") . t negot L:ltions t.ne
t

""lat
atte;mpb=d ~J mill 1;0 p:-e,ion
·~.ala;nc·e

Icnsb l p on t:h'e bas "l's th-a t
.d e

wa s Ln E~ct wi t h
the

!.17. sent

,Dl,tring

!SC/?~L

f icii: ..

~fL

!9',77

~

IJl

corme

i t e xam P'RL's

Lna

c Lon

a cld i m !':n ,'r~ .i rnbur s eme.n t; of

a ppr ox Lns t.,',ly

0"£ ISC's

financL"l

sta,~em"r.tsJ

ISC' s aud It.o'r s

[o:und

",ecoids

ItJl

rnadaq

ua t:'2

Eo r .aud i t ;En;i. rgoose cost r epor t.s , cos e s pounds in In the

50.

':h ~ aud ito r s t.he ion to

I. r eccns

true

ted

II

then its

have

resteLed

t.he

Skikda

opening

ba Lanc e deficit

and

.c:ontinued

-th-e Skikda t.he

59 doing, P~.r. vers ccrapar ed The

aud i zoz s :ound und e r s ta-ted cos ts ISC to'" knew (c)

that by

ope r ac Ions , 124. fot'

sccumo.Le t ed ion

'~e~", !",oject

its

Eiscal ass"t"

year of ~ith assets

1977,

rsc'"

Form

10-K

financial classified

.3. S mill in PR~'S Lhey tio·n ment raj of

ar ,

'",hen

recorded that

statement" as ftunbilied in that Hassi 125. were s t.ill

.;-",flect

appro'l'i,Jllately no provision $6.1 million

$~.O. ~ million

financia~ found a Eorm~l that

ceco~ds. Pl'.r. has

audi~ors

i~tormed suitable {h} on GTP; the

~ec~iva,ble-s" ~illion of

Eot Los ses , :::::SC inc':ucled
of ·unbill~d cece~vables.

no a<;lal_:r"es

,n-esentao·{

S40.~

c.La Im on GTP to sonat.rach; to pay additional refus (0) matter and includin·g .. e<l to
$11JUS

no

aqb3ethat. ?aying

for

R'MeL By. ocr.obe.r being inc~'eased 1~78,. tbe Hassi R'Mel and "unb Ll Led r9celvables"

by Sonatrach has

learned o~

Sonattach "dditiofldl t'efused to

l:-,,!,eatedly GTP; the

d is cu's s that

r:Hittex; had

carri·",d

9" JFP' s bocks mi.llion. ~ss,ets being of o-f

~'e'cord5 .as an 20, 1978',

"55e
15<:

but

suras on discuss t!le

learned "of (e)

Sona~rach

r~pe"tedly "'ith no

h~d been sold

:0
all

$7.9 the then sale

On October J,P,

payin<; concluded GTP in adjus
js

add i c i.ona L monies that th.e ce accoun is

substantially

Lnc Lud i.nq the for Elassi

'afo~es8id

r e spec t 'to

GTP loss; for

"uno Ll Led In

r~Ce Lv-ab Le a '

carried

R' ;jel.
t;

con t r ac t.ua I bas·i-s of for Skikda the

the

final

t Lnq

connac tion

w i th

tha.t

JFP' a 'Purchas~

Agr",e,~en

"as

40 pr o j e c e , GTP loss of in its

'ISC rna.de no f i nanc i a I rns~ead, class ifi:e-d

t:nent

to- ox; pro," i.s Ion td t"f:fle"ct to t~e8t th·e

execu oed b¥ 126. the

rSc..
Secti¢n of 3.3 the of tlte Pur c.hes e Agreement price the with an p'ro'lid,,'o fcir purchase each !J to for of th" Bassi $7.9 in tpe ack"lowleaqment oeen bar'lai:1<'o show.ed for a net

ta

Laments

findings the

~ts auditor~. as or an asset

it continued as

allocatLon pa~ties

GTP lo~s 122. In in (a)

"unb Ll Le-d receivables!'. the fo110wirrg changes

by bot.h

th.a~

a s s e t.s had

about

!Jecembe" with the

, 1976, Skii<da to the

Ind Iv i dua Ll y , Exhibit '\lr'toilled receivable" The aforesaid was reduced JE'P, and

Pu r cha s e Agre .. ",.ent

occurred

conne<Jtion Sonatrach reimburse The

projects: PRL on costs be made was the Skikda 50/60

R'H"l

in Hassi the

the

amount:. of 'unbilled of

S2,971,470. reJFP

detecmined P9.L for

r,,!,lace

127. c:eivable"

mi Ll Ion at

R'l1el time that

~roject

and

act".al to

pr cpec Ly changeable on the basis of a

valuation

sal e of

.to sone c r aeb . final (inanc·i,.l (b) Skikda we~e to 123. the to continued allow

r eLrnbur seme n t ·.as .

because would claimed U'S. materially

rsc,

Buye.!:", believed thirty-f iva

u.ltimate of the

r e cove r y oz; ig ina1

s t,.temen

t.

Such

a stat<1ment th a t the which funds then

neve.r

prepal"eo. to the

app r ox imats amount. ISC' s false th'e

no mo r e than

pe-r ce.nt;

'Sonat:cach
b'a

t'equired

attril:>lltab1e believe'd

opening be

Lanc e. deftclt, to the

was

to exist,

forms and

10-K

for

the in in

yea." th,.t

19H they

tl1!:"ough 1978 fail

ar e

["estot"~d In 1977, fundifl9

p'rojec:~ an

accounts. pr opcs'e L to Sonat"ach fOl:-

mi s Le ad i nq set fo!:"'th 10 ~K,

to' a,:l~qu~te..i.y above.
'4

PRL made

in.fo,"ma~ .-0 in

disclose 129 .

matters

pat'agra"hs

113'-117

01 S'kikda

''''hid!
t

PRL requested the opening

50r.atl:~ch ba Lanc s

LSC' s 1·97 a form have to be.en

,md

i c s ea'~ li erE and

il i nqs

i tho the they .a.t1d

PRL to

c r ed i t ~he GTP loss did not accapi,

"gains
?~!:..IS

CO.mmiss ion, ha~~ Yail~d

rna·tel:"i;llly the conttol~

false

mi s Lead i nq -i n t~a,t the
bbc.n~~_s

d e f i o i t , scnae r ach to net its previously

pr opos aL,

?~t.

souqh t the

.0 is.close

i."'la~e4uat:.~ of

cafvJ i t.!.on of 5ub~i·j~~~ie5

rejected

c l eirn for nee

r e Lmbut-seme n t. of

~eccrds

~ncl int~rnal below.

rsc's

as mo~e

full,

GTP los S 8g" i ns t

tile

open i "g bal"

de He it.

P'RL .cou.Ld no·t

described

19:; project 130. beginnillg a Sonatracil {al
CO!lt~

"'rthur with the

Atl<:lerS_en' f_iscal in to upon year

Co.

("M"l, audit among

became and other review _t~,e project; cectain

ISC's ...as

auditors Slims to by

'[wJe
PRL

know of tn,e

nQ agreement

by Sonar.rach

to

PaY

furtber

for The and

'''0 ~,k On GTP." ":;.s:presented "as uncertainty a fi.nal ,amoun ....... as t.s thaI: accoun to which A.,A il'!.~ woul d ",OIl'

1977

i'nfocmed

off,iciu intended {o

1977 _ that, make

thi.ngs, of the

,scnar.cach: -CQlltrac,t

132.
Eorme'd or ',;ould IJJ.

fO:r'ego.ing PRL tl'.ere

a c"mplete of

rsc

~onat~a<"~ • _" tInq ,

allo'"" The
1'1

lOR!. t CJ c....a rm In ,, aud i~or,s c also

~n

Skikda
(b,l

completioll dispute

informed

__ !~~ and
ind.1 ca ted

I'RL that
that the

thei. cos,t

"~er apo C t s that':

'",ould

definitely

c~st

items; be',t'.e'en two cons t ruc t ion

(c)

'1ou1d' look

Lnt.o IS-C's

cross

funding

e

P RL

I

s cos t. reE?Q'rts

'.... e~e not suitable contracts~
(d )
I"RL

!ot" audit pu rpo se s . The auditors

r:epot't:ed

intended not

co claim
used- '.ithin

a credit

fOlr

the time

advance's
1

made for
t.h

to a pu,r;>ose Nevertheless,

which the

wer"

a reasonable

imi t

Com"',,,ny b man,age""en, 't ,had been negot' ~~ "'ii with -t1',~ on t; _ Sonatrach ne as t s 01: lnadeauate Lnf o rme e.Lon Th'standa,rd o~ ,~at'"~. and ~ontrol could ha;; h d~ s ?oot'" r have , -cons i.de r ab La. f inaric .... L im Li La • ~LI;? lC"c, t.l "c.ns a , and m"y y.et ~ 15C mad", no prov Ls Lon fer In add Lt.Lcn to the ' m t t e~s , .a to d ou b tful as stated • unb Ll Led ahove
t?i$

of

contracts
,(:e)

1 and that in the light of amounts of some sonai:nich' of Be. ::he
the

r e ca i vabIes".

might transactions

clarm

from made by

PRL could
[iRL

lJ4. 130

in
5

paragraDbs aud i t or-s f

be very cludir.g

high

in~ GTP loss.

Ebl"oug'h 133 _ s ubs equent and that

,""'. s engagement or should

rsc:

transfer 131.

2,800,00'0 .ISC of

pcunds ces,ult ISC on cega,rd

,to ISC of it5

to, ccve r

the

AA ascertained
(a)

ISC wa5 ~ware
che company' s

ha"V,e- be-eon of

awa.!;~:

IIA i~.formec

a ud Lt; investigation. con-trol: eS that recorded

I, be·li~fs"
not,

,..,I,at cos_~ ~ Sonatrach ea by the eon t r ac t

!n

its

1977

rnemorandu..m to
Ali.

pRL and

internal to

would reimpurse

for S kikda

40 "'''''''

"upported

( .. 1
to th" is that of
C,05t

stated

th,,,t,,itn

PRL' 5 int'''l:pretatioll is 1i::1:1e to the dO,lIbt

acd its amendments;
(b) on that the substantial belief that ~i d b i Li , 1 It.es P!<L should subs tant company dates on th" had not;
Qn

t:",imb"r-sement. v,ie'''' of out lnthe losses

ft:om sonar r acn the i.n t.e nt; of

"'[t1here the partie,s

Skikda to

40 we"e
bear on tbe th'"

not

being

com.,any's not set,

,cont'ra,ct,s AA noted

have

c:osts;

available would itndthe th'at its be

contractual incur::::"d in-teot audit of if

documentation." PRL' 5 "arties interpre'tatloi'l ,""lr,e r-ave a Lad

tha t proje'cts of not certain being
(d)

the r e we're the

La.I ",en,al t ~ 'as '" was ptima

Skikda

substantial H,e

which of

T

al though

f a c Le

t,.,

breach

S'kl_kda cont'C,aci:s Ib) AAnoted

the

incorrect. Ii) 864,000

the

completion r e co cded the f the company

a_nd. !Je·.rEoi"'manc·e c Lauae s , we:re company" s books not ?ep"r~d ~.O/6.0 amd records; statem'ent t~·at that

investiqation

properly 'that
t
0

a financial _ con e.r ac e and

head J.7

incurred million 30,

i ~excess
ar • pounds 1977, as

of of

the

,contractual 40 costs

,amount; incun:"d that

(i i.) but

appt:oximat"ly n;it ?aid p ci o r

fo .. se ttlemen the

terminal:ed gross prof

Skik¢.:! i~ on

S,kikda

company IS t"eco['ded in t~e

t.he ,pt"0J-erots _ ... by -74',0"0 _ "~ were ndt

e xce eded

t'Q " June siloula be

cont'ract advances

am.. ndme,nt 'to be '(1 ii)

stating

such at

liabilities Elr"ll
3-.t:.

"lli,'~", d cor
ill)

ccn t r e c t ua l, documemts with

~i:-.

>'OU

nds;

!:r'"ated t of the to

consid!!c,ed

furthe~

t.he t contracts,

sonae r ach

acccon~ed fer

se ttlernen

~ont.('act; certain

,a9~r;·OKirnat:.e!y in

14 J mi.Ll, ion exce s s of" t.Jle

pounds t"ela.t.ing pr Lce a.gr"eed oE u~ <:0 B. to

beat. exchangers-

~urcba$e

tf)

that

fo~

a ~ubstan~ial

?e~iod

the S1s~erns

for repor~ing

by sor.at~ach; Sr.

tiv)

:?ot-en'tial

r.o r. a L ?enalt.i.es
the conl)'llet_ed G'rP

Ccntract costs ~er~ not ope r.a ti nq effe.ctiveJ.Yi

e

million

pounds;

,,,,,0

I v ) Eor

·1',,; (9 ) tha,t docurnen t a ey e.'11dence for cer:tain
t

r ar.sac e Lcns

""'as asses.';

(c)

'the

company hM> also
cos t s that to t'he

failed '",ullbill.,d and that

to

perform receivable'" as long

"ny exercise

to

incomplete;
( h)

whethe,r: a~e

the

figu ..e !:"eprethe 1n '"unbilled th'e

t.hat indudi,',.

tHe

auditors GTP in

c'ou Ld f i nd no cantrac'tual the .sidkd", 40 settlement.

or

o che r

sents

chacgeable and statements t,he

Sonat ..ach

as

support

for

receivables" that: financial ,by the

contract in this

advance.s way, whethe,,, without the

" r e con t ..'ined a critical ne t a'55et Sect ion is

13~.

In September, (a) they wet'e

1978, lSC was advised unab l.e to obtain
June 3D,

by its auditors

review collectible, of the

c.on_firmatron
1978 ,accounts

of rec"ivab!es
rece,ivabl.e

conpe ny to

~Stablish

from

Sonatrach

Lnc l ud i nq , for
1. 9 million

t'he 0 irecb:i~s 1::1'1'11 ish

carmcx , as s Act give

~"qui.red

unda r

12 (3 H 6)

of' a,pproKimately (b) contracts of Ie) audit

Bz , pounds; to Sonatrach fo<" advances r unde r

Campanie account The the of

ensLJr!!

tha t the

balance view.

shee t and

pro,t it

PRL had

a. liability

and

loss 137.

a t~lle .. nd fair
'also the infoLllted

appro,ximately they w!'re to

Ji. 3 mi~lion
"unable the the to

Bz , pounds

aud i tors that

rsc

tha t AA' ~ London Practices 193:4) bqoks was of Act being

off ice

pe r fo rm satisf,actoryalt~rnative due reviews aud,itor,s system pr ov ide and to or eQuid f ound of from not that sona t eache be the co,00,,01 ing satis"

was of l3(b) as:

opinion the

F(')ni'ln

Coz r upt;

ISection
violated and
(i

proc'edulO"s Id)

verify o~

bal,an'ces

(21

Sec>Jrities failed of to

E:l(cha,nge !\Ctof maintain pcop!;.r control 21, 1971l, we,.e of

Certain

auditors' the and to

(i 1 PRL had

account;

i)

factorily' company's during and

accomplishedbecau.se, accounting ?rocedures inadequate

a suff 13'8. that the

Le Ien t sy'stem On or

internal

na:d not ISC's

been

maint'ained. i"formed provi.de for and the to it

i n t'e r na.I

~he year
of

aboutoecember
,procedures and

auditors to

were of

for

pr cpe r record pcoper

PRL':S accou.l'ltl.ng p eopa r r"CO~·din9

inadequate costs

allocation

cos.c s and

expenses

to ..assure

'custo-

allocation of PllL's

ana expenses It "as then

dianshlp 136. violated

assets. informed ISC tha,t A<:"t. they found that PRL' s books ad" ised that IS,C that:

as su r e proper of ISC'~

5t"woardship th.t:

'''ssets.

opinion

I\A a~50 the (a J English

auditors

Companies not

Tne auditors cost.s

PR,L does

cons rda r whethelO

I t t~ansf.eTs which it

into

"unbilled able to

receivables"·

are,

in

fact,

items for

w i Ll,
139.

the f inanciaf st,.a:tements of ~ri tchard Rhodes Limited as 'oE 3?th ,Jun .. , 1976, do not prese,nt fairly its finanCial »os t ,tlOn ~.S of 30th June, IH8 o'r "he r aau L ts of its ope~;"tions f o r- the 'yea r :,nd<;d, in. conformity wah generally accept ed accountu"!'!! Pl"lnclples. '

be

obtain as of

reimbursement.

f'<:om sons t,rach; the~e is an asset ] for o€

rsc,

aided

and made

abett."d with

by Dli)rer.dants and

Kenneall}' dis.';l1minated

and

,f'~ietseh, to its

(b)
shae t of ceivables

June 3~,
ll.) for

1978 millfon

in PRL's balance
unb I Ll.ed 5.3 million re-

in

public

filings an'd

~he Commission publ ic made

'approximately and a 11ability that

is r . pounds advances

shalOeholde~s statements matte

the

inv"'5 tLng

fals';'

amI misleading d I ac.l.os a , ch" above ,

contrect of red' these

and

failed

to adequately
P2

andacculCatel:r th,ough 138

lillO. pound s l r that tlley

no breakdown costs Incur to

numbers

is 'available., prof that I Lt;

r s described

Ln par,agraphs'

represent

on proje,cts and cf
fH~OIJ

p l u s gr'oss effect
IS

KILQUAOE 140. In 197D, Kenneall.y a la~ge near used app ..c"imai:ely ap[,L"o)(imately $160,000 of lSC

recognised the balance
':n'hlCh

l e.ss billings she" t snows "th-e company

date:

that

the

a rie ~ ass'et

4 mill

ion

ISr.

pounds

<,Unds

:0

p"rchase

house

0.0<1

as

.ac r e s ,of Kenneally

r a rm

tot"

is

unable:

tn

i d e any

r~a50-n@:ble

ana Lys Ls r

land in ~ilqua~e,
tOOl<

Dublin, Ireland
i,n !, is Own name.

(-iilquad,,").

t I t I e to' Kil<:juade

196
141. (a) $S~a, 000 had (b) been spent 9y June 30, 1974, to tee improvements, house tbat and C051:in'l grounds. ~ppro",imately $.97,000 had "pprox'im'ately 14·7. office'rs by tne 148, ''''ere .paid for with ISe :,seminate,d adequately lse and has paid o·ther in

i~1 parquisi-tes for for K,mneally not and fo.- .other

be<m made rn

dir~Cl:ors

amoun!:.a and

purposes

now known

add Lc i on , by ior

date,

.Commis,s ion. ISC's to publi,c Eilings made and with the Commi:;!sion pub! ic and dis-

on antiques

Kilquade. and an,tiqu'es

(-el 'The

improvemenos

i t s sha·reholders

the

investing defendants and throuo;h

fa~l .. d ~o and

amI accIOrately failed to cause in

d I sc Lcs.e , and rs_c to paragraphs adequately 140

Kenneally accurately 147 "bQve.

(d)
ture" of

In sucsequen

e year's, for

significanl: these

additional

e~pendi-

"rietach th'..- matters

d i'SClose"

ISC funds (e)

were made

pu r.poae-s , monies wece and expe ndad

desci'ib""d

MO.re than I:hrollgh R'enneally's 1978

~1 million to

of rsc

TSE from 197Q 142. have purch ase , decorate and a Houston accounts almost family, have been used to tran"port K'ennea11y based maintain Kilquade .• 149~ ("OCC") "Defer-red 143. resid'"nce 144. anc his I~5. described ·space-, said "off are' K'ilquade bas b'een and used his exc Lus Lve Ly as a summer • incentive" and !SC an~ has

DEPER!U:~ COl1P'ENSATlON a "Deferred Trus·t"

CORPOAA'!'ICN Corporation" of

",tEe

Ln t e r Lo r de co r a ec r fat Kilquade.

established

C:om!?ens,a-ticn ("OCT")

a "Deferred

COr.l?ensation
?1,ao· (the

as part
to

a

be.e n 5ign,-ato~ies'

on ISC

bank

maintained

eompensado~

·"l"'n·)

,PUl7.po-rt;"d.ly

provide and

"eti!:e!"ent

bene£its

Eot: IS:::: officers,

foe '?:enneally
ISC eocpor taDlily to at e

<lI"eo-tones

key

personnel. 150.

f'uncls

'HId f.-om Rilquade. prefer"~d shar9s of othel:"$ the w i, t h " $;100 ligu idation hav"e been th'a 1968 .. no rede,mption pref,,.,::ence. filings, as including its 15,090 1973 Form i.o-x, !SC Certain ... hil·e ·

In public 'Kilqllade support

pr~iet":r:ed

sha,r-es

distribu.ted Plan in

u.nde z- the. ?lan c96H,
the as a dividend

"app:coximately and visitor repo.-!: fail

squar e £ ....,\:

0.£ 'offi~e we're distribu,ted olltside· Since Shares. been the audited. consist DCC owned !'-rima.rlly 23%. "he .. lSC's on only the DCC common shares, dividend,

facilLties and annual

accommodations to c i sc Los e that Loc.a t.e d at

filings Lee space

the
Kilquade and

"ai",,! <:IE OOC

has been 151.

in the pref~rr"d
Th" DeC The h as asse.t$ a t June never of

(andl
5

support

Eacili

ties"

Kenn",ally'
in the "hen

den/libr"ry basement

and a desk,
whiCh is used to by

typew.-tter

tele~ 152. (a) shares of
DeC

mach ine se<:retary l46. Kilquade

Ke,nn-ea11l" s: p,,'rsena!
tne!?-e

of

ISC

com,",on

which,

JO,

1978,

DCC aC'luir,ed made

.she

accumpanLe s him e xpense s, including

Ctilqllade. ope·rat-lng "",penses, rsc fo,

sha~es wit.h to (ll)

b':d,-nk loans;
by ISC. in f~cm

and loans

and "cont-tibL.1tionsM

Certain have been

Or caused

be mad~ As disclosed

pai d th ..ouqh pay~ the

a [,Qodon-based Kilqua'dee><?enses, book s as an

subs·i.diary', 1SC's 1978
DeC

rsc

fo ..m 10-1<-, ISC held agg~egate amount of

notes

Euro[le,

ISC Eu.rope

adds

0<1 crrcee Et'"om I:5C~

and

.eccounc s

t:";::!ce.iv.able

in

tho:

pe ccen e , and records

t.hem on its ISC

as s.e t, due

$80,3,763. (el
tributed th~

1-SC, in
records

t

urn , .:'.e'imhucse·s Kilqllad,e

Eu:rope. as

Ep~ this

expendi.:ure
Pees" in its

a.nd Prom .August, !9~5,through June
ye-a°t" to from ISC t·he Dec for, throuqh

the

·exi".enses

"Ccnsultan,cy

JO

i

1977, ISC

COn-

~153~1 000 "9~r rece'i-'1eq

::'he DC'!". DCT used

m,m"y it

alOoilg other

S',u,·"oses,

to

blll'

oec p~~fe~~ed sh~c~s.

(d) at -nCC' s ccs
t,

ISC subsidiarie-s
-

pur'ch aaed the

ISC

common stock market personnel at the

from time

the of

DCC the shares disclose

(b)

'''hiLe

I!;C'~

1978

~o"m 10-K the share"

states B7S

that

HO,,~

owns

100 te

rath"r then ~old

than

pt"evailin<;I t,o "key to

(1.1 •. ) of that

DCC' S COll'.Jli'bn shares, a150 owns :he 2, 550

for:;> 10-;(

E"il."

purchase - .and to the 153. ar.e

the' stock

I,

at.·a, 10-33

Ross in

of. ves·ted

n.;:c £lreterred

sucs t d t a r i.e s a.nd ultimate Except for to ~he 1968 the

loss

ISC.
I

·sh·ar,e s ob t a i.n eo
DeC

.19 68 d~videna. a pe"iod an as p~ior o.ff ice to ~ of 1971, was a di.~ctor of

~['e Eerre"c!

shar e d i -J idend

snar-es

157.(a)

Lerner,

fo~

"al.locatl:!ld"

par e i c Lpen c s without such only have ~.

ar.:¥ s e c c r I Ea r i a , ~t:'o-

ISC· s p~edece.ss:ot", SubsequentlYI Lerne~

HQl"'.CO, and c"esigned

a.n 1SC That Lerner

subs 10 Lary.

ceduxe s , o r 154. ",%o,Eor: funding ;toss,

t.iro~ fc.r

determining

allocations·.
three benefioiaries the of befl.~f~t$ and th~ DCC ISC1 s

a director. Tnerea.ftEt", and rne~ b~en
5

resignation
continued

'Has

Tbet;'e a r-e e.. sent!s.lly s l/~ry of litt.le investrRent.f

discl.osed be in engaged Chile

to

ISC.' S sOQ-rehclders4 ,as" ·cons·ultant"

to

r ec e Lved Lerner;"

9f
W.L~

by 15C

dire.cted . c.on tHttled bl'

ISC'"

activ.ities by rsc

DeC:

·K".enneallYf

t\lf~ed

(nL,er;Ler:::'"

a.~d cra.z il. i.~~e·t'es ~ in
(b)

"e' t he r ,~,
'1·l_ ~ ... ~ ...

e.;nploymen.;:.

I..1 {fl RO$ (a)

5" ) .

~O~ his
Kenneq,lll' , Ross arid Lerner own 73' of the

the

DeC have

dis,closed not disclose and

ISC.
that Larne~

Collecti~ell,
DeC

The 1978 (17%)

Form 10-1( does common shares

owns

outstanding shar!!s, possible not

common shar es and Lud i.nq those

74% o f the be ing the ?la".

ou t s t and inq held by the

~ref=.rr-ed OCT for

152 sha~es

of Dec's

30CO shares

01: vested

Lnc

presently under the shares

Dec
and

p~~ferred shares IS8.
TSC's

receiv~d in the 1~6S dividend.
10-1(, its and i~s filings Eor its fi.50a1 Y'Mt"S that

f,it~r~ (bl All

distributlon but 61 of

197B rctm including acqu iced t::,io"n
I II

held in

by Kenneally.
the

Lerner

1976 through
in i'4Cly,

1973

P~Oiy -

1··' SO_lCltln9
l
S

m~terials,

state i~

ROss are to in

'/est:eo

shares lSI

received

by. tP.!:!!n

196,8 dividend

n:E~rt:ed

1.375 r DeC tra.nsa-t:;

ISC C:Cwmon .. The ~ald an

tar~s did

I.::-'om Kerr-nealli· no~ '

C

a "~'t"i.~.J.t.:2.i-I

:?arag ra(ih laC's (.\5.) of

above. 1978 Porm 10-K states and ~hat ,;as Kenneally allocated that will 950 owns 40U

neg.otiac.~d ~urcha.:se te~mi".e·d t r ansac "unbilled diSclosed. disclose ~hat Kennealiy and

filings amount, not

state that the
d~~

153.(aJ sha res

ft"om Kenneall_y by Kennealll"

was It .

in wa

at, a d.isclos:<d

Dec's

common stoel< 1978 stt,,~e5 through Form

sb ar a s of

=lme, and a~ a price
that 'arid but "[len the above

1 s a so

Dec ,9t:efert"e.O to Kenneally of the (b)

stock. The
from thOse

~o-r:m lO-K
under the

statss Pla.n

mc:lxilnum bi!ne!it be $19,08.5 for

c i o n oC'curr-eo ,ecel""bles"

r

rsc IS pr'oblem.s we,",; 6110wn to

L"l Al-ge-(" ia Kenne"lly

i t s question~b"1a not ?ubll'C1y

ea~h

,ears 1991
ISC's 1975

2000.
10-·K doe s not

159.

ISC's

pUblic

f11ings to

fail

to

disclos~
... _u.

that

Kenneally ISC
f

.3

1La." oeen

indebted

GC{; whUe

DCC ho'!'" o.,;rn,'

received

in

the 1968 dividend.
Ross. has be~n not ~

r sc s ubsi d i Q,t:'y,

. monJ._e;:~r· to

an

and banks .. public 1978,

156.la) t.he t time R.os~, is
?ractice:s

·aieac
se-rved

t or ISC
ij

of in

rsc
any

abc"
o ctrer

1964.

D~ring 197]

160.
and

rsc's
J'JIi·e 26,

filin"s

~

fai'· ~' 1 -~ tq ~l~~ ose out S21.1,-I77.·,~
, 7

perLod

he has the
11

cepac i.cv . Aup i t; and te~),

~h~t betwee~ A~rll 301
t
.~

DeC paid

.

CIne" of

out.s Lda d irectcrs
(.to.rm.2!" 1'} the:

o n ISC "s
.<\ud it

aoard
commit

~~rner for oPtions no val~~.,
'-:OS-S.l.r:.

C-.::rr,mit.tee

Special

r~ fE:r!'"ecd

Owned

~~ La~ne~.

As of Jun~

2&, 1975,

bhose 3h~res
'.,oIas ~x_l".~r..dB_;;
.'l-dt'C!11

b~d
..... '0

~.n option
ROS·S/

no !'ul:chase
121st payment

Dec c·owJgon s cocx
thereon due in

St~bbt.ns,

t nc ,

I

.l

m~m:ber; f~trn

of

the New Yc r k S~OG):,:~;(ch",lmJ~ .•

t:'e-ce:nbe,~

1971,

t:le

1979 ..

4CO

2'01

15C has and

failed to

t·o d isclos." c ause

and

d'~ f~nd a nts

'\(,,_n;;e,,;11'1 and th~ tb.e facts bf.f-eri'1g C.,ircular in t'~f~rt".e:d
1;0
'~I}.

n- i e t.sch· i·ailed

15(: ··to d i 5cl.ose

th"

rna t te r s d 9$ crioed '" i-th the rs and

p.,a.ra.g,ra.ph thrOu9h

16-5 omitt,"ed

~n ~ata9 raphs commiss.iO.r., the in'le'St

151 thr'o_ug h 160 abo"", i n it S til in9-5
O!, i ~ its cornmunica t ions

.as ~"t' o;:;rth

R<",agraphs
COUl'lT !

13

16 2ai"lo'le,.

t;'0 i 1:5 s.ha:r;'aholde

ing

P .ub l, i c , 8~ZILIAN Su9;S~D1P..!lI;::.S i9"7S', ISC dis?os-e!d of c.erta.in <;>r in of patt

(sec e i cn
and '167.

to (!l)

Q

Rw,i... iOb~5

f th e Sxch.an-g e ~,,,e [15 U. S,. C. 78 j (b 11 (i7 C.'.<I.. 240.10b-51 tt.H.~\.lfl<ler.) 1 through i'66 'above are ,ealle-ge.d and in.-

~-arag.r"pr.s

In, its Brazil.ian 'iIl,f're'o II.

f"i~c:~i

yea~ to

it·~ by

c,oi'~ora:teC!.· h~re ir. ~y r·e·fe··~enc'e.
168. Duri.ng the;;>e.riod r.5C, t.hem, and f rem appio'J{imately Kenneallv,
~t"

aubs id ,-1n::i"s' L~r",e r (s·e!!

·a company o"'neo 134 and

Ln wbole 157

.:r'"rua.rY,

197()-,~o

~he

parag·ra<J h s F.i linos of

abo .... ). C i t!Ol1_lar fiscal 'Ie-us end.ad

da.t e h~·t'E~H),f, Def~lldan.ts and .S·~.ein~ and singly and in ~.ech of eence re,

ie·ts:ch"

Eofk.et'"-j' A:l-gulo .ano indi·t'"e·ctlYr in by c-Qnuse

Pubi ic 163.-ea) 1970, through upon iune

1l,nd {If (<?:rinq each of Lts

and .cnhe r s , dir~ct!.y and .. ·b t t.Lnq ....

conClusion ]0', 1'91&,
t,

ald-ing
or

aach

ot.h e r. ana

rsc
on

pre·pared

and filed [Sa"
17 .

",.itt.' the

'n'eel: ion

"'1 th

t""
t;2

pur chaaa

sa.1 ..,. o~ s e cu ti ties

0'£ 1SC,

<:,o"""i 5S ion our in,. and each

an ;\ilnu a1 :Repor

;'o.r·m i o-.«

c. 'P.!i..

'-2-4'9,31 iJ 1. CO""" iss ion pub lLe., pr121 imina-·r?,
t

ot

the
1::,0

afo r e s a id ~,ts

years,

I SC f 11ed 'w i. ttl the and In

ion
t

in

in t er s
5·eC).11:' r

toe comme tee,.
B.X

the

El'ra,il-s

jI

and

the- f-a·ci.l.i-t i.e s of are (ill now
(i)

a

d l-ssemina:.ed

s.h"a:t:'"eh?lde:r:'s .m.at~r ~i·tb: ie.!s.

ttna

inv~:$:: ing

n,g

iqn~.l

i t i.e s

ell ~.nog e·,

hav~ .to 'arid

bee n -, and d~fr-a~d; bti it.ti.ng in

emp Loy ing

def ini.tiv·e pto>:y

pr:-.p;.tY sol

icil:if,j'9'

1979 ,ISe iqn. ly' In was

f i Led
eac.h

ifev.iteSi

scn~mes,

and .~r:ti.fi-ces

ma.J:ting uncz ue t ac t s

so l Ic I I:.irfg materials p.i.--o~y sol

~'he Cqm~i3e

o'£: ·the

s.t a ceraent s of ne~ess9t"y

·Jliat·El"ri·al. f.,ax::ts,

t.o s tBrte ·~at:.i2'1::' f..a·l

af<>r'esaid for

tei ting

lua.terials,

K~nn"_,,i

9,,·oposed Keml!!<l11.'/ th is Compl;, f~ t

t o make

i:.he s.ta teme-n ts :rnade.J
I

1 19 b t e f ·toM·e· i rcums eance.s c
j

and. s t-o.od for

"',,,;le<;:: 10 i.o n as know

a.d 1 rec tor matte

"o.f I SC.

uncle r \II,h.iel-'.t!Yey we.t"e made

no t mls 1ead.ing.

and

I

.(

iii ~909 ag i ng in

kn..... or were not

snou id 'have d isclbsed'
- (bl

th" 10 the

r s -"11.eg ,,"<1 in

ac es., pr acn i ces., end cou cs es o'f bus Lne ss which at'e other [IS oper-a t bg .pe r sona as a t taud .a"d de ~e it -of Section lGb-S [15 upon

h~v·e· p~er"at~d arid

i [1' lObe s aid of its

p cox y so 1 i.c I c Lnq mao t.er 1'al s , .Eiscal years referred t-o tn· para-

sb .. reno'lo o.f the

~"5

of

lSC

and Ac·.t

Duri~.-g each ISC

in viol"ti-on
anc Rule

10 (b)

<;.;tchange

'gr.aph

16 -J (<ll.,
011

iilrep"'r e d arid [S e " 11

£ ile d wi th

th e comm i s s i.on Qua ri:'er 1,.

u.a.c.
1~9~

78j (b)_)

c. P.

a .. 24G,.10t;-5]

t~e_~e'md".

a,,",o('ts
164.. f.iledthe

Pot::ri 10-Q The
.t he

C.". R.
to in

24-9. 30B (a 11 • paragr.aph 16J ,abo~e we r e
~"t:

reports

refer.r·"d by

By ~eaSOn'oE the foregoih~" de~endant3 ISC, Kenn~all~,
I

wH~

Coram lS>5 ion·

1.:;:<: !;,u'rsu,a"t t9:)'~
CE:pO

to: Section

13{ ,r ) of I$<:

Le

r

sch

[i:O fke:.t" in conce

j'

.Ste rt

in

and'

AIig

ulO'f

e.nd each and a be t t Lrtq o~ the'

o-r

t

h·e:!L11

r

and

0

t-h

er

s

,

SecuritLes

Exch_a.nge Act of

U.S u.S.C
wou id' -1St:
caus ed.

73",(al).
be: ?.IJ bl i (:1 'i

s:i~gl'y i:"l a t e'd . wi ~h
t-O

':1[1,d

r

arrd

aiding
Sect

each

-oc he r-, ,"'c~

d i.r e c t.Ly

["eo~onabl 1'55.

y kr'l'~w ·t!1 C,t:. th'-= said I)IJr in·g

r t.s 1977,
OJ;

d i:5-5em
f i!.~d

and

'ini:l i rectly,

v Lo Lat ed

ion i17

.1 D(;")

Exchange

i e s E i s ca I year
d-L5.SE!:I7:.lnate;cL· ~r.

?re9,,:::e_d to in be

and'

u . S •.c. 7Sj i b) I a';'\d !(lile

101:>-5

C. P. R.

240 .1Q:O-5)

th~'::-eun.d<o,<,.

I:.~.e Comm ls..sicn the ir::v;~$tir.g

and pu.bl-ic

d lssem·i;:1..at:c::,c, ~ I :..~ an

c~rer.;'::1g

Cir'cnl.ar-

cc:nne_ctio:::

eX-C::.h-anqe of~'et:'

made

to

th-e 'ao Lde r e of

ISC-'I s comtncn stock.

COUNT (Section 170. cor-~ot'"at.e~ 171. Ker.nea.llY, dire.c:oly ao~ttinq use of cat.Ions been defraud and
j

n
Act [15 U.S.C. 77q(a)1) and .LnabO v e ... C'" ~."alleged

On Form 10-[, on For", S-K,

Q\la.rter1\" all of [IS (17

Reports were

on form required and

.10-Q

and

Current 13 (a)

Reports of

17(a)

of

the

Secl\dties 166 ~ the

which U.S.C.

by Section Rul""

para<j r aph s 1· through her~ in Clu.dng r",ie and e ach

t,he Exchange .. i\ct L3«-11 and 1.3'1-13

78m(a)]

12b-20. and

13.0-1, Z4(L 13a-13]

by refe:c'enc.e
year

C. ~.~.

240 . 1.2b-ZO ,

240.lJa-l

the' tsch,

1·97"7 to
J

<late

her"o·f·,
t

df.Lf"ndant~ each of

ISC, them, and aria om i z t ed :0 stifte m_aterial a,.nd omitted fac·ts to nec-essary state facts t.·o tQ.'ake the t""~quired to st~t-ement5 be

B'-o.fker

.~.:lgu.lO and and
L

Ste in concert,

and and

,indir~ct.l:;r, o t.he r , in

si.ng1! thp. offe

in

aiding ties,

mad a no c misleading by

.a nd sal<e .~f rsc of by

securi

stated
175.. singly each close, t~ansact were 176. Prietsch, and 13{a) 13a-11 and

herein. Def~nda.nl:::s and other or irl Renneal1~, Fr':'e r seh and
I

means and inst:.1:uiTI.entalic.ies in are intet'state [lOW {i) m.aking ta te comme r c e arid employing u_otrue

t.ranspo~tation the'
U:5e

and communimails, artifices fact's to
I

Hc::ker

f

Angulo and aiding

and

Ste in, and abetting disand

o-E t'.he and

hav e to ana

conce c e , di.r ec t Ly tailed to

indir~etly, failed the 14 events, through

devices

~- schemes of

a..,d ISC, caused

d 15C10'5''',

to

cause activities

rSCto

{l i )
to
5

statements

ma t.e r La I La
0

ISC, _ to

misr .... t:esent
paragraphs

cm.i tt i rw

rn teri .. in

a 1 ::ae t-s of the

nace s-s ~ry

rdec under

rnaka the

ions·

de.s c r i.be d in of

16'9 ISC,

abova, 'Kenneally,
3'n<j

s ta taman ~~ made, made not. "isl'eading;

! igh.t and

ci.r cums earic es in. acts, and

'';'h i en

tn ey
"nd .as a in

By r eascn Hbfke.r, each

t·h.e fbrego.ing, and Stein,

.defendant:; s ir,gly and arrd

( Li i.)

engagtl',g

p~actie"s

.!!,ngclo other,

in. conc e r t ,
v iOla ted Rules

aiding

cour s e s of fraud violation and

bus Lne s s which d"ceit of upon

hav a ope't"atsd of

a,r·e oper-,ating other Act [_5

abet ting of. the and

di rectI\" [15

i nd irectly. 7Bm(a'll and

Sect Lon 13,,-1,

sharehold·ers 17(",) in the of the

I5.C and

pe r scns U.S.C.

Ell(.cbange Ae·t (17

U.S.C.

12b-2{}, 240",13<1-.11

Section a Ll.eq ed of

S""cc!:Cit.ies 14

73q(a)1

13a-lJ.

C.".R.

240.12b-20.

2'10.13,,-1,

as mar"
17~.

'fully

paragra,,!'" foregoing,

t.hr:ough

.'.61> acove . ISC, them, each of Kenneally,

240.13a-13J

~hereunder. COlJNT IV

sy rea5Qn

defendants a ach ef

~r Le ts cn , Hofke c , Ang u l.o and singl.y dir.icl:ly. !let !l5 and' In and i).S.!:. concert ,and

S t.e i n and and

",id
other, th.,

0 tilers,

aiding violated

ab.,ttin'9'· 17 (a)

(Sectt.o,n 78n(a1J 240.14a-3 i.e s 177 . p",ra'rr·ap.hs her~ in

14(._1) .. of the Ex chenqe, Act [15 U.E.C. a.nd Rules 14a-') and 14a-9 [17 C.".R. and .<10 .14a-9) the~eunder). 1 t hro"-'gh 16.6 'above ~r.. he ~e by reall "9<!d and

ind Lr e c Uy, 77q(a)).

Sec.tio~

Secud:

t

incorpota-t:ec COU~T III 178. Hofker,

by l1'2i(:frence. rsc Stein solicited, caused and defeadants Kennetllly., for
~'!'iet-s!C~lf

Defendant. .~ngul0 and

(Section 13(a) of che ;::l<"h"nge !l.ct [IS U.S.C. 78m(a)J, ""dRules 12b-20, 13'1-1, 13a-11 and 13a-D, Il7 C.P.R. 24:().12b-20, 240'.13.0-1, 24.0.13.,-11 and 240.11a-131 ther"\lnder) 173. l'a"agraphs 1 throu<jh 166 "r~ he::,.by reallegQc and in-

rs-c t.e

so l Lc I c pcox i e.s

the

materi·ah and the

du r Lriq the

years

1':170 through causco

19B, 15('

and

r n 1979

rsc

Eiled

s.a Ld ind Lv Ldua I defendant:s rna t.e
t"

r.n file
ta

~reli:nin.:r.r·~ '5:,Je-c i:: ied

corpdc~:ed 'h2r9i~ b~ ~efer~nc@. 174. Du~i~g ~~e ?~ri~d 1970 to t~~ da~~ ~~reofr
re.~l:'"ts
I

~sc filed
~e:?Qrt'.s

p:r.Q>.ty so I. i c i ::'ing

I e.l s

r

I¥h

i ch

d.i_ ... no t con i

in i:"Lf~!."';'l"Jati'O,p

'illit.h ==-.he-;:o;:rjjTj·~..ssio;,~ce1:''tain

inclac!.~·lg

;\nnual

:!~4 501icil:inq mace r ial in ttJal:., matoerials facts >ler~ Edse to and misle ..ding ..nd omitt.ed made i bng t.o state with ne.ces·sary rna:te the "a!d 5 ta.tements solic n·ot mislead ing, ~he a.'Ilong other thing.s, proxy ",ate'rials raile·d existing is Kenn.eally, and other's, is e.ach ot.he r , d~rectl.Y violate .and [15 and i.ndi.rectiy, U.S.C. lIiolated Section 14,,-3 14-(a) and of I:.he exchange [17 C.C'.R. Act and 7Bn(a)], e nd Rule r, that COUNT V I (Secti.on lJ(b)(2) ("forei.g" Corrupt practice'S Act of 1977") of the Exchange Act [IS D.S.C. 78m (b)(2)] ant! Rule 13b-2 (17 C.f.R. 240.lJb-2) 1·80. incbrporated 1"81. ~ef.Ee-.c.tive Parag.ral,hs· herein Ouring date the of to 1 through by refe~ence. period ft'om at least De.cembe·r ·Practices
t;

managem~fll:.'s r eco ~d ad accoun

g~netal

Or specific asse t s

aQthoriz~tion, is com" .. red

and wi th

(d) the act-ion

tab il i ty. foc

as s a t s at

t'l:!!ason"able' in tar'i.a.ls an? d-iffer"ences. foregoing, r.. $trained ~ of the

a rtd a.ppro,9r:iate

17'9·. Ft'ietsch, singly

By' reason ;rorke!:", and in

of

~I:!e £o""going,

de f e ndan e s each of

rsc,
them,.

taic.en wit.h

t"~s.~ect to of the

182.
viola

By reason t ing and,

de.fendant and enjoined, Act

ISC

a a s vtolat"d, will contin'ue 78mlbl(2)] ~o

",nqul0

and ·S·t·ein and and aiding

concert,

and "betting

unless 13(b)(2)

Secl:io;'l Ub-2

E:xc:hange

(I5

U.S.C.

Rule

[17

C.LR,

240.IJb-2J

the,eunder.

14,,-9

240.14,,-3 ;'lHEREf'ORE, this Cour·t: Plaintiff CommLs s Lo n respectfull.y ["rays ilnd reqt.:est,.

240.1411-9)

thereunde

Detet"mine, the ·viol.ations

declare

and

issue

findings alleg9d

of. in

fa.ct t.his

with

r.sspect

to

~ ac t s .ar').d prttc·tices II

.C~·~?l.aint:.

166

are

here"y

realle9"d

and ISsue an Injunction frietsch,

restraining florker,
I

and ,,[lgulo

enjoining and .agents,

defendants arid each emi:1""loyee.s.

19,

1977, 1:977
11 }

~SC, of with

<{enn"ally,

S.te!",

tl:le "E'creign the date

C.orrup~

A;ct of in

t.her:l,

arid I:heir

oEflcetrs

.Clirectors,

~e[var:t;s·,

and <;ontinuing its ope r at.Lons and

he·reof, to! in

de f e nd an
(1)

ISC

connection bcok s , accurately of

successors, of with sale other them, them, and

.a:55 igns,
those

a.ft i1 iates, pe·rsons in

.and subsidiar active in COncert

Le s r find each or par:ticipation ",ito of the IS~ or 'pu~chase> a;;y

is now failing accounts, the and wh Lch ,

mak." and

'keep

records, and the of fairly

t'e"sonall1e and and

detail,

di.t'.ectly to

0"

il'loire.ctly, or of sell

.oonnect.ion

reflect of eSC;

tr~ns"ctions (2) devis·e

dispositions a

or offer issuer,

purcnase use

tens' securities

"ss'eta

maintain

syst.em t,:ea5cnAble

by the

any means in

or instrument.alities
i.r.teC"$tate c...Orome["c~., oislea<:j.ing f~ct· of the or

J._n::e"C"nal account (a)

irrq con t roI s sufficient
trans.actions

to ~rovide in

of

tr;alls·portation by the

"assurance:!:!that with manage~ent'. are

are .executed

accordance (b)

0,

US"

0,

or the ,£

G:OInrnunication mails, fact,

from Inaking

any

false,

general cecord'ed in

or seecific

authoclzat!oQ,

untr·ue

$tatemen·t.

o r omi~·ti!1(~

1:;0 ·$t.:=te

a materi~l in light

tr-ans-a·ctions o.f fina.ncial account·lng· such

as

necessary

to p8 rm i t; pt'"epara t.ion ,,,itt> 9!,flera11y accepte'd to asse·ts~

nece-s s az y in

Or-de"

to

rna.ke the

st·at"m e n t s made ,

statements

conformity other

circumstances
"er;n.ing, 1.
or

under
other

which
th

they wer~ made,

not misleadingj

can-

pr Lnc 1[> s "fld/.or i-e ~nd

e r I ter La ,i"g"licable accoun~ability fo~

amonq any

in,,;;: commit!11ent~und~r5tdnd~ngl
l

statements,

to maint~in

erg~t:'"eement,

3:"r.!Hlqefil~nt

tr.3.nSdct.iOn

·b~t:,yeen. IS':

or

;:t·ny

"Of

i:!':s

·slltJsidiarie.s

or

any

of

~h_eic

at:'i.lia_te's

0'(:'

subsidiaries, of any entity
I

'a"d

any owned

thi;:-d

and proper or

~y :3-ccolJntad and any,
r

for of

On the

books

arid re~cot"d$ 0 E !SC,
O~

p~rsons,
0·1:"

cc£ici.al eo

or; employee
['5

andl

th~ natur-e if x.t
en

extent

paymen t , disbursement·s,

con t'roll

by ~ fo.~e l.g tra·de

g.ov:e r nmen t

eens

u 1 tan t ~

~ransfe~Sr
8. the e

therefr~m;
Whl.ch

gov.er:1ment
employ

o f f i c i a L,
0r t

a s soo Le c Lcn , or E:

a ny

a c t.or ney ,

to

t

r

ans

f.e

r

s

o.r

o

i

sbur

semenbs

of

cc

rpoz

a

c

e

e.e

a_ga,l"! t hereo ~ ac t
Lon

f und s, m'ateLi~l t
b~·tween

in .ndtl:r~.!:

araount

, o r effect,
0

'~e'[_"e

o~r could ting

2.

any

r

ans

OT

paymen

0:-

b.y

rsc~

1

z

s

sub-

be ef E~c·te'd r,.,i thout or 9. auditing che mearls ,rocedures by

the: a pp l; Lea t:: ion and controls,

E adequate

acceun

s Ld ia x i.e s or any third

a.ny -of theit"" aff.iliates
withou~ r~liabl~

or

subs Ld i az i.e s , a:nd ac~uratell payment, cook eo p Lace
r

party the

j~cumeM~ation tl:"ansaction 'or

Which

ISC obtains its

business, with its

its'

pe r f o rmancs

unde.r

I:"eflecti~g 'Wliom auch
O~

puepos e -o f such or ':./ th i

contr-acts c"isks

it has

cbt.a Iriad ,

relations· and

.i z s c.l Ie nt s , the cond i t i onj

payme!ot

'~hom such

c r ens ac t Iou

·enco.unter.-ed

in. I t s business,

f Lnanc i a I

the any

~xistence a-g'('eement, involving of it's
I

of fictitiou~ unders-tand offic·e.ts_,

vc~che~sJ i.nq , e r r anqeme'n
t
r

.3.

o'r

t:-,wsof 15C,

of

c reocli t f rcm

any

ba nk r

in s ur ance

company,

0

r

s i,':!ti La t: f inane

i.al

action or any

d~'['ectors or

f

'C!'"

em!:?loye'es

i,nsti tution;
11. -transactions or in any gension, dire'ctly any -of or' 9rofit sharin,:! "lan m intained, ..

affiliates disgui:!;re.d; and extent

subs Ld i ar ie s , wh"",ein made to third

payme nc s

a.r e ge·necCited 4. the natut"e foreign

and

pe r s ons i '::u.n.rJ~
to

established, 12. the

-:ur"ded, use any of

or
the of

throuq.h

Learrs , oy TSC; ISC by any off leer

o~ any

e xpend i t ur e of

personal or

fac'I I it i"es of an officer"
r

agents,

t.l:'ade

assoc

i a t Lon s , .consultant5,

att.c-r-neys,

or- diractoc, 1St, or ·a,ilY f
I

fam.tly

member
Ot:
indir;ectly,

or- d Lr ec.cc r , oto·t" any o t.he r
pe r son-

or othe~ such persons~
5. any action by ISC, ac t Lnq

of

i t;s s!Jbg~d~ct.-l.e·s
directly or

Q.£,Eiliat25
upon

its. s uns Ld Lar i e s or
for or on behaLf p r om ts e of

affiliates, .. ny of PqY, in them,

.or all}' in

berie

t.

c''!)nferied,

any

such

pe r so n 0, en ti ty

1].

the

s uorni as ion to any

of

a·ny false

aft idav i.t 0:- ot-h~·t" f a I s e or any agency or wholly:-

fuitneranc_e
zation [1J. 6. of (2), the

'of

a peyment
of 14)

, 9ffer,
the above;

to

o r a u t ho rt>

document owne~ 14.

forei'jn
i

gove·rr:me·nt,

a payment
(J)

type,specified

subparagl:".phs

entity natut"e

t.hereof

and

the

and extent ds of

of 15C, to

;!:";.y

false of

of

fictitious

entries
-Ct"

on

emp l oyrnen t and entity employed '~['oC'ess

ac t i v l t Le.s at

any- fOi:"eign with the

national

01:"

the

boo k s a.nd recor with III

o r any

i c s 'Subaid-iat'ies r e t e r r ed and to in

fcrr~ign

Jrt 'connection
relating

ae cu reman t of a CQnI

affi.).i~te$~ pat"~ql:a"hS 15. IS,CJ i~
t he

;res.p'2-~t th!7ough to

the

rna~.ters

sun-

ot , app Li cat.ton
t

t.o , -o r

exe ca t.ron

(111

hereinaoove; _officec,

r ac t Eor

proposals.

fe.CI,sibility r-elated

s.t ud i e a , en9i:1e.ering td be let
Or'

con~

extent

'ftI·hic.h .any

~i.CttC't"ot",

Or- ernp Loye e (.If

s t ruct.Lon a foreign

·",orkJ

C1:"

activ.ities

a i t he.r by a gov(-:!tnrne-ntactual
mon I

its
the

'st!bsidiari~s

o r ai.filtate·s"

knew o f or pd'r-:eicipat-e':
?ut'-

g_qvei"nrlient, with
e

a s ubd i v i s i on t-het"~o£ ~

mett e r s pnd ac c i v i t i.e s J:equ i r e d to be disclosed.

o·"":-,.e?cQ'~oration
-,. t:he na

"C"12~~ect.1:0 a ~__ ~oQ{}sed o.r
e n

,?t"ojQC't
e s o r

t r-e dnd
u

xt

t

c

f

pny

fund

oi COt"p_c.rat-:::
..... z hou t bein~ I

ct.he r a s se e s e s

cac i l shec

o r rn€lii'!tain~'d

fully

'tJ"1.J

III
Issue K.mneally, and th~ir: an I~ju'nction rt!straining HoEke .. i3ge'nt;s, and
I

b)

filing, the ,fiiing

cal!sI"g

to the

b-e f ihd, Commission any

or

e Ld ing of prol<-Y

arid

a_bet~ing

a·n,d enJoining' and ;;'te in, ar.d
r

defendant! each of

ISC, them,

with
or

soliciting

Priet.sc.h, 9_fficers, af·~iliatest

Mtglll'o servants,
l

materials, holder statement{ of

sal icil:i:\g

p-::cx..y of QY means

aery s e cur i t.y of. any ;?roxy

e'l1lployees and

SUG:ceS50t'SI t.flem, arid

~ 8ublic :or;m

cc!;";?ora·l:.ion

ass-ign'.$, tflcse

s,ubsidiari'es

e>ach 'Of

o.t pr:ox:t,
'.rJhether

noti.,ce

.o·f l"Oeet.ing

o r oche r

p~rscr.S or

in active indirectly, the
0.-

concert
f'roin Eiling,

Q['

par-ticipa:tion causing. 't'he
the

'4ith filing,

them, .or annual, to

comrnunicat-ion, any 5tat2m~n~ of the·

w""t:it!:en or' -o r a L, at the under: time which

containing

tji.rectl_Y

filing., ·. ith . periodic the

Which,

and in ~~e light it. is
:nad<eI
is

,~iding a nd abettin", cu~rent
pu rauan and
t

Commission

any

circ~m::rti;mc.es

or que r t e r Ly
to Sectio~,

other
of

report,
Act

requin;d [15

be filed
7BlI'.(

false O~ mi$l~ading with re5?~ct to any m~tecial
fact, or '...;hi-:::h in or om i t.s to
tc

13 (a)

Exchange and 13a-13

u . s. C.

a) I

state the

any

ma:::~rial

E~ct

Rules

120,-20,13,,-1, 240.13a-11 and

11,,-11,

[17 C.?R.

240.12b-20,

r..ecessary
not any f.al~e

or de r mislead in

make

st a cerne n t; ther-ein t.o cor rect; wi;:.h

2~O.lJa-l,

240.13a-13]

thereu,nder,

Wlt,lcn <::orItains

ing ~ or e~rlier

neces·s:a.t"y

an~ uritr~e statement
fact the to nacass ary , in

Qf a material o nde r to make the

fact~ or emits
s t a tements

to ~tate a material
of

s:.a.t~m~r1t

any·

ccmmu"f'.i-cal:.ia·n

mada , Ln light

reS?8ct

to the solicil:.ation
or SUbject

of any

fYt'.or.y

for t.ile

c i ecums-t.ances under; ~h"ich s·tate any fact required to

they be

wer-e rn.ade no e ~isleading, ..

or o~its

same meetingfalse ana

m_·atter·

while.:' ha.s ce come

~n·cl.u'ged therein

m.i s Le ad Lnq .
'if

tV
Issue an

I.njunctio·n restraining
Frietsch, theit" officer-s, Sofker,

a·ndl en-joinirl"q Angulo and Stein,

defendant.s and each

Issue: qicector.-s, affLliates., ~rers.ons ot [15 them, u.S.c. 1. in

an

r(1~un.c:t.ion

t"esi:.rai.ni~g

and

enjoi.'linq

1St:;I

its

of~icers,
I

rsc ,
9f

KerIr.eally, arid

agents,.

e a rv anxa , ~mployees,

suoces sor s , ass iqns Ln f ac e , and with of th,e t.hern, all

the,",

directors,
t

a.gent.s, and

servants, sub-sidi.ariest

subs Ld Lae i e s . an-d <lttorrteys active ., iola conce r e 0(" part.ici.pation
t

employees, e nd all ,,_nd each

sucoe s soz-s , 8s·,s-i-gns in ac tLve by of
or: of

.affiliates,

-and, each-

persons of them, ities
rce ,

concert

o r pa r.t Le i pa c i.on .~i ch them, o r I;>y a~.y liIe.ans cornmun Lce e Lon
a na t

reom

i!1g Sec t; ion by bocks, failing

13 (b) ( 2) to; -and y and

Exch a'nge ;"c t

us e bf

tlt'e rna-its or
of

and in
r

"18m(b)(2)1, make and keep

inst.t"lJment.:hl
state ccnme

tt'"ansportation
any fa~ility

intec--

·recncds, .accu'r at.el

accoun e s fairly

wr l ch
t;

,

Ln th-e

i ona.I

s e cu

i t i e.s

('easanab:la

a~t.aill

r o f l.e c

exchange or dtherwis~,
a) soliciting concurrently a writt·e:l

di~ectly

or indi~ect!y,
any 3ec"rityholce~ furnishing

from:
witbout ?e:rson. with 2. or its

any pr,oxy of or

s.ubsidia'['ies or affiliat.~s;
arid mair.t...ain a sy~t~r.. of t.:'ltet"n,a,l aceount inq

p r evLoua Iy

said

devise

pr.ox y st.a~emen·t

con aa i n i nq.. the

informp.-tio;1

controls

for laC, and i~~ sub~idiaries

a~d affiliates,

:oen~.'-s

g,~neral;;>,

s pe cLf i.c a",~hQrizat.l"'n:

(b)

tran1;-

21J

ae e Ions a r .. r."""otded o,f fi,1a:ncial st"tel1'.ents acce,pte'd accounting
dpfnicable ability Eoc to such e s ae t s r

as

necessary

to permit with

preparation ge'net"ally c e t t.e r i a accQul1tpe rm.i e ced o.r specific Eo, ~a..ragraph X below as ~Clvi{1g

ru Ix

in coilformity
and/or and to to

p'rlnciples
s':.aternents (c)
l

a"y"ttl,er
maintain is

referred
'..!ti!izec C'ot"porate fUndaorre I use· and ""tllcb oene.Ei-:., ~ Ear all their to ..a.ccouot r ece I 'led.

to in
9"1:"-

access

assets
I

only in ac cocdanc e ~i th ~,anag~;r;I.ent
authotizaoi.on; "nd r'ed (d) with

$,

9·ene~al

fD~ and disgDrg~

~eneEits,

,the recor<l'ecl t,ne i:!xi~t.ir;·g
ac c i on is

""cot:ntabil_il:'l es se.t taken

tney wrong [u111

assets

is .comps

s ·at rea-sor'1abl-e !;;it:h cesp~ct t.o

x
Issue an Ord"r
appointi_ng 'an

Ln t erv aLs a nd app!""opriats

e'gu i ty re ee i ve r for herein3ite.r
the Court,

I-S,C, and

any ciifferences.

ihs sabsidi~ries (referr~d to

co lective,ly
to aeco~pli3h to the

1

as

"!S~fl)

VI
Issue an I.ojunct,io.n r-e:straininq and

with to

directions in an

~nd am
0

authority t

fOllOwing, 5.11bject

a bona

e n jc ini.!'i9 ISC r its assiBos, and .. betting

eff

(cets

f

oun - satisfaccory

conditioned

'director~, a9~ntsf employees,
and of subs rdi a r Lea h'om false
0.1::'

Successors, or aidi'-'9
in the

affiliates the
making of

·On

the faithful "fter haVing

.Dr ormanee of
tak
~en tne

f

his

duties

as •• id ~eceive",
by , ~a·w and be ing Clther.w.is.e

making, en t.r i.e s

and

-.

oath

t'e,quit'ed

fictit.ious

books

and re·cord.s

rsc
and

qualified: 1'0 take funo·s, custody, pr:opert;z', or control 9r'em(5es
LH'ld.e·r

or ~ny cif
ma·iTItainihq

its affiliates
or ~i.jing

or subsidia~Le~r
in

or establishing

and and the

,.oosse,ssl'~nJOf '~ ptbe·r

all

of or- in

the

and abetting

tHe e st ab Li sbme n e orf.und of the corporate making of racn re s any

aSse t.s of of

mai.nc:enanc.* of or ass,eta"

a.nysecrec moking or

O.l: U·nr-=cocced aid ing and

t·ne fH!)S·Ses·sion ISC, and/Or

conl:.rol

th£' d~'fer.da.nt whioh t!1e·

or

abett:ing

assume

all

z Lqh t s to

''''0 ,

pO'Nets

payments,

d i s buzaernen t s or

trans,fers

ther~t:t"om.

defendant

rsc
...

may have

manage,

control,
I

Ops-rate, earni"ng.s, Or to

VII
rs sue arne_ndits
C()r.tmii'islcn r-eports

mainta.in,
IS-( to on to cor-rect; and rents
I

COss

es s, rec~iye and Oro·.c:i"'s
.. *L.

.and us·e income und. er
., I

a M,anoatory
annual fo"

t

n junct

Lon requiring t"egortscu-r"ently

issues
r

. any

agi'~arnents
... .:.J

and pe-rfoL)lc
e ach of

Eile

with

the

COil

t r' ac ts .EO-I;,

whe resoe

Vi,ft'

s i cua te·d

Wi t L.. into

.l I r u .... £lowe r p05$e~sion

its f i s ca I years t'.e.s~ect$,
i:1cl.od.lnq

1970

date

,.0 th1lt said

·sue

collect, ~hattels,

'tec'2ive ,ights, ' t'e.cot"ds

and take

comp l y in all

those

r e spe c t s cbmpla·ine-d

1111gOods,
lands
I

credlt~, account

monies, and other

effects,
papeJ;"s

of her s i n , ',doh t!ie

Eed~"al

securities

1","'5.

bcok s qno·

of

VIrr

and documents
Such assets,
tq

of rsc; to
pending

COn$~TV9J

hold ~nd manage
this Court, anc the

~ll

fUt'ther

ord@..- Of _" -

in oLd~r
:i.r::ju.ry

?reven~ irreparaql~ lO$~,
1:0

damag-~

to inv~.stor.31

conael~VI2

~"d 9,eve-nt

Or

d i spos l,tion.

.11 21.2

B.

To make such
so taken into

p"ym),nts
fl is

.' dis.b~"sement:S and

.from

the

funds

Issue dire·ctOt'5;

il,l1o

a'rear

commend nq and r aqu ir i.nq i and employees, Lnc Lud.i.nq

rsc,

its

o,ffi~E!t"s, K~nne-ally
r

custody,cont·r·ol .a rid to

a.gents

specifically

the rea He·" as may be

r e<;e i Qed by, him, necessary

incur such ex~enses
i'u discbarg'ing his s ion, at,ner cust cdy asse ts o,tber
r

audacvisable

and con t ro I all a.n~ all s

funds,

",cope'rty,

""emises,

and documents Kenneally
1

duties

as receivec;

books- and records and fu.t"~et" and

.of ac'coun ts ~ t i t12 d e f e nd an t s
r

To engag·" d an'.

=

a nd 'e:moloy' accou!1tan·ts

-

an.d other and and

experts of

to

a ud it

and

paper Stein

0:: !Sc;
and

or·der

rsc,

#

investigate e\Taluate of such

the the

books, assets

records of

account's to ·sll.bmil

!SC~

·crietS·ch, managers, with f~am said

Angulo_~

I~C' s o~'::ice:Ls t.o ::-efra;in control
o'r

d i r.ec cor s , agents, inte.cfering Lon , and such that acooun ce nt s cus t cdy ,

and to "epoets of such

rsc

~uitable appo i n tment of t.heir

e t t.o rney s and rt:=ceivec in .taking

e"lnploye~s such

crom

aud I t and an"
..JI

evaluation and

VILtn the

the

'custody,

·a.r'l.dpcs seas ;>'i th however
I F

accountant~ subject and defend

ex:.~~:rts .. the

nature

In·~er fedng and

1'ny menne r , ·d i!Ce<:tll' by said
r

indirectly

compeOpa:;ion

to all

ap?"oval -

of ,the

Court; and de-

possession defendants

con t.rc I Kenneally shall

rec9ive-r;
#

provided,
and

o.

To resist

au i t s , ac b Lon a r clatllt~ pending o.r which may be

rsc,

Ft:ietsch

Stein

(\n-gulo to

their

mands
or

which

may

now be

brought

and a.ttor-n·eys

be afforded rsc.

reasonab-l~

acoess

such' r ecor ds

8·sser:te:<1 a.gainst

ISC;
t'

and ot.ha r docume n.t.s of nqui ry- and of 1St; such t.ime the period as investig,.~ion

To undertake
i n t.o the TO present set

.t an indepen d en i aI cond i I:. ion

XII
'1O"$u"
an Ord'er pz-ov Ld i.nq that said to receiver, and allY counsel whom .. h'" r e ce.i v er t shall the ISC, be antit.led

f inane

to this

cour

t.

within

may to

s s Lec t , subj€c.t compens.a t I on
0["

th;e appr-ov a I of
assets now held

Hi" ccur e ,
by o.r Ln

by th-e ccurc of the

, h is ass'ets

r~'P0rt of

t"~flecting 1SC, to to ·the ex.ist be legal extettt

ex.i5tence .of i ts li.a~ those of

~'"om til!! which

and value billt;'es, which

pos.s e.s s Lon or ion

ccn t eo L of, amounts

may be

reoeived his

by the

defendant ob-

both

tbose

claimed believe's inforMation th's ~

by ot11e.r.s obligations the receiver of the meet
t

and

an amouo e, o r in the

cemmensu r a ce with ..

du ti i e.s and

the .eceivex
any ~ay This [u"ther , aSslst

_ligations.

circumstances

ESC and believes a.c·tion. opinion
t

which in

Court

disposing contain ISC to

h is
1

XIII
Issue an O",der staying and r"str~ining" excef'1: by .Lea ve of

J:"epo["·t shou l d also the b'l't all y of

receive-r s its abliga-

~egarding

Ions

as they
the

come due ,
individual and and defendants of &f in this I5C; Kenneally, a rid to :!"ie""ch, furby

p<i!ndency ot~er all

of

any

r ace.i ve r sh Ii? otdered

h·er·" i.~, :a1.1 cred'iton;, as se t s of creditor

and

G.

TO relllov·e from "onttal

pa rson s saek i nq money I 0:: othec others acting on beh"l~ of any such

d e fend-an t :ESCanq

management violatiof'l.s nam~~

prevent l"a-w.s

'e"o

o che r persons,

t;het:' eva5ions: all

th~· se-curities ~ction.

the d~fendant$

A.

Commencing,

p-r:05ec\Jtir:.~3

i

continuing

o-r e n f o r c i aq

any

lIt,

2L· a• Executing suance execution or issuing o.r caue i ac the e xe cu t Lon or is... to t:he corrduc t

'or

bus i nes.s of

the

d-

.qf" any Court or other

attachment, p~ocess for

SUb~QEn:a ~ replevin the· pu r pc s e of im-

et"odant

IS.!: to 11 .."",
M.;!y

subj"ect

to such re,a.sonabl.e conditions
lng access this or to the
Co!"?ot"ate

as t.he receiver
Pooks 3._lld re,cOras .1 sna...
J

requir'e, continu_ Nothing i~
to impa.ir the tht;dcr

pounding
or

er taking pcs$ession
or enforcing

of 'oc lnt2if~ring with
u£>:on .. ny defendant >,!"rope·rty o'",ned and affiliates,

previous
Such law

of ISC.

ot"d~['s

50

is.s,ued
'

b

crea ting 1n th"

a 1 len

e CODs'trued

cigh e; of

en..Eot"ce:ment

by or Or th~ and C. Doing

posae s s.i on of sai.d

agencie.s

to continue

eo

pet'fQr~

rec-eiver

pray~rj

tot'

he r e Ln , wh-erescever

:Eiit~ated;
G.ran.t. -auch o·ther

XVII

and f"rth~r
and necess.ary

c~l:;ef in

any

act
of

or ot

thing

whatsoe~er
t,

tc the

interfere

with

the

a.s t.he c.ourt
c,onhec:t'ion "ppropriat"
""i
..-~

~ay d e t.er:t'!ine
t.h 1-,Le
... iI

eo be jus t m~nt of the

I

equ I table

possass Ion bet·"in in the

managemen
and

by

r e ce i~e z appo Lnt<ild o'~n"d, con t ro l Led or to in eny way in-teres

en.fot"c::e-

["deral

""I:uriti".s of

L%(~ .. nd investors.

in

the

""bIie

oE t·:'e !?c·oper"y possession of

assets ISC,

t f.o-l: t"he' p:rote!ction

deiend~nt

or

intetf~re with manner during

said r~c~i7e~, or to int~~fere in anv
the pendency

0"

Respect:ully In/·in !-t.

submitted,
80rO"''51<i

chis

p"m:eeding

with

the.

e~clus~ve

juriSdiceion

of this Court XIV

dver said defendent.

Issue.

an Order such

p.t'O~i.ding t.hat

·the. Court

r ese r ves the
r

right.

to

l~arv in G. ~ icf.;bolz Benjamin CreensDoon IHIUam s , KUfinhle E:dward L. Hahn SalMiy S. Knight
Arthur
By:

~.

Sch",artZstein

make and enter
said of in

fur-thet'" or=oers or dec"("~e:s
that

upon

application
the

ef
A~torneys Eor Plairit~fE ~ecu~.itias." Exchange Commission ~OO N. Cap~tol Street, N.W. lia~hcl.ngton, O. C. 20549
(2P2)

r ece tve r o r otherwise,
receiver Ls hed , in his

m~y be n~ees::;ary
of the

fOJ:

guidance he,e-

said establ

administration

r".cei'lersl)ip

Te~:

755-1674
755-5015

.

xv
Issue th:is orders suitable m!.ss~cn and to a~ Order providing ihlt this Ccurt retain ju~isdiction of· all any Comcourt of Dated:

(202)

July

9, 1979

act i o n in order
and dec r ee s

to implemen t and
Il'.ay be en·tered

car-ry au t the terms
hereIn or to and

that

e n ce r t eLn Excna·nge of this

-app I Lc at i o n or .Ecr e dd i t ona I continue all

mo t i c n by th.e .S"curities tl1e

r e Li ef within
pceviollsly

jurisdiction

stays

issued.

XVI

and

Sxcna:1ge

Commission agencies

di'1d

other

s ce t e

and

fede over

raI

la'.,... enforcsr.;,ent r e La t i n q

and ['e'gulatory

h~vLn9

juris-diction

me t t e r s

:Hf, 1.1r' llNI.'I'EO STAT.ES OISTRIC.T COURT fOR THE DISTRICT OF COLOMBIA B. (i) t.CI

t:"evi.i!:w• .r.H~1nqQire
",neth·1!H· ~8.5et..s of and any (U.) control

r nec

tbe

,!ct.ivi·t1es

of

ISC

to determine
the of bc.nefit ISC,

of t.sc nave 'been d Lvez t ed to
pet"son, cffil:er, id.irec:tor has. or

or- for SECtlRIT1ES ANO .E:'X.C~GE COM,.IoI:ISSICNI 500' NOlrth c~.!?ll:ol S I:.:r I!!! IE't washinqton., ':) .. C. 2flS49 (,02·1 7~.;-H7 4. e:mploy~e

e o dett!!rnline

'!l])·e·t.hdi:ft" ISC expe

eFltar!!!d'

into

a.ny aignif

icant.. r.r anaec.t.Ions
ior Bsse-t'swhic.h

inV'Qlv.::.:ng

nd Le.uces of
b-een= adan of etu s s.:1en

P1..!.int:.iff,

crv

It

NO.

Ii'CT I ON 79-

s'ubstanua.l Br.·qa'ged

funds

a.pp~,.!IIr l1ei:. too have pUt'!?oses eecocd e and -cr ~t"e
I

in Ecr l_eg ~ tiJMte

bus t.neae. and naaur

not. and

I~TEnNA'!;fl0N.tI;:L SYSTEMS' CORPOAAT!Ol'l, J .. THOMA.S K~"NNEA.L.L.Y,
f!~.RMAN ~. FR1£"I'SCB
#

&

CON:rRO.LS

M.OT1:0N rca ?R~l.IMIN~P.Y INJ'U~CTICN A.NDO":E'E:R·· r:QUITABLE RELIEF PURSUAN'r TO RULE 65, f'-R. C!V. P.

eglJa t.el:t ~-eg,arCl,
t

.expla.i"ne.d on 'che hooks
t.o .de.t~r-m_ine the

Si o'f- ISC ct rcues

croe

e encee

r ansec c Lons .and t~e c.

bene fLc Lat-Les o-,f any auch ~tJ¥ fund.s
0('

tcansG:ctionS"J en.force any·

RA~NOt<;O G. ROFK ER, ALBERT 'Ii. ANGULO, and aAllMN M. STEIN, D~ i: e nd.an

t.o ee ecvee ISC which

es se cs or of

li.ab-ilit.y

':;:0

ma.y r1!sult. 2t·a} a.nd

f"1:.om any 2( b)

~he

a-ctlviths

e.s

de~n:ribed

in o.

paragraphs ~o oversee to
i:

a.bo\l.ej wi I::h tbe comply Comrnis.s{Qn the anc
it..$

ISe· s filing.!!li they

pUt'$uant

to

nute

65,

of and

thB

Federal

Rules

e

r

Civil

s eocedcr-e

,

pub Lf e disciostl.t'lls ',::Ieetlt' i t.ies CJl

B.!lliSllJ.re:t.h.;tt

with

E"e:det:"al

P.!.a.i.n.ti.Ef

5ecuritic'5 fer

Excha.nge

CommissiQr:'!.

{.IIIComJll.i~5·!onn) b~t'l!!by

1!:wg

::r.O·VI!!-S tb:i:!1 Court (l) Systems of of this 'he,

afl or.cder= e-njoining
t Lon (III

A.equic.in;

·ISC

~nd

its crcinnr-o L per-eecs

, of.fic:et"!::, poeaes s.rcn eeepaeate

p.rel.iminarily

t~e ISC"),

ne g andan

t,

Intet"'J:'IC!'l:icnal pendency 17{a) sa.ctions Act. of Rules ).01 bl,

c rr-eet.oee o-r control Eully 'Wit.h ("4)

or; I!!mplcyee-s of o-f I!lS$,et:.s or the a.9E!r'i.t of

r sc an~ a-rW p.et"!ion in and eecceds of

.. ·CoOo·t.roiscoepore

du-r-iiLgt.hl!! 0'1: Se"tlon 77'1(") I,

books the

1,SC to
t;

action,
secuet

Erqm "'fLlr':.het" lIioli;lIt:ionB Mt of 1,t' a.) 19l1 [IS O. s. C. Securities nm{bl

ceue

e in o-f tho

c:::ar"::,yin-q cu ccue-e eo

his

dutie-s 1',0

e.Les ~2)

Autb(ldzlng

t·be a-g.nt

appl.y

l.3{al L9J4

~ lJ(bJ

and 1ajlb),

~:f the

E!xcna.r;ge 18n(a))

th i~ Court fOL suet. fur ebe e- o'rder!!
appL"op1:" ia.tll:! or (5) Court I'H1C"ess.a1::':1 too r::at''r:'"Y a9~nt h;S.
Q~

or aaaaee ance ·.;IS· Ay be m
out hi i:$ du O~urt and

[15 tT.S.C.

7·Sm(<i),

.nd

and

t re.s 7
[~port ~o t~e and to

roe-s.

12b-20, B.a-l, 13a-ll.
240.10b-5, 24U . 13b-2,

n.-13.
and

Ub-2. ).43-), and lla-9 240.13.-11,
the re unoe r r

Dir;e~tin9 the
CD

the

to

(l7 C.P.R. 240.1.30-).3,

240,I~b-20. 14\).Hac3

240.1Ja-l, 240 .Ha-~I

,"t; cb In I5Q daY;$
fut"tht!l:'

finc;Jings

activiti!!s

fileS!uch

reports

&:s t.!lis C,:,u.t't may dt eeee .

IS·Cj and i:.ha.t these

to

ove csee .aotivit.i~;S.

th''7 business ae-e being and nat

ece.Iv o~rried for

t e.tne -of lS.C to
oue. for

eesure

.1egitimdlC.'e cene of

Se-curi·t i'!!s and Exeh·!1n-geCO-mIDis!:; ion
of [)~te(l: . W'a. ..shington, .DC July 9, U79 50'0 North C;api':ol St.l;'e-~t, N.W. W"8_!ih-ington, DC 205.49 Te_."phone I (202) 155-11;14

Sammy S. Al:.tor;n~y

oe PL\!ol:iff

bue Lnes s pu.rposes of

rsc

th'lI: pe escne I or

r it

any
its

control

~er~onr
or

Qffice~1

direc~or

~mploy~~

ISC or

aiJ.baidi·~l:ie$

Q_(fili15tes·r

~N,rr.E~ ;$lATi:;S OIS!'R1CT

{1

Fell. TitS'

~:S~:7

.COUE~,!"

~iQr. of

and

bos.l ::'erf' .D-~$ed upon '''''itqe:sses; var tous notes

i:l"fl
Q~

rev ie'fl

0

f t-r-anscr-Lpe s o!
cce re spondenca counse I

tses

t i..GJ{)n,~

OF COi,..t:1-B!J\

...ari0lJ5

mee r Laqs , includiLjg

,a,nd COI'\de-

v·e'1:sal::lcn.fI with :a.rldai\te SEC[JH:~.'rI.ES MlD S.XC!i..~lC~ 5000 :-':C'!;'~h C-apit..;;Jl s e r ee.r Hash:ng~onf D.C. 2~5~~r
~tH'·~in.;

pe eaons ,

Eo:; th2 of

and documenes , incl~ding i!:.s
I;O\:I'r'.5~:

accocencs
I:.

rleEen~a.at .

C01>il."'_rss:o~~,

:ESC anc ,a.'ld its

t e s subs id laries,
~~eL:i.!l dutsic:e

ind-.epende.r::
~

eud i t:.or..s,

i cs a. t.t.oeneys

and

oth~'t"

raa ce e.taj s ':;il"th-a:roa-d

:la\ntifl"r

v.
r~T~ruiA":!ONAL S'l.S!'~~!S C::;R!l!:j~'I' IC'~II J. T~.QL'~kS !\~ll~;~A.LL.l" i:1.Elf..'-\A~~ ~. f~I ~;rrsC"~ RAY~1O~.~: G. H,OF'K:;;~, ALBI!:R't' W. ;"~~GU;:_'G ~;-.t:I 3:ARLAN x, :=i'i'"El!I,
r j I

C!V!:' AC'l:J:ON H-

~'o.
L:JN'l'"aOLS

j•

ISC

r

a ue Lawaz e ~o.t;i?',n-ation. ..... th 1
Te~a:$f
[.!:.

Le.s. pr-Jnc Ipe

j

p l eee

~f. end

blJ-a-ine~.$ produc t-s t'eliSOUrC.eS cesource

1::1 Hou~ton,
.fQt'" t«,2

er..g.ased

Ln

prc'l.Tid.in:-g

5rat"'llces

-dave Lopmen t; 9f

enez-qy , i!l.q"'dc:;.I!

:::'l1t'o!!J~

lind of

.E·.J~I!.!;.~ry naeur

j

and t.~e. preceas
ag:t"ic:ul,ttJral

Inq , st.o::--!ge;
pcoducr.s • T!'!e

~nd l;l;~m:iling'

al

and

ccaacn stock of
to SE!~tiLln

rsc Ls
t.he

t:C""9"i5't:er-;oc w!l:.h
C:;" !VlT'HUR ;·1. SCR·d~:?"!:'2t:;;;T~ 1..::l OF :5UE-FOfi.T G ~ SECU R!1'I ES 'Mro E::X-C:lili'\lG;: co:·m.IS;; :ml' 5 }10TlCB :;'OR ~'Pm::L,U'lI~;"~Y i~l.!l:NCT'ION A~m' O'I'E:;!R :E:QIJIT_~.aL~ ~.! E:!: A"I:'::!OAVr1f

~he c:o:mmi-s:sJon. ElI;lr:-5uant Ac"t:; of 1914, ~nd

12< b~ of

:i[;;!-cut"tti!:'i!;! and '.... 'S a

E'xc:-,a.nge on

Ii!iS £I_~er'.l:!l:!d '[13 Ameri,cEHl stack

U.'S.C. exchanges in

7.9!( b)·] .• Sin::;;:e ISC's
t~"le.

l:.L'adeJ

t.~~ !'d:ci-fi.::

Ci~y cf w.ashing~on
O·istrlc·r;. o E Col'JI!l!:)ill.

Ncvembe r '':9 stock f~r:

is I

'",1rlen the

Comm!s$<!on

s is ps-nded

~<:!I.dir.g

a ?~'t" i.od 'of

ten caye , the st.pck

hss' not; tr~dt!d on.

s.ae it Ic

S·t.ock

Ex:e-.tlange 0 c- th!:! ;i\i.~e!, can i t.radecl in t.h·!i:r~l1.ttea

Stack

i!:xo!Z:hdnge. !SC! s common c:.r.e -:ov@!"-tn.e-cO!.mt:.;t:"

St.-OCK; c·ut'"t"':!r.t::.!yis 1f.3I,rkei:::. 4. .1.

St~t~:!:iit'l

rhqm;o'!s F::ennea.11v the

r es i oea

in

H:OlJstOr'" Texas. Oir~ctct's I:as·rgneci

D~f@n.dan;;.

.l(etln~all..1 va s Chd.Lrman 9f cr t Ice r 'Of ee i:5C until ea..t"ty

Bo.a~Qof

and .ChI@t axeeucavo these poe L'c Lcne , t.ha
t

1.:3-73,

·..,rhe:n he

Ic c t o these
to'lllli'Liss
~~

ce s dqnat

Ions , dj!f'(L'ldarn:.
';;'0

:-:-.er:ii.e.ally vaa

ewaee
iTIL

the
Kenr.raa.l.ly

::'Ot"L int:.er.de-d ~t.f!! ~2%:. of
a d

cepswertce
ec r

-an ac t.Lcn ,a,nd
OW[H~

iOIIgain.·st. h dndj':n.·
ccc

Ll!i~="~~;r;.·demt
o l s

i

ce

e

0': :sc

cr

apPt"oxim.:a-tely

rst'::;

cor.:.rnon

s eock ,

tsc,

!!S.

R~ymcnd G. Rof-ke-r: eee rdes ~nd the

ill

HO\lston, I of Prior IS~

"rexe s , unt.il

~nd vee e~r!y 1979

rsc

d~.f.I..!lt@.d in

unere c ~ Loa n a.go:-eemer:.t. '';''it:h. Lt.a major ?l!~cl9.ec vit't:.ua.lly all its

Lende r-a , e aee

!.t
a:5

s Vi~~-?J;'esidf]"'t. when he 't"esi9ned

Gen@L,al ccunee
r~

r-e~a.ins

de Eau.Lt; a.nd ha.s

t's ,

a t s poa c Lcn e

r it..tl

ISC.

eq his in.tended

res_ignatian.,

d-efer::d.ar:t.

H:Q,fkeL"" wo_s evae

thai:.

t:.h-!! Ccmmis.sioi1

cc

eoecsenee

(Se. T~E!a.surel: position to of \ii.t.h ISC~ r sc .1.'1 e',~u:-ly 19791 afte·1:' tJecoming a:~ain'5t
&

p~ ~'"9~.pb 11.

Ul

be j.ovj ,
1:0'

d.;:fel"lI:lan:t. A."SuJ,.p ee s Iqne d hls aware 'that the ~or..1'i:lis·.$!.cl'l as e cc c.tvc
r

Lnzended vf.ee-.

"In .:LOd i I:. ion

i r a A •• nuaj, Re~o["

~s on

.t:'Orlil

1".0-1\

t

I::3C ha.l3i

ccrsmence of

e n ace Ion al:lek4'

him. Bryson,

R~

t:ner. becaae
Inc. ,'"S·g&'B")

!?t'~sident until, s61d ee r j to

S[valls

an

:[·se .!5ui::n:dd:a.rYI

Fol:'m s-« ~nd'

.a,·nd rorrn

lO-Q~

~

q.eme:-allv

17

C. E',~.

§'"240.!)a-!.1.

y ,June 1979' wherr cee eel,n of tc cor por-ae Ion,
t.o the.

lJ~-t.l.

the es eee s of: ~S&:a were Def~ndarlt of the Afl9u1o- beesme new and

aoe erre s- pub I

i5 a sp@clal

.;:i:s·si.s·ta:nl:

pre:3-l.d~.nl:

BSr...8. ant Lt.y ,

a.
Pl:'es'ident Q._E ISC':s Engine.et'Ln-I;J Gt"O'LIP until the ea.rl:r 1919 whe n he ~;;:II.~bli-c~ I:!id qu~st:iona~li!! not adequa':.6:.:l:t disclose that that fet se ISC and made t"2!!-ign.ed· e s ee r- b-E!coming to ccnenence an action a\..;iiI.,t"oi! t;h.at b Im , 9-llyrnent:s; rACTS ANO OOCm·1f!N'!'S IN SUPPOR.T OF TIJ.E CO~'USSI.DN· S ~OTION
n

iUtcit

rand bookxeep tnq

conm Lae t on tnt:endad

EOI:'~ign

pay:n.-e:nt!S:

Ini&lea:ding

a.g.ail1l.s.t

!:_hal: ce r rece

t.af.n of

r.e.s <'so-call~d :QU8-5 i::ir':IClahlEi o:l

"esc:a:},..at:.i:an-'-"Ic Le i ae in. ..a.tu e.e r ,

and

LHlb..i.llea: of

i vq,bles",
t,

;il:r'o!!I

t.ha. ~ !:.h;;;: ISC'.s
-Lrro

coe t'$e

ccnduc

enqa.g·ed eOl::!iiigrl 50me

in

tS-C m.;!-:nagemel1.t to·a of its

a ::<posed

A.

lSC'5 REPORTED
.9.

~IN~NCIAL

CONDITION 1,970, has .Ei"ledwi::h ::he
~.~ 1'9'70
t e.d

:bu'!:iine.s:!; i..n the ~isk of and

several having

ne e Lona all

var Le t.y of zla1~s' for that.

r~i:!iJ!:s,

Lud ing

ISC 1-$ ['e.q1Ji'r:""ed
Annua.l ·fo[ e ech

to end .. since
on Fo~rn lO-=-:: years r epar of

it not.

'~~soala~ian~ its b:~oks and

COiT.ml$$ion, ~4~41J,a-!) 1973from ("FY")
fOot"

nepor t.e of ies

gonet"ally cb rouqh

l1 197a.

C. LR. Ft"ol':l.

payments k"ecords A-ct

"unci~le'd !SC

E:"·e-c;::-~i'J'<'lhl(!<s" rejected, of ~n91i$h the Por-si9n

fi.!ircal

,!J(.tw'.s~

to violations and the

COt"ru'p·t_ r e-ee e t eas

t.hrDugh $ 2,.9 197J

1976,

ISC .crigina-l1j

e e'cn Inqe for

inc·re;!lis·:illg i ~.5 f is~al s of $J3.9ye.:lr~

us

V"S,C, were

iSf.'I(b}j being

CO'mpanie's,

Act;;

and and

that ci'-rectot"s

m:ill'ion to

tin. t""e,,'en~e:s

$1 Ta mLk L ion

it;; as secs
in

I:'~.ed by ct!'Ltaif'l af and ~\l!;" ene

it~ oEfic{!t''S
I

.ea.t'ni·n.gs

o.f ;$S . ..J r.'Iillio·:!"J. 'on

cevenne

millloi.

s€!.lf-dedlinq

,;j,:!.~uation5

te pe escne

u.Se and

e:tjcp.entl

FY !.9ifi.
10. E'ot" F'Y 1977.; I,SC t"'epoI"te~. losses of ~9.9 m1.11ion on- revenues it.s F'f 1918; 1978 197'8

of

$27~.

t n ceceeoe
in. ..... hich Ld e r s

r H.

19:78., repoc

ISC ced

Eil~d

wt t h ehe

CQrmmissio'n fer

E'o·t:.rn 1Q-:::. lind

toaee s ot Sol3 m:illlcn
of $5~3 e.i Lk Lon ,

~ s r.ocxho

egu.it,:f

deficit

During;:-Y

aoweve call@d 'ffhich

c,

if

:CL

the "

r e aaons ~.a.y1';'l.ents

di.s-'CLl:!!iSed bale"'/ and i:.he "unb i.Lked

!SC.· e c~.Qims

·~O!' -

$.0-

.esenc leiS ~

such es 1.

t.ne

M.bl

ist-:y

.o-!= ~ Inaac e and t:bg ."'linistry
'tne ,

pf

&:onoltl.y.

H as c af a e.Len rsc __ ~e:le-cts
A!:'8

1:€!ced':.rabl,.l'.!s"

Ast:..os Ldi.~"::'"~: knevn as '!.ech.noiog, IDRO, was l;!st,:tbl is.hed

("'I'ec~::Lnolag"),

on 1::3' E'ill.ancial paid, ::SC's

!"':;!~OJ:"d5a e apf!t.""o·.;drnataiy !:!quU:.y ce

$31

which

W;=JS 7-O~ owne d by

.!n 196 B ;::0 pccv ide,

m.!..ll:io::'l

not

5:::'Qckbol.d~l:"s

e t e Le

wou Ld

a!iicng :lthl!l::' t...~':'~g.s, Ira.nls
'ifith guidel Lne a
!:-:;:'r'"

busioe.ss

a..nd ii1aLl.l$~-=-id! W:?~"'=l..llit:.i!'!"~ .a..n:d cen er-aee.a ::'a,i e
t".g

,'l~gQ t:.i.at:.ingo
;t""~COgD

~qree~'Ci1;1H'l;'S
OJ

....i t~ fo-:".e i~ .....

f Lrms-,
the company'
S

·':'~c.~.nolo-g

}I';_S

~~e.d

ae

!..he

off'!e

L'.lt:!:~::;-i ng -di.ld

iilE E~i!'~.

ut.il

lied

!"SiC '5

3$SE!:

I:.S

£91:"' i?erson.di.l

o~r".e': ~t

incu5.1:.r::'a.l in It-an
4 It"

consu.Lt ancv
« ...

to

GO\i'r;~1t<~:lt

o~g"a_"':i2.ations

and ·agen.oi,!!$ Technol09
Was

and ben !rn.p~o.Ferl.y r:ecorde'p the disposition
iw..~ediat.'; tn
j

of. r sc.t e as sebe , warrant.S
of
-1
CCLJt"':.

!2. .at

';;9.

Or9ia~i·z;a-tion.a!.lYr

u ..ncu

i ve

t't}iie'f

,a~::::

a~pcint..:i.ent

oz

tIce

e

"-oo~.po5ecof five. divisio.l':ls: :1an~ger,Lenl:, !ndustrial;
TeC'hnclcqy.,

C:~n.s.t.ruct:'ot'.

jte s ee.cca an.d .A9ricul·"hut"~."
R~l~i:.icr'.3bip:::l ~tat!l i["-;a;ni.ar:

rd .
Gcv'9l"C"mr:l'e.nt. df.f:·lcL:1!s souqh t ':.0 S~COre l z l ng and CQ;t-

he r-a a.nd !.nd

I n t-he t~e

~C.r.ljll.l:!-S

.lor. of

j

s,

Com?L9I.in

It:

r

i3::--;d !.s ne ces e a r"t ami theit:'

to

5',;tf-=r;'Jard

a,

J;.:!::'iy

S~C!J!:'e

':'.ntere:;3ts

!SCrS

sh.a;r.g-ho:::'de::'s

PL-Cpe~~y.

!7.
contracts

I SC, thr:o~g.h vat iou.5 of
EI:"Ohl It"~{1ia.n cve crsaene

i cs .sub.s.id!!lr ies;
z~~ncie5 fOt" consc

3.

'QUESTiONABLE;"NC IL~!:t::lT 15.. i?-.~

?A'!1,t::i1TS

u Lecu seed

i:'1. q::~·.:lt:er:-

rle:t::ai.l

be Lcv., and

ISC s

1

bu'Si-r:u~s!!i arHl t~.e cOii1tpeti:1';F who'Ll y-owned :s,otl'1ht and
E-'~:t;'

de t:.!v L etes con
t

11:1 Lr an , A.l.~~r eecueee f

t a, .3aud.1 Arabia:
tt"an ian,

e lse'IIo'he,t'e! J

.th.c:5e

.e.ssigru~ent·$.
L~ng. ccns

!.:'l 19,?;2-!:9-7J,

rsc , tht":mgh

its

t"a~ LOS I SC

t"~1l'1

;.,lg ell:" Len- tIInd Saudi
t.;); !SCt.!:;
Inq

:o..t'ab:;:,·a~"

~Ilb£"ldta~-Yr
ac v [or ehe

E'rJgi~ee~ing
'O~ ~

.cot:'~tl"'-.=!.t:Lcfl ( .. r.a:i.l:J"'·),
$.2·0 milli~n of S<:tncdc g':-ain t.-e·t"mi~jal ~-!'!.o;:!

Gove~.='l;:'J.er.t<lge:n:cl.-'~swer-e' elo?ie1.:t !.'aymellt.~ t;c
Eo

tied
Lud

Lnpr

cper arid l Lk Lei:.
ofEictals

t.-he cont.r ~t

t rue a Lon
p-¢·:::t

re

Iqrr

na.c.l,ot;,als,

Lnc

fo:';i.~"., r.SC. ciede cr

go'Vt:Tnmen.t. ee r ..a.Ln
.0

::acility soe

Lr an Len

!:~cility

Sha.:.1?<)Ul". ~/ Ib Le fo~

and' 'aS50C La t.~s of paymen t.s det=0si ted auma paper of eo cncce

901lf![TLme:-:.t.of f ici.al!S.

e

the be

It".;!I.lllan

t s and

Shi~?ing

Or~.1Lli:t!ttion, ;"rith

wh.Lc:h

W.!s ce spons fot"

pe't:'!Sorfs @it.her- bjl cepos ~tl-ng :0 t:"e:l~'rr. ~£I,r1.~.

~!.lLSir".g to

o'vl!!rs!J:~ln'9 study o·~

!::.ha.'t projec

.. ~ 1'.:olltrnct~d t and ~or

'1'ecltno.lo'9 in

I:.heo'iJI3J:"=tl.1 'of l:..cnd8t:' '.... a:s.

Ln co des."!"gnate·d nunee cee

a.CCOLln CB "i,,·~.~fO~5

tn.e -c l

proj.ect E!(t~.it;Yi t5

3sl;jl.s.~.ance .At

g::-~pa['a!:.i;jh
t

~:oney;

by -3i'l1.ng

sueh

pee-sons to

c e ah , oc.,by

i.l3su.ing coeme rc Le.L

doctJli!-cnb.s. t:i""~l..a9"i:19 lao tha:
t:.

2: and 3~

that
Exhibit

time

F.
a-t;

5!d 2 .. ",be

.;\::;].;,ar·i

a nd a9reelilent-;

.paya.b),.~

"heacer:!'.

rec eoe

o~ Technolo>;.

19

L~ng'" ve n I:.ec

t".p".$~nt.oi'V.5
t.:i;~9 to jie
th,e

me.

with

I\skad

!nf,;~",ed Enem
I:"

he

guc'::'i:!ssfu.l

c:::=n ee-ec I:. bith:fe

0\L t'n'l!

aande r Si1a.h9cu.t"

;;l.::"cje'c:t;.

~

J lit ·5.

:.;

I)OUa~ ."!DuM., 0 t-e ,a Uon '0 !SC' s I ,w01 vue .• n 'in Iran may- be ·e·.;,t;~let 1iird,~C:!d ·,:;:t~::c~ Ot:' C.H'HlI;:Hil.n .D<?llll:;.rs.

"~<.""d ("

'!ll..

he

vanced

to

d iscus.5

''"'business

a'CrangeJlients. .arrd d.oe·s (:Pullet'

.. "

Lang

I

s repr:e$~n·ta-

b. By Jdnuary A ••'"1.•
WlIo:5

e Ives [sil::l

'Jnders~-:l¢d as w_e a.t:'e

th~1:. AG,k;a.:;i lII",ill 5~1a-cted.
",.t
n

expe.t;;t:.

at"~::t\u,net"at:.ion QE .$,hould

19'2

I

tho.

pr-esident.

0;[ SHt.

{ee e

panig"c-aph

21),

E:·xhibL.t:]

1·1e:nora.r.ldul'll

sur-ee e , .eoas Ideeed conce-rned 23 . that ",~e

t he

;ta,6t'it

Q:t"oj1!ci:. ai

.lOSi~ I:.Ll t.be

J,a~.t!.neGti! and 11.

OctClbe'L

"9,

1972

.4).

J\skar

i· made i t.. ej.ee c t h~t. ~ng

s'a.ti

!?1:'oje·t:'c

ae vcu Ld be .tos e . ~

• 'D,@ss-aq:1i3

(E:-lh ib i t 1":2) ' S !{oyal

I

Ii

;l!Ieet

Lnq

'W

ith

~t" Lnc

e

Ab~ct'L(!Za, E eo t:.he

a

mear.b-e C' rE-

{5ub5equent~

y, .3not.~e;t"
I

Iranian

C:O:'!:ipa.n;t,

:wad j 'I! Co~~an,~ Se.e E:xhLoi

e ~ "t"e::?lac d

of

t.ren

Pa_i<1~l:y. '~eo

:nUl!!

p ropcaaj.s
n

ee inc's 1

Tcba.r:osh il:S I SC s Loca L .contt:'iiict.Ct:). ZOo Ther~aiteLf on Fqbruaty

t G.

gi31~oin'9 t.h e t?u.l~ and :H.

:;:,ap:e'r Pt'oject.s:_

~X'hlb-it

12.

23, 1913,

L~ng i~5~ed a $650/QOO

S:u.I .s f!t",;,si.;3ent.

and M.a.xze Ie r , mGm~gin.g d Lrec cc r of , Stad':'~t:'-Hu!:'t-et" zurich,
~t !;ne A.G.

SHL'·S vhoj Ly-cwned G~n@va.. Sx..hi_bl~5 41 5 'and 6. Th'~ £)urpo~e e.;<clusively of t.hf! .in Ie e ee e of L.ang
I

euba i d Lar y

ee-ed Lr. t-o

er rnce

vs

J",ias ::'0 :;ls.s·u~,,= tha,t

?t.s'kari

Iofo-rked

s !::IehalE

hi~ a9~in on July L2, 1~72.
the t.he h ida Lrtq which eacauee p,t"e!Lcil? i tat-ed
.Q E

"ne~.ssa~i

comm.i emen cs

WE!re rnade ' ~hd
."

5H~ ~

WC!I.s "optimistic:
1.3.

a dem-and f::rOal ~5~at'

i !ot'

~ pay.~l!nt sene. :a, to

a,S: .Ear ,:)8 ehe R"a.sht. pcoj ec t is concer-nad

cir: the

"' j oas

o.ptJ'OI'~uni 'to def~ncla.nt

t.y.

III

De ~I!:!n.da._n An'gulo I:

iI'.~.rnQt"iulCtum (Exhiblt Q~'fell~an.ts the. situa.tion

S)

I?'"r·i,:d:.5~h, "",it.n

cop Lea

HoE~I!!'!:'and Ste.in, arid A.5k..tI!ri'
is

am.ong otherSt deTijand. After'

di:!~crf.binq -:;_::mJ:lultl"r.gv Lc h de-f~-ndants a. ?a~":ll,ent. f.t:om ISC ~o

an 1.5~ ';0 'Pay hi1il 3-\ of both

.. !::--t"evccable the! total

Le e ee r of cont rec

ondl2!x·ta~lng"

(~ Or

t pr Lce if either;

An.-glJlo. and ~ka.ri. E'lxhibi:.s

S tl!: in r def~ndant. Aska-ri '9 and 10.

F"ri@:tsch vas p~id

a.u.tho~l.·zed $250,000

t.he aash e or

Sari

cca t.r.ae

t a were

.a,....e rde d -to SH:L. E:<.hlbI.!:s

Thet"e~fter:; 5~ 7, S,

funds_

14, 15.
26.

Y

u.
in.te"t"~sl:.ed '1iGi~a~.
t.iQA 1:.0

in
o!I

!l.@e'U:tin.g ebe eont.r ac ce fct:
S·~.t' i III
_

t.w-.a cth.e~ A:Sk.~r i was

t='~o-jects

--

and

and was

a.W;:~I;"I"e

th~t,

i."n a gos Le-

'~iJi:lu~~c.~' whettuir [..td.

ano!;;·oe.r !SC ~h-ol1y-awr!ed. ··su,bslcfia:c:'y,
r

Stadit:!!l"-Hl;rtEH' S and HI.
:"\.S

~·S81. .. )

r e ce i ved

t..ho.se

~c:flt.r-act.s.

~ t;'1:e contr-acts

d iscuss ed beLov , ISC ult.ifih:i.t'B"lY re-:c.e.i.'Il.e~ (or "'aasht") Pt"ojlE!:L't and the sa'ri (c r

'!rot" the Gila.n

1t":-1a.!8·ndaran" J'

paragraph _~.lili-r:I;O
-0
'Io,I.!1;1!;

24,

abov e I known

as

:~irC'Q

.E.$t.~bltss~!!lent on .. n a f: toni}

("A.liI~rCQtI). co .. ~t:'ac·t: Elit" Lee

eo reed a. .l0\

that

ace

t:.he nexl:.

10

ye e r s , G'Ole.staneh fo1:' cne aa.sbt

wculd

receive ~

to reCE!d, ve ~a.::.naent; ba.sed
1:

eeen'Ls e fcn on all

supp Ll e s

~r:Jj2cL

f

ehe

nasb .....

project 1 't ,

.g_~d

on

I:'h.e

Sa

t i i?t'-oje:c

i':

dij;,ldt:"de:d

1:.0

SnL.. 30. On August. cCii:Uilonlr cen t'ract 21, called 973,
t.'"'O

t'xb'-ibi ts 29.
Lns

,&

cont

e ac

i.s

fOI:

the.

Raaht;

proj-e-ct,
iii

B;: letter
aed

-dat.ed
pr:es-:'d~n.t,

oeeobe e III ?:Jr.5~ant

1i72
to the

[.~
t!!:.:.el:'

Ii},
of unde

Gole--stanle-n
e c

'0,,/

then

"Gi+.O!oDI" ue

we e e s.Iqnad J:O~ ,3,n¢

,

"['hi! ti-r-st,

Eixecl

er-uc

SHL'

s

ec Lnq ,

pe-Lce

, was

a.Lqned

c..... en e

SHE:.wir.h

T·e-chnCl.tog

to

pay ;250,;)0'0

ec the

de.s

Iqnat ed aeeoune
ccrsgany

of' Pi;!jr.;iz Sepa.hbcdi
~asht.
und

e c M.c1nufa:cl~::.It'"o:e.rs rtancve r 1"::vst

i;:1 Ne',o( '!~:rrk on the

t

sc

Ioeec

::'0

r.be

I

r-an

Iens

,

·S3.

2

Jilillion

in"

S-aies:

r

epee

s

ene.a

edoe

Aq~nL:y

.Eee:s~ -as. rleq'Lii(?;;cent.

·cost.s*" was

~ signed

69.

Tb!!: .aecond an

ccnr.cac-e.,

cove r Lnq re

Imbur-aab Ie

costs, .actln.g

'b~ lORD and .as

sar, suosid-iary
t~nts.

~'il:.h ?e-cnnol-il9 ea ceqees cec , c~ in E:j[h~bit 18. ~l:.t.b,att:L:De Ansary. $~pabbCl~i ~ or wo~~'ed 19
.;I,e

!lgai.iI

and

si--;ning

n:~'Il; ~on9ul

in 1&. one

thE! As

31.
tD!~Gf tO~l!d

By se~t.er.':be:·r

17l

1973,

wi_l:.n regard

e.c I:.he S~ri

~.t'LlJ~;:;
~.a~",!

,'1Hnisery not.ed

;::-a.onOir.y unde

e Mi;;1.!.£;t~t" , the

a subs id fa.;t:'Y' krp::n,,'nas ~e
'",'h!ch '.... a.s

I:o;C!if'. -~-ocd {~ul~~ Ministry

t:

Pdt"'4~r'aph 16 'accve

r.liniste-!'

E:~cnotr.-y ves

C-Olr.p,any
(in

("Chukif'l)

60.~ owned -~Y the 28
~~ye/

o-f S~onom¥
'..,-as elCploy'.:!-:;lj ~

';-{hich~

e.e .no!<::ed in

!i'ar~gt'.aflh Qf

Se!?.!LhbccH

(Sha:tah.ol.d-f!t:5) 29.

Meetinqs" to.an

of

.'lORD.

~ '3, 19iZ,

1, mere:cr3.ncluTJ1 :E:-~hibit

.anc

4rJ'!! DW:'I.@",j y b 22.

t;he -M ini:!k~~Y

Agr icultLlre

and ~l.:H:':.l'r:'alaeecsrrcea

A.c-cordinq

October

zo)

Exhibit

t.he ~1J·Q.rdof eej euee Na~u~al 'and Vic:'-'!'-p~!:!!s,idel'.tl:. esecueed '!'o '""hore, It wouLd pr.ojac
IIo

C:buka; aj.so ,

oe ,
and

:-1'a.:-!:

:1C1$$a.d~gh:i, m-al1aging d'i~E!:~!!;,cr of ~y abe .~ic.is.try H.a.sso.u.t'itI ~ aeedce c! ;'.gt:'i'cultur£and

a

ccmpany ae.souecee of

cvnec
j

~r.

CI:!!P:tIty eu.n Is ce e of: ene chairman of 'tb-a

an i-t·t"l:!!vocable "Le c ae r o.f iJrid~r-t~kin';;! 21) stating, Ln part, tha,f; SHL

a i n Ls esy Board ]). 9.r-e:s icen.
pr.t1:mt:se

;"'9t'i.~-1.l1I:.ul:.€I: nd a ~xhibi': 14, 2-6.

NatllJ,:C:-..a~ ses ource s and

Hay

.Conce-:t'n

l

'

(ExhibIt

of

ChlJ.k--3~

pay

e .;::cmsds.sio~l 0:: 1/2% oE. t.ill:!! total
'1:0

ccnt eae e .sua lRasht !.-e'ttQr SJ25,O!)Q s~.-i ee s eeeh th.;ii to t-o

On 5i!pte:mber: t. t-h a
to t

1313,

z e te
c

r edv Laed at ed
~ R~shtJ

.'both

s.-:.ein

and

SliI,fs i ee
n

t

1

che ea

be er-e t~o

r;

of

this

Le

t:

r e e ;"

Th~

nr-.
him

1";c~.s.:l.ch~~h i. ~!.a
cecause th~

r'eque tt
en

tho!l'l:, SHL pt'oj·ect. lat~·t;,

f:.Jl f. i 11
htad bae

I::hP.'-re would

payue

nt a of

approxi::nat.ely

po!.y SHL.'

awarded In ceneve and , ~ 21. a dn. Se.pt.E!·f.'jtJl!!C' ~7, 191·;;;', ';.lith SH-L~s .~t'e51-d~nJ.: t:.h€!' :tiII-sht. {~·2.1')

'to

~Jthlbit

~3.

Se·,~;-~l

da'ls

hy eo

orGnd;.:::~ pee e i.den.1: t. ;l·B. 13'1

to"Z-eie!1:" a ~10-0,000

ccp Le.d e c -de.:Eer.d~nt eom.-'Ifll:_·:t'.!'a-t1
t, I::::J

see Ln , 'SI:£L's

A.sj~o'!ri e::<&cui:.ed

t e cee-e

0':

.:.nt.~nt

~eiiilS1eo;:: to

acJ<no-wled:g ad

:.!':::s-stl.d!!:-;~i . E:xh ibi

~O~

conr.e-c't:..ioC'J wi th,

re speo t Lve j y,

ehe

Gilam

(Ra.s;"h ~)

and

S,;rr-i

(M~i~nd.:t.~an) in conr.lel;tion ',.lith aecuz Inq the Gilao cooe ree e s !~l!,:sfu"t:'thi!r' dl!!fe.nd.ant:s. as TSC':s On April '!'t"e~sut:e:t"r be cweea )

25 and 2~. 34. j{enne:a1.1y pu't.t.ingand all

J
:-iove!mDer 191J, ·oef~nd.ant.
r

ccn.t.afll!?¢raneou:sly. Fl:!et:i;Soch th'fJ aade defer:ca.nt.s s df re ee Ive lnfl'! .. H~nc-e~peddlirtg r e spon15~ 1974,. cefenoan

dOCLl_mented. c "Mgulc~ !SCt

l:Ioy ene se in
So
fS~E!

In

his

.capac.il:.y

a.ncl 5!:.~1.n, ·9oQ'e~nm~nt:. outside ~

".!..nd ocher-s nen 'on es 27.

ace se of

snan'

cQnli.t.·lll.ad saL and ~.nd, 6n

1:.0 cet es eeeen

;':':\cwlt;!dg@ of 'paragraphs noeee of

t:h~ ;)'9r.~e-r;!.ent ~5 tarcugh

nok Lc e aqainst :.hat confLic-t

~t:'ib'BrYI ';.I1t.h thif!i'r

·Nat'aghi

:and A.'1lir-co the oIIin exhibit .;ngulo and Stein. were
I

27 above

t neeces

EJu.bL~.~

i n i?a~ticu':"u:, 16, 19-74.
w

prornis.so-ry

'...-hich
j

S.H!. flX8CU ted and $),29:9,720. who eece ivee

sibll.ities."

'F't."ietsc:t- •. n.otlQd~

April

ene

e.acune.s 3,0'.
I'

S2,474 OOO :::J-ef~ndants

1 t n Lnk a.LL C!.E- s should u keep an ec c Lve Ln ne r e e t. 10 how :'he~::! qove rnmen t movaa will a.ffect how. we do business in th~ fU~iJr'e so t,~at we n~it.her vake t,ham so se .. riolJ.51y as to hurt one P.e-SiIL"lOIl nOL i qnc ce t.hem a,n~ comprom Lee 01J~ dO-'oianti.ujes .. 35,. 1973 N~ve.r:tht:!:l.:ess.,. at It)E!etfr.qs in. ~overabtlJ:' 27 neceece c 1, in charsF'

~,es_pee'~i·Jell···. cOf?le:;; Bo!ket"r Angulo dated

A.-ncng: the

q-f def'end.ant
Fr and

s aC'.k:r;QwledgT~lent:. .wElre .d'f!o·fellcl-ants _!£, A.ddi.tional1Yj e m-emorandum v i.evs ',"" th ~ aefE!"l"':dant's.SteL", ,~ E1Jr·t.het' 3'1'

Ie aach

i'r-ei-t.sch

cO·~.i-8d on eXCh-a..'19e-d

',dl:-b. Gc·.!.asta.neh1

Z€liel;"

learn!'!if

~ha~ A~~••lJ;"~ ;,{Qulcl be

April

:t6,
the 1974

1.97~ Fay~~nt

Rna

th~:!:'"~orLl

-of ne90t ie_I; n:g the sar i pt;aJect:; i
1./2'1 per-sons Qt· t.b'l!! ccne ree eue.t involved hold in t:h~ arnQtlll t.j Sa,r-i

that. As~ri

~s. ·c~ml~ i on would be iss
co ena e

Irefje"t:tlng
Jq-rl€ .. 5 2
I

a.gr:e$.r.:en.t_s
t._'""Q

,~ol~.s t,=IInet..
ncees 3'2) fot"

12.
:::..h-E!

0:::1 iderd:.lcal

eb ac COMi$3 Lens t,,9" ce p.aid
wet:e [Lnco to tilt;' b~

5tH.
tQ

@oxe~u.t~d eoove • One

p roe Le so ry (~

I?t'oj.!!ct

a

1/21:

eed

aums

r~f@r~ed

nc+e

.Eor. 53,299,720, i.r.1rned i~ t-e1 'I ~CcQunt The t,h ~.b ?mOt .. lt; I 1:0 a

Ilne'W pecp'Le

eo 'b e

incorporated

comm t as

t cns ] like

[,·ii':q.Lll~red tot-at. a.rnCH.:::n lE!-:SS 1:., ~er.de~arl tc Amirco,

$1 J 162, :SOB wh len
to Amirco'~ in ceneva
I

was

to ~~ ~ald COt"poratio-n
1:;

dasignA~ed

"caoe .e tl'ersana.l to be Lne Luded
0

tel.sods ,~ of ~

gf

t;-te! 2:6._

"p~e:5ellt

Ninist:eL"
'9

c!

El:eo.no(~:t had

eLsc

a.t. t;,he Sw-i-SJ;; Sank
s·econcl Ieee .nci:~ (E:xhibi, 'irtdch

, Swit:.zerJ..and. t'equiI;'".oed
f

A=. C:;ol~-:stane!h be be .awa"t"e Q-f

1nsist.en::::!t!

a li.ut;ed

3])·
w~

I

.£:'01:

s 2 ~.:I 7~

790_I

n'Uj]b·~ r Ze:i~t'

fISC

rt ce-e s ve
It

t-e

to

eneae eo

f?.;!I"yrnen.·t.s. include dl"!'!:f!,nGdnt.s

S~_72, 115

i.li'lQ1t3-di-a t::ely

!.:eodet'ed

be

pa.id

t61a

Golest~neh f't"ie~ch,

would

tnev Leab l e Id.

nt.ir;lb~r;ed ac;"Qount. at Bank oE Chicago .J 8 ~

the

Avenue Bache o.Efice s-eaeec •

-ot the r l es e xae t ona ;

Kl!.nn~'a.lly,

Angulo

a nd Steln.

fn paris.

_!E.
27 ~ Hr? ~, ·from ~.eUec.ti.n9 z~le~ d~lAYS ~ On "Z-I!
.!.. i@!:t"

By meace-enaue da·-:Ed Ap':~il Se:e-.in. An9\.116 en ~nd

to wi th .. ::he

(E:xh ib bearar,"

1. t 29)
to

in Qe

the

emeun t ot: at th~

~":3'2Si 00-0

(Ca.nad

tan] in

payable
f

II

to

the

derano.ants

r-ri,~ts'Cr}f 191)4,

meeting t:hat

paid

a·ani{ Of

Montre..ll

r,ront;:e.al

Canada.

Golestdneh
Pr Lnce keaps

L'1 C~neva

;"pr.il 2.!i,
erscu Gi'-loan oE

$.t.ated in cu

campl,,!,! in ing with dra~t by the letter

t i:;e.r r"ain
p:rojt!cr;j.

r p aymen t.s
-roa:!?Q:Lt-ed hac a) :':,~

Swi

eee r 1 and

r

on

~'pt."il.

:2],

19',.4

j

and

pa l.d by

t:he

16:.a.n).;;-0

~

;.tontL'ea!.

r in
be a t"J Pt"\nce

conol1ec~i'C.n S,nL

ae Le r

Eurt.~I.H-

on ~~a'y 13, J7.

1974.

~
of

29.
[SCi s s en Io r Qf".E!:c1.als, a rrd e specLej

t:.hat· an

cO:lLltnitme'nt ft:r· G;

th@ So1!!;:'-iproje-c.t; re aacns e

'Fha

:..:nowledgE!!

Ly

c e j eot;; ed t ',..;ara.s

Sha.mse· GOl.;st:ano;h o~ SOt

seve e at the

a .cawn-p.aym!!tl.t

to ta I

:::or.l.lnl:liis!o:Jrt;

LI,
In group ~ eeer 31
(:=:! ..nd

hand ~n

t.o peove

the

vuae.h i caj

ac e Leude :;..E
t

of

,I:.h(! 5>t.a.clC!!

Hu~~er

.li
to

do

c .1: ~

-:::'be :c"e:'51.J1 ~5 cy 'ftle Gc.Ie.s sr inee

the

me e t,i::'lg

·:..teu:~e immlieC! La t~l~' ct' d~fe,nd~;:t.t

eee

p~r.a9~~ph r.o.:ta:t.ion

"J7 beLcw l . ·...~h .i

"'!'ne ae'Le e liIemoraJ".dum
";£:,1F't

t@~mr-t~d Stain "",:,,::'.1'; and

the

Pdnce

anen Ln t.he
t:hen had

presencf!

s a ha..aholt'~t::.en

I:.he ![1i~iai.s

r~~.Ee.r.ddne

z e ree-.

1.£.

a. .nget'"son~1

i!leEting" ::tad

RO[:,gni

a.:r.:rar- wtLicr.:

!t:. w~:s "ebv toua''
f

enae.

thi!!

'?'t'incil

r:e~c'hed

z3n .!9~e·e,~::;f.Jt

;..ril:,h Rcl1ani

£2.

-!..nd offi:::ia..l

neg.otL.atior.s 4-3. of StU. In repct't:ing

be tvee e :?Hi. and !:he--s,e m~~tt.:-:q5,

'I'echnol-og ~e.,i£!r:

ve.r e to

bE' begull • .M.a.c i:"EI~.i1t:ioF.:s-hi~s at .5. 'Zeier
COilS

:1.;~H:~rl'c:e.t'.b:~!.'1

".r,Iith ~~at. ?!:"tnc~

"va r-tou s and

Lt'al1i.a .... :ilut.hoc-:=.tir;,s."
f

:.!::!.
[ing .1..

repor-t-ed
fde t-ed

z e Lez- fo,

:iE.ott aqceed
tOt"

wi';h of

Golt!s.taneh Oit.'"~c~cr5

1:1:".0 r\SkOlt"i ce spcns ible

!:.:1.a.t;_ ce.tes ioc' t·h~

e eaen

Al::db~re~~ ,;oiru:J r.he

wcu Ld

5;UPPC.r-t S.!1Lt-as' !..rt::lucilng
II

lang. as he
1
'?;~ -OU,l"

'Sa:. 1:..0ce
t.~

r..,r.ould ar rerrqe

t:he

Seard

u 9.C'Od job

"nee.e

finar.p;;t.;!;l

'Oblig~tlon..s

?r Lnce

punc t·u.ally.

.1£.

at.

iercoi1lcluded:

'rechnc.Lcq Sari ac
nLv

~ould

e t: Leas

t:

qe-an

t: 5H·r;..e se rv Ic.e con t 1;·:1C for t
",.,lbu!IJ

che forc

con:1..d:nt.~al in..fQ.~Ationf al-l:hQugb pad:. or t·.~arnw~:~.~·;~no~ ~Ol;". ec .. ,. IS -e.t::'~1!m!!l.Y d~n'gerOu.5 imd . 111~t":!Iln·g. :t. aua c con~eqt.l~rlt..l ~ be s.:ng-na.Bi::!"!!d• a.n~1! more e..h.~t. .an¥. cee s !.oeilpa.-;rmar.: e.s iladEi' t.o 11:"a..['l.l.ar.: jpers..ona..li t.i~.s m"iJS!:. 'be. ~~Pt n a sma..l..l, ..:d.t"c.l'!'. Although it is inevitable t·ha:t. .soee em~l~ye~s '~~c~ I:.h.", t ~h!~'rn~n e.s a~'e! mi!.de 1 t:. ~1JS t. ha w.a-t:r.:hed onl!' 8lot~~:,;J-=-lV~~ ot !SC re the.

th~

fact.

that,

etin Is cer- Rohani

go·t hol.d of e~'r'ta';'"

. ; hi

11a..i.

~:~:~~;"~:4s~~,a'_ top
t.heie

I

e a'.... ~t:'eof

project.
Lc Les a Eirm -

A~a.in·, ch e r.eenf ene
SlIt.. '..,Io.uld E'l:o~.issQ:,t'y i55U1= noce as

r eea tve

?~'1~en.t
no

~ p~o'_':is.ion.;!ll

.9-t:'o'fCi"i:s~o'C)r

e

I

4J.
t~
:;Q}

ehen

a,.,.a

j

finally,
.dooa in

15C -j..·ou!.d issue eennec
t

a the

Qoligal:!m;

SHL co pay

to

:3

d~.5ig.natt:!d

tl!Jmber-ed

"Ie eee e of

a'lI"a!te(!Q.ss"

it. had

tcn

',.)it.h

eo :2.!H
the to in s:plit: I:.he off a part:. ·of. the S.ar-i ccn
t eae

of

c he

fLxed

i?dC!~

ccn

e e ac e in chu event·
"n Cec!2mbet" l,~,

SaL
..L97.4;

W!lil;i

e ...... ,u:-ded

Sar-i

contract

0:' ..rOR.O.
t.fH.1:r~:r

rd.
of

qeEendll.n..:. 5H.z.. to

e

\l5i"f!~

Le s

"con
j

neo

e Icns

"

"S

te· Ln i"s:s l.H~·d.!lno.i;h8r

Undert.a..'Lt:lng

~i

igac.ing

M-i-:1.ist~r,' of

lI,g-:-ict.;:lt.;Jr'e!

.a.no.NatlJ·t"i!i! neecueee c

and h~d qeS.Lgnat~·d ueneve , rtul11be.C"·~d eccoune ~ ec
-t t·:-t~

SlrIiS5

Sa.ni< ;:Ct'~o'!:"al:ion

fit

Swit<!:erla.r.cr.

L.

CO~~H! :;! I lndlocate-d hr~bery to t::.h..lt" ~e ve ned ;?t::tb: , th.!!t.SUL including ve r e ~a,!i~9 Askarri: lar:.go:? emcun

e Ive b i.e

!:;~r.J

:·19·t~.1C ~oc:.r.e-~ ':Ot'e ig:1 ~ ~:
dMun-t; ~1;.!: .,l.

en t i. =jlt

~J

r

r.~e p!;""o~ec.t ::::41.'Hl,D"'O~~ tho.< bid vee

t s cf
be

;!ibi;:!i; h e favore;i. • bid b_V SHL In

~ ""~

T~le ",ill

r c inc e "... . ae ion .veri

'.....llinq :

ri eue

per-sone

l::he:t SHL ..... ;35

r n..:a

of

$:,5

~hQU9_'

.1, a(;:,pro:<ima..l:.e.ly, $:.10 mUllon hiq!te::rn en and r.he compotitl'.;e pr Lca . s e e rn dLscuae Inq ..... I=fr@ ~nd (iol,=s!::a.nah 'W.'i:a.t. "OoIould a.llow SE-l"Lec
t:9I:"OIJ:;?

the

$.3 iQi!liol".i

!5!.
in

$t.

2&

Colesta.nell, ccn
t ac t;

.z e Ie
iI.uring

r , A.skat"i ea.rlj naeeeee

d!e:.fer::;jant e 1974,

Erequen.e

~e~~ods fo~ Becurir.g
comm I emeo end ~hi.!i
t

th~ Sari ~Qnt~act. ~~kari tequast~G ~
58:1. Le t t.e-r~:l-e..ad, _a~ r~~i:3q of t.h a Ag::'"ir:'-J!.~·u~e" co paj 2...at ·h tm oe t.he

Ie

t;

ze

c

I

on

p ..!Iit'~n-e"t" i.n

eb e M.!.-nls.try

eont r-ac e pl:lca.
Ie e e.ar was to b~

i.f .S?.£.t"eCi!ived een c roc A5kaJ;'i'.s;

ccne ee c c , _!4 .. ~t. a. "!,'Ihe
i.cne til aaneve the ." tha.t t;d,$ nee be done q:neil

,i.::'a:nk ccnneee GClle:staneh

tbe Sari

necot

Le e Lcna

bad cegun.

g.

Ot;L O~

ecoc e uoeeebe e 9,· 191-1,

ae cu r ed

.~hibi.:' \ E:thlbit eccoun the
t;

43. ,D·}
aI.t

On: J,;H\ui!ry

7J

19751

SI::i"I!iB5U.e~d a prom13s~y .e c a de-s aqnac in cenave

nc ce e d numbe.r-ed. if

t.o ~a¥ ~mit;:'cb
SW!.~$ Bank cec e i-"'t"1.ol'!_.of

S"]. 7 million, ·LorporBl~ion

the

, 5""'"i·t~erl--dndl

S<!lr.i. coat

Sl·fo m1l..!..i:O~ ·was no e r e duc'e d berc r e
be ~~ ::tillic:·n: to SS.9 mn::'9n cEo Lc.s J.5 (million] (million).$ to be p·aic to Shamee r··~olestfl[10:!0hl Eer cence.Lt Lnq cne co",!rl..i!:'~II;~nt. t: eken by the SH 9t".:nl~ t~ ?ay 1O~ en st;).a.r-e pat".t: sU9?11.e . e over the pC!t:'iQd ofta yeaes .a£t:.fH' ccnna i s s Ic'mnc t.he p·l ent s., ., aaCliticnal comnLas r cn [Gol.;tst,~neh l • ii:dd.i. Ionej, e r.i\skat":!..J • fo r sxense c-ov~:=;- t!'\e ccnces s Icn =tl,.acle

..... oIjI·cI be a.djusted 014. By

~o""'·n~t:d. ..... ts , 1977
f

g.
SHL ha.d 9.aid

aune

du~ing [the Gila"] cont~a~t neqot.Leu i one ,

:!;upport. and .$5.$

$et'·'·i.,;::~S·'" for ndl.liory. of its

the

paymeQts

deec r Ibed iii its:

;!'i;I()VE!

on

Gil~11 c:omrnit-

loS

Sl,.j.l Ex·hlblts

mill-i:on

si:11llila;r

!'Ilants en ::ta2~:\dat"an.. e. ·P'.:;:Il$e EsC":;!;l~tlon

1.11 an:d !12~

Clahn 0.5 [million]

3.5

1mil1..ioil

J$

I;C;r;!'iH.:Sslon r s id cc

;1;x!1i!::ile

.L1J

ae

.1

+

cyan

addendurn

cc

t ae

Gilan

connr

ecc

c he E:xtli~ L!:. 11-\

fIre!!.:: J·u ly

ot'.': the and ;"u·gus

p.t"oje!ct."
1:;,

C::xhih·!! SHL en ae r ed

il~

e E 3...

!n

mee z l nqa 'IIi ttr

1["'1 ;"s;~a.["i

l_914

t:-'.i co a; eeeeenta-

~-u.
Gene .... 4" ~~" and' an addttion-al Le eee e ~f u.."lderL:.3kin9 $9 mill ee Lsec bevcne !::r..!1t At 'IIh:::.ch LI:. i.on on

::1:.1
,U,s. lIesca..la::ion'"
claill on. GU3n or a C'c.mbl.nation

hac

beec

EinaJ.lzed

by

rep.,;:,.
~~hl.bit • ..bat. 34 a t; 10. the aforesa.id "fC!;~('e~G1-i!n-:'"::lice!:; net

~xhi:Oil:. .11.

s.~c:cli1

"se rv i oe s " vee e r'ende red

..by t;he ~anu;;id ~~~t.ie;~L
II

1£.

51 ~
"Eiy.

l'\t

tho!!! t:.im,09:

ene

It

ag t"eerneI:J.,t.

W'a.~

:$.i~~.-e9, ~~y '2., 1.,97',

~~'a.rch. 7

J

1'975,

A~'k::a("i
t:.

.... s. -a.ak a

ad

':Jy'

h i.!o;;
t::".t"!

i.~.iII:1eCid te

~ upe-;-vlsor

Cd t-e s ig n

'~$

p r ee Lden
t.he i!!i:gal

of

Te.chnolc~ himsEl.f

n t,

~.~i.Ie t:.l::i:lf.!" t .... f as
~J"j

.'ndC~ J.:.nQwn t!'lat: in e o ?O!!iisLble 4_-S.
s an

.sheh

had "Ot';:h;ib;:Q

ir.\i'.e;,;t;i'1.:.t.icn 3l3. of '!.'e-cnr.o1oq
a a

;:ayrr.e-lH.5 en G!..lan..
Zi,
r eques

E::.;h,tblt !;H.""e-s!.dii!nl:.

C::m-... ;tis,slon. wee cr~al:.'!!d

:te-'i.cl::d±.r.;:_r .-aft.Sl:: l,se

r sc ' had

S

3"Oi;i';:lties

abt'->:I<i!!d.

'!'~e

If<lgt:'eo!!lOlSnc.· O'.1t:~ide

C'n Oct.o-ber c ee
e ec

1"9"1:5, toe c Laq it

:'A!:W

u:1d~r':.a~.ei"! eo

E!!.l1g05q~ ;;~ec'ial

t; ~

Le

SaL

t;)

s~~:~t:it.

3EEidavi!'.:'S

fo:eigJ1

.!nrl ccmes e tc ;ta-y-rwo:nts·. :'ldee-~, enae.. ir'jlJ:e~tiqaticn I

.;_gt'e~i~en -l ~. ~.tmQ ~ Gales I:.~neh became ".conce
.3 t" ...

e --

1. E.
t
n ~

on

.tray

2!C

l

197'6.
t

E:,~hi1:H:rnea

33..

Tt-._u,;!; ""b:~Nef

I

..!I.! t."l:ol:gh ic!a.l

ned

';~,.g,

c tSC migtJ n t Friet.sch

t

,10

lo.n-g·:!:!;:

the

II

.;!I,gr~~re.e!~

t:1iC,.BS<

.511ii1i'l"et"al fot:'a igo

~hF:l. t ~hes

!1:5 ~CJt'1r..itsna n_i:-a .

i~d

a.ell i.$o::!!d, !'J~'!enda

O:'L De:c::!;,;ooa:r

:;r;-

cvne r s

:0 ~

cbe

numbe r ed

eecoune

co

~~hiC'h !oSe had

I wc-ul-d ce oa l, i.g-ar:.ed to pj ece .5t.ao':"lI!!" i:!'Urt-er ':s ~t't!.m!.GiSot"'! no tie a e a '.... '9.11 as t!ill and any ctbe~ dOC!,:rIl~e:t~~ i;m!fj,sf) $ .. far- 'by 15-C and St.adl!!!~ Hilt·t:!;:, Qir-I]:C~L1t:'s :iil:' t.he j!:so(:'.s~j, o!! the gO'J~r~ment. ..
I t:rll$t you 'r;;,a,l!..ze the minii.ltfl:! ~:fec~ of. this: r,:easut'!!. ,",oul-d he tho'!: .. e.Lj I:h,@. !SC and 5_t~-dl~r !:i!Jt'l.:~k'5 oet;il:;;]il:;nents ::'0 me wou.Ld be ~alc'!Jlat:!!a and c.;:(juete-~ ft"cm 7CI\.I~ eont.t"act.s ..si'Si;t~d "'lot:.h o c g'l"0:lnsa,la :lade to the ~QVE!"ctH~.e~t, .a"S ycu r unoet""!;.a;;...ir::;3 t c ne havG be.en P::G·.;'1..ded cc e in J'ou'r :fl:.:-":'ces. To_S"a~ nct~.ir.g of the ecve-ese 4:!!~f'sct thaI: aucn p rcceed t r-ers ...oul-d h~.v""" l!itJC.ft '1pLlJ; CC>::1.:?,,:Ll'.;'jI s- pc.s i 'j;; Ion .;;m=3 bus ine..55 t:"~::orc;j5 Iran.

~~ Or. ~~Cis.sa:deghi, i1r. 11!assournir Hr. Aska::-i and the o ehe r s
dl.$-cu:!:is~:::3
8::-PV~

{il.nd

as

:!Iupport.C!"d

hi'

che

e,;hibit.s

-he r e t c

L~

so.

In

~ay ~t.;dl'L

r

1'5l7"i

I

en

i.lg!'~~i.j~n,;:

vea

e:"i::"':!-L'!Z!d ~;t~

i.nt::.::.

.\PlOr,.g

SHr.,
':.'":i:':

by

Ije~el,,:d~nt,s

".ofi".!i",

iido;; t.~ch

e e, ~l !::nes ..:i..r

CiQt.::-st~.'1Ieh

..he ~'1a~

ee reese

oc

:c~tified

'/£!!"lOU5. S2.5

SfE_,

or-om i asc In

ry

r.;:.t:e-s

and

p c ov t.ded i.::- SHL eeee lved

Si::I":' ·..ou Ld .

?<ly A."'itirco

m.:llio~

cor.:w.is~$icn.s-

SS" a_no eececds 1~ t::t.e-t:' axp La i-i1.~d eha
G:S

,

in' s.HL
J

,adci.i L.ion s

1::0

:::ne.· t [;"'.JE:
t.c ~~e"OIJP

:.~Id I:,u.~

;:r::
mill

~HL len

I;;;

~$o;:aJ..a ccaa

t ion
::::O.iL~

t cee ee.in

items. ar ..d ae.rv

include? ice ..'....:~
~I~

in

the

l::P·R. !:lIllch
~G "01o!'E!
t"-

claim

(Le", on
G

~~'=.eril~t
1:,0'

~h!:!

.$"],

eecu

all'o-S,i!I ~ i-ons

f'or-

equ Lpmen.e

!.I;~.~:s

ce s.efon "consd
I!I

Lr.en ,
r,

S'"~r,:i:rt"at..ef2· • .s :nillio'n, cacove r on.l¥ SJ,,'j, ~ill

1,Ll.e-e\ler:r'l.f~$ co

?a~1

s.s i"CIns r

and ec

ior.· .Eo."C ·so'-~'~lled thai t
b-H!. t.~o!O!!

'~~'al ~s·c.al e c Icn"

l . I::r.-e

t can Lena iIli:g::--. t have d i$.cCfV~:t""i2d
~·);Orn
i,:'::1

'Lle

eeu

~ or;..!!o,.nt

~t""

'S@~v

i ee s IS
I

.~
1~.??

£!.!It
f

2

(e:lIlpf'H~rs

Ja :'<'IiI,5

eoeed
revLsec

j.

'.... C!iS Lo!!C'~1vi.r!.~ EQ~ preeent a-

ki-ckbdCk:s on

supp l Ler s and

r-~b~.~E!!~ from

SJ. t.1Q.O
1:.0. ;"10

Th'i!

AuguSl:.

'c':I:"a:ft: Ie t ce r

f:t:e ig b -=. fO~I"I.;\~cie:, d. . :a-!;k~~c;:k.s 5ii '"
1"\.;)

I:.b~ ~o •, er-act .

. ("GeE: ~.arlL9;r-3iph5

5~-- S.S belq-~)"

t.CIi~,-24." ·Sc.L;~clule 1 I r",~:s r-ev is.ed ~$t.s ~lO" 5 ~'illlon

ee s!\=:tr,.;r nc.l udad {
r

i.n eg~·i~~ t.ecl :u":d

.~qcif'.!'nen-t,

~'~r~ III"a:-!o1.~.ttn:cr

C~J"i!'Lh'~ad,'

.::;.-eloOllsr

e.=rr!·:f
St.1!!

as

xcvembe

c

t

1 ~1~..
r

~.;S

;:;ho'Wn. by e U'Le;'bo:!:'andut.) .ccns ide~ i~.~ 9 e i tS
r.eL'.!!~iL\g

·Oi:..r,e-rcoat.e;" t"evi$~d: .suc~ 'in

E:%h:"::::il:._.!.16 '('5chl9du~-e It")" ::'h.2lt. e.heae ·cost.'$· •... . ere

'The clr'5~f:t l-e·t~e:L .'..... as r'~~c.vis·i.:ari".$

~C de~e:r:"Ida_n

I:;

i,-. {E~_h ib i t :.?9J
~~,ylilo~1i1:L5I

{S,e

~.as ~y

t.o ej.c:~';',.<lln
r

f'-cr,r- it.e~·'9

t-~..,e:-llJI!!!·s Eot'E!ilJ~p-l
;;!:!~!!i

-its

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I r

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r c l e..... .:.$;. wanl:.

~_~Lh

to:-CG1l4e.~n xe , .'_'.~:s:ri;

e$ 'to

!!i~1.'i'

qf ·dOUDOC. HI!! ..:lid the aa+c e er't"'or-

was

:E'~I'-.ib:::·t:_ oGS 6·08.

is Ln : OL' i~ In.~l
Ha~~

~. COn cc'ac ~ "fh·lt~·
i?'LOI[ ~~:':'Cii
Q

aecwl.cn

I

.:of ahe

i

·R ~::-1~1

va

s

e['.t:~.~~~1.,'t:;,Q.
the.
U.5~

Ln .[_;,~b~:.J.a'!'.y' 19'7:5 ia.:- ie:5i
I:.

::::O~ ce

fna·J

a
t

p.roh

i.~! t ir:g

of'

i nt.errsed oonuruc

end

che.

~.ay:~erL

i: fees
t he

~ oilS$ 1:..$0
t:;-

'rr.::i:s

he ,'.ri.shi::!~ Irto· e aeue a you j,s re.s:;;:a;:,,('!3.i\:~
1:.0

[Gho.~.al.:tl
'I

t·ha.t
De

D~!'

en-t.lre
t.~

Q~ga(".li"z·Gti~[t
f!l11,y !.('I~:J~~d

t.h i.~ .e i.t.u.~·l::.liJn. ":O-lr. ae rmen

Ee:.nd.!l.1i

~<:,~ I"'IrLl!

O~. Gflo.;!il,-i ...,.tl~ be bet';o,'Ieen.
:!.~

::.h.~t

E'?:"ic;!,t.::~-h,

·S!=!n.ioit'"iil~ on the

p·l;:"e~·tdl!!nt o~ tsc.
1

I:.encl"i:;'tg!

t.~.e· pLanne d It<eet"i:''t9 and

B~h .S:J!!~'i:.amo~:,~. 9:.72. 1

scnat.t"~~.h.

rscl~as·

a

tr~~t'·@-:s.en't.at.i\p1!J' Qf

't.h~ !SC !3.o·~::'.~·

1:5: ill:' a.IT':! in r a i:a'!:"'I; c~.~~~~ Len ~ge[l t; r .bo~.!neee a.g~:[ft. or ' enc, 1 r ee- ~ Alt;liE!(.I.cUI OJ;;" tLcn.-:r,;lge I;'" i.a-n j • '!'~e·· :.a-rt Iee I~,ae ee .too de ~~ ~ i:L".'fot::tly be.i:.'i1oi:l:B 1':1 uneese'lve s, ~O"Ci!! ~ .., L~'8 ~n¥ met ces .d u-ect!.y o:r- Lnd.i r ec iiI:! eeeae cuec wi.::h t:hie Co~~l'"act:.. Tn~ f.}.a.~t: f~ s nha.l L rtot ~~~i t., ir. th'S i r :re.:.-a Lens 10)1:" i n t:ni3" rej.a mons 6f one .0 e· them w·i ~h a :a~y 9QliieCtliil;';'.'"3{;: "9"'" admir:;i".5·t.t":r;l':J'n r ctre Lat esvenc too .o.~ .~ny.:~eokez , [::"it~t::n:~d ~ .3.r"Y, cO'm."1'll!Ssion ~g,eil. t r bus in!:!o.l;is a"i~n t; o t- e.he 1 ike {Al':;i~t"·ia:n or no·",~Alger~-an). ~n. Con t r i!I: Ctic r unde ~ 't,:~1:e5 'to' ccmce nee.ce t.h-e ovn e r'" i it ·th~ Cont c eccoe ahe.L 1. b"aVF.! COft"r~"z:'li'!ierL@-o one e~ .t...'l" p rovLsLoras ·of t.~e ,~i::"e.s6'~1;: ·pa.r·;lJg·;a.e;::rJ'.· ..
men c

m~·!li~~E!i;~!~ :~.~~~;~:~~~!i;i~f::~~;:~
~::.~d
, nag b-;en:?a..l.d, sh-all be due '::.~ be oke e

has

o~~n «one !.:..!~I!!-:5 w i t-hou t;

b. mee:t.iilg .ce cwee n So n..a. t.r a: cf . and IS.C.t t:~.el.eC't~
~t".

15C/~Rt.j GhQ-~~.li
I~

in

which

d~fe:.·.aant.

2"·L~.i.·t..s~b

c rco

1'9". 7

~as conee

inec

in. At:'·tit:le

UL·S

c,f

=:il~

tOr"lti;'·a.c:t.

fOt"

Sk·t-kd~

rep("~$'i!·n.t:ed
• ••

·p'Ci:$l!:..ion~

Sfo.
15'9. !I~?e~th.f:! !.~I$S, lr.elud
5":aymer.

n~V~~ vo cke U\ !i!ny -:lpdi:e·,I;:arrd..e·c Ot" !:::"ld.i "t"e.!:.:. 1ool':;(vr .anc -:.....~:'!! in 'te ~'!!n.1:. Icn 0:::1 f. .. Ol,;t; i!·:e·ss-t.'IEiri !r. tne :J.~t·iv,Lf.io£!~ .0:),:[ S.ct'L,:H::,~.a(:!1. La 5'1~t:.~.f.L.ati,c,&!lt· b.arl:"ed I ceceus e eucf i n.1C.e::-Vo;;!!IH, torr !. i nc t: . i i.l ~ir'~. intl!:!r!55~.$ eE SonlJ.'tJ::'.ac:'ll. !ill! 'doW noe ~ndW' ',..;:h';!=:~".I.eL any raoney. r~.id.qone eo i,d:,e;,~e.d Lar Las tor sx l:.... ~ ~L1I::1: -da G1'.p ~ ~if! .... '"041.d be 'J 'i.c L ~nt .'l·y occc.se d 'co ll;<;·'1 aucb
,!jQ['Ia:!:.:t'aen
! 4

~R['

'C·~01 t.iTIu·e·~

1,:.0. neke

peyme-n i:~ 5e

!;Q

~t.·C

f i.. ~.
;(] <

L.O :1~S1:"i"} I
sene ::['"~m of ISC

~ng· pevme n 1:.3 9:11 ;:....l.~d
t.~
'..,r'9::;:'F.!-

nd "6.

Zxh ib i t
c

tb.e
.:..G

m:!dE it-'lg and

e.e

Pi-P:::

'b-y

e t':!:i..n.s.~';:t"$ l'iol.l.:l ADe,.

f

:l>.'10,.3

E:a

E'ng i:o..eet"

.D~"""~lO~ir1.eIl::'

i.ro;-;:s

~ri~S'~~·i'~;~.~-i~~.~~.S t~!.t:.;:·~~·;.r ~.~?!~'i ~L~~.~.C~~
~~~!~~~

a~tivi~y.· I~teim~dia~i~~ ~om€~l~~s $~c~~~~~d i"

e:;sto:Oibl i;:;:hme!'I!t. ve'ce in

,'I !:::::::C~II:

c.be

"31cit~.e't'

G'u~T!··pa·J"'J::!·I' of
~~C:Jo!uilt:

·~h~'

e·Uhc!'i
L.~n.d~.s[j.a!!", ..f;::

cre~6,::d':.~d!:.?'

~ .:l~:i:i il.:'!na.::~d n·u.;o.·b:e~~i:i p~,r~!:iua~.1;. 1;:.0 ...:ro?:~~dafi.t

al:. ~h€ ~ .Lonf

Li;:::h·t~:~::;t£!i:1

=L.~.\t:!:!~h'

Ld'el'.tial

irL,s.t:.~[je't:. ~on~.

~':(.~~ i i:. 71, i:~

70.

8..1'

~ay

12

r

H.176,

aCl;.o:r;'cli.:!.n~

1:0 a PRL

lL.st

an

thE!: SikJ~d.:!i '!'pe s ubae anue of: those conve r-se t Icns ... ·as thaI; he sugge:ste·d that. s.:. ·",,·q,S-- th~t. r·wa·s t::he apgro~ri.at;a c';'t"'son toO s.Lcn the :!:V'IJi_d.!'I.d~ Ie Ic l ;:I';lC:='l.I,;:S~ Qe nv -:'Jc~:.le thaI:. h ul:"ged t ::1-0 so 1:~.~ l epoc t anoe !:.:·U3 A~:9-et"":'_ans a Laced ce cnoee a::ida',!l::..$ =~d the ve r'y .;let=i:-;'::!ht.ll e;f~c': t;:-:.~"t cur L.r:.a~"il!t' r :0 :?rodyc::;~· an af:Eidav-it vou Ld !1.lt,''';:1 bad en t..:-:~.a_a't";-eIiL~.'1I:.:!iI -if,: ourt:"c:sl a t .!..~r'ish.lt=!: {so Le] ....i ' sone t.:-a..t;::-::
I
ti:O:1., nd e :h"H. be c aus e

~~oject~t 8~o~~is$ion~ 9ayments gn S~ikda ~ ·and ~7SI6~7 gci:tsh
made- cc aefe ';DC~ ~ 72. end This lio!ke't"

of la6,~92 Britisn aounds

pounds

on S~ikd~ 5/5 had b~~n
vea s upp Ll ed 73.
~

i:1.fcnr@t:i-O(l: 01": t.hat aac .pm,

to

-c"f

.. c-a....;.5 ?t"iB~sch !
j

e. ~

1.

In

~-97'6,

Sonat.racn it. ',.;it-,,'i

i~iJeSl ted
an

:5

~I:"~

tden.t.

~I'l:illi.am Q.

t.r-.

L.

er Lend , to

pcov rde
t::ti;:;"d

a:ffida·;r.it.

in

e p seecr Ibe d f"Qrct ~ n. nego eiati.n.q

~~a_t eff.:!~t do .you ce Ll.eve. AlgertaQs bee a info~ed ~~

·..,rCIJ1.d-

=-:te.

h ava occu s had <:!o:~su!tfn-g E~e5?

ec

t ne

.at res t:.':'cg

:rra e nc 5/-6

pa·r !:.'.l, had dated for

b!;e n i~·Ji[jI..,ea
I

ri.

the SkDida.
~at.ed

cone r ec es
1.0, 1976:,

Jul.i' 15, 19''(J

01:'

t":1.~ adcE!ri.chJ.$'l
74. i:1 Thi.$ Ecece Q. Did Hr. E'ri"et"3-:;::n_ ave r ~DC;Pi:'~~S t~ ,'i~u -N'hat his va re a:t.O';l!; t.he A_.t.;iE!tian5 Q-r. cneae coneu Lt Lnq conc-e cne ~-f:!'!-G?

E"~bruar¥

rsc

or

:?RL.

:;;.xhib~t eIcns ;"

ceq';l.e~ t en

'.... r.\.!Lde II as pi2 L r h B Al.:;e r ian as
of i'!r. si9na~ul';'~ :J:::':.a-n-d I lneluding then
~g_(,_

C~9lJla

I:.he date 7"2.

QE t.nf:!::

aCQ<Je ccne'eacc
0~

g.
t.chard 11~13} toe the ~Efidavi'·i;:.$ -g ~oup" at.

~ ..

ves , he d d d . And _4 had /til:!. own ~o_"':.L:6~n9. i hed an cp Lr.Lcn, I vas pre'?ar;:ed [sicj to "Jive you :ny c ..... r.

Q~inlon

as 'fII'~ll.

-

~ n t:'b..a.:ge an-d Jrp

ISC I.s

"?~·i

r
Algeri~n..s Q. ~h.at.

of

c:~rnpf!.,ni-esr

(E!t~ib-il: he

15

'tr "i1L~ thOlI:. ",,'auld

:i.tlt

:. 'to would h·~lJ;e be.:!!'.: a :slat ce r ;h.a ~av~ btl:!!!:!rl .abl~ ec deal lil'iI:.h.

t. t;;;,e

ee eueed requ i red r equ Lred co eoce military E:xfil'hit. 73. w:'th .t>-1..t":.

de..EI::![,~c~!1l:.,E'riet.sch':s by .sone e.eacb . the xe ,

L'eq1"l'3st. t.hat
Ft'-iG!lld

exe-cul:a :'hat'

is YC!l-r o.pinio.n?

was

eonce ened

Lanq uaqe of th€! p~yme_n'l:s

p't:'95~"!:"ibed-d:Ei.1avi~ Mast"i

wa~ broad

e:nou9~

r

eo

.ana

An::: anc

~

EO~.E!t:- Al-g£lr.,ip,n pat:'agra-g;;.h. :I·ll,

x,
O.

I believe, 1ihe n
:&. t
r

cfficet", 7S at

~~~.sf..j SJ-S4,

<;·@-gh~r (see

COii1plalnt:

:rOll -Si/!."j t:.hey '<IOULdn '~ha t de. you rne.an?

I

t

!"Ia'le

been

.able

co d;;!;.;U

10)'

i t:'!

A. Frietsch b.i5 75 at. ccnce and rn s Hofk-et" c Lscueeed 4xe-ctlt.ion
I

D~f~P.i-d..ant-5 !rrl8:l0 and

th~ of

mni;;.t.eC' tho; Le.l s, Q.

r:eg_a..dl.n-g MCt'~
-5

;71
~~+

it ~dr.rin-i"5'1:"t"a.~,~'i,o'·sly

~ mean

1:hat.

they

~ou.lclr. It. beve. r:hat. :'hey
I I

bae e -ab Le ce h and Le. WQ-ulc neve t:'t"-iJ'b~b:'J n-:id way ,b~ te:r:-=tl!n!H:ir:g

r;""~~c'~U~~1fi~;k~n e 'Je~y :t"ier'.dI I:. eaou
WAy t;

t..;1ngible

~ E£ id~v including .of all

it.~ Exh ib it def~nd.!nt

135-8:6.

i.q:n.if Lcen tly
t;

ISC. .a.f fio

upae
.A.

wou.Ld t.he .~1ger:ral'l.$ 'h ave beQt.i so Lee r-n ir'.g of chee e coneciz+ ing !e~!1:i!' is
W4,s Q'"-'S't"{

r r Le t scb , ve r e eoncc e-ne d khe khe- i\lCJet"i.!ns, :SC/~5tL

if :dl.sc:los'Ut:e
t.hAI::

tt~e payment.s

we.a mad!!,
t.~~ClI'II

'4ho h,ac demanded i'lme:"l tal ent; i ties

-He·l;', Al.::le~ia (the· vt e aee e

ecn su

r t Inq

-

;..l·l.tll

h i.e

coun

se.L)

,

eeLe c ior-rs·hl.p5 be

i'IIncl qO!Jo,r

Alg!;;!t:'ia

-t s

'J~ry

d;;?::'~C"1i:i::"l.ec

.:!.n~

C.Or.!.miLt~.£I

·to

all

.cf ~R:U '::;; ~ot:k .Ln thac.
the C.;J-j1.011ss'ion
.3~ Do
I5

co:;.irt:::r.y.
i::"'.'Ie.S·t

tn· eeaponae
I

to

ques:t.i-or:,s t:.es.-t::: ~ ied

durin9

i-ga t a cn

:·1c

,

P"~ :-;=\0

e~i:3'l.i·n;3ting .!.ntel;iife.d1.!!!"l:!l".£ l..n -sny bcs Ine sa affal.;-s w!.th thf!Iri., scnaceeeh has ~.rn~ha.~i~e:d. LO' us ove r .and .0'1(31:' 03."3 a i n_ the i:L1~.t" aence c f d.L :'"Efct r e-Lac.Lecaatps , ~nd in 1972 r I be Ll ave ~ I .~d,'l~ f.:n·cwl='!!dQe of ~h~

unde r oat.(,
Q.

fo.Uows:

J'~u r:aea11
,\1r.
~E

vh iii t. ttil'~ eube c ance
wa~·"? t'"~"a.a:rding '.... i-(:b h

a f 1.o.u~
Bui;j.]'ct.?

CO_:;'I""'B t"~.a

I:. 1:on.:$

,~g~:EEl~I.c~:~~~~a~:~::;~i:g~~~~~:~~~

"" 1 th A,"

Leescn

;~1¥ conve eea c Iene

.:~I , ,~,L,!

ElY
Q.

lA;~. SCH~~'\RT'iS'''r;:
3.

!:~; 1:0

'!he tell Ehe 1'o"11cy a.f ac e Ions 16 at. 1. of

r ef e r-enned lo,'ng

eeve c Le t ee r enc Lceseid and \li'tL!.cn whl..::p the

CI

'C'08Y to'

Qif

rsc:

s IL~~mpan::t I:~:!n:il!:.<hfhL;

S-:! thtit

Alge'ia.ns eo ee-ee e s

decisi'Dll vas m40e I:her":nee a.Coi:Iut these cons,uld,n.9 ;,~l:!S,

-gt:anot:::~

was e.r!ac-ted a._ff-ida.vit is

F:--;ihibit
1'.

!s th&t

::.hD ::.:;p.e ec

a.dcreS5i!d

cl!:'endar.t

F.oEket"',

',•be

""~9,.

thf!_n PIC,

·~lce-9~sside.n,t. axecu ced I:.h~ a::

a nd

~e.net'al

etn .rn se L

o.f (SC end
dat~"d to J..::ly t:.r~h

a. CIir-ectoL' 301

of

i ida'!

ts ,

!3y !..!!tter:s
qlJi~-;,d wrilch the t'ly~tl che -.:e.e ~5~a·o:!l.ia,hr:,e·:!'\t -o be i3'1a!.labls ~~ COst Eor

1::76,

91C and R :18!
1

?!U. 5I.!br:ti~t~d ~.nd S.<.ii;.d.t!. f 4,

bh'~

r;~q-UJ.it''::!.4 ~_;:-lcl.a\'1t..5
t:'l;!sg.. ece :l1.iely.

t"ecol'ds for
r ev

I:.he Ski:·;c'l e-ech .

pcc j e c t.s.

;5.t.;Jort.a

:0[;'

B ;;!I$S!.

5·.& 6

i e .... by acne.t
t:~'!!'

S--e:et;l.us:e
~C5t:,

~,:d'J.:ib"it. and

7-:5'.

'!':."1!~

a:f.f.idavi::.s
.:!I.

ve ce e,x.e;:::u~ecl. Lec ce r . Tbe ene .$iqnat'!.!L'@

oy
Cinrl

deh:i!"'.dant. gc.tk'~:L:5t:at'E!d

pa_ymE!!!'I:.t_:;: c ~a~t'! 'oIie-,;e. e

Lnc luoe d in

~:t:.is.tihg

r,epot't$

sl,-Ob.rnit~ed 2)

l,.,tith

co' r er-

aif.~d...!vit

in' ;;art
c.E!

On the

p~oj-eee.3

as cCag'jlt'it'l1lj
to' n:"t;lnve: ::"""''a

fe'i:::l., {~
p8}-'!"l'.ents

~H
at' s tec l.ose to '" I.

.!it

79-BO} ~he ~.l:I!!'.ent.s t'ri!;l:;'.:Icn

J:o cormec-t Lon '~i:'h t.he !?t: inci~Cl!
'0

pe:rfO'r.:::i~:Bnce

is<=: h-.!!d elthe~ to sene ceecb •

r;:.on~La.C! t -ee eon t ~~c.:.s
j

r-a r-red

1:.-:: abcve., g iI, e n
.-0

r'n a.'

t'~-?OLt

(E::(r.ibit:: C'C!.i'Jf"identia.l

80)

def~r.clA.nt
.E'_~.it!

'-ah1!!/ot' ::i~a.ll arld/pr ~ei~ha-t'

ene r

to

':"Il'tic-h t e. ~as

c

wl'iic,.,
~ f.:J-t';'h,

I""as. l,tI::::'!:!.l..-e_d qt: ~ost

IISt.r Lc tJ.y

nd

pro9C".5le.;E no !I~nt.icn

g; i VEl

r+se

tSpo-ct,:'l vn

Lcf l'w~~J.milk~
Dt" form of

~~$olu.te!y Aoe.
II

::\ny ot~.e·~

Ccn.~Lact.

a Lqned

il:'J.

;"!.g€!'dOJ

D..j;'

;rjY
t....

company,
ahe cCbopany, net: a.ny. o t Le.s ~f"[illat~'5_' 5UUS i.e. Ler Ie s O~ d ~\...La Ions , ncr ~ri:.y -1 hono~~::.-y of I:. l.C1l!.t:'-3 , Ii!~ec t:.crs emFllcyee:s.j It:;-pL'9-iJlen.ta~ ... 'J~ ..3 c ~ EindO~:5 have, d_1._~e·otl 'f or i nd it'efC"~ly, Wll;..'hou 't.h~ ~n1.rrtl,'E!!!:'~ t!..on i il tal be Low ,

h<Jtscev-~t" ·in .any 75.

w--a'.l

j

sb apa

g,

t=

O~
Q
f


~Cl:.L:~..L ~

r~~'IJ'

I

t;

l.:.m::.

5-C?'5 t·].ng

audi tors
'...h ict1 .;c:t!tur cos
by

as we.l L.
~

P'.lI:":H,HU·'. to t SJd,kcla.

PI"ot..:Jc-ol!S
t:.'fJ

'Of

D~c~bll!'i: t'~i:r1,b

l~,

19 75 ~
t

r:--O~'VIJ

t.lE!:d th.e

p-'t"i:lj'ec
li,;'

to

Q

CQ$ t

...r5.emlGn f

h:;._;

i-5.

1

xece i vee fro::n ~t" pe i.d 1:0 an~ b~o""2!t:', t'a;H,"~5';;:tI. ::'a. h'e. s-np roye e , c';f.ic_.ial, agent Cit" tn;l1.-ar perEiicn. ~!:' cot"oot"ate!:'oCly , e t t,ne e puo,l i~ or p"t'"i. .li1te, con;:a:"5;~i<?n_ or any '~that' jut'idi~a.1 et:,t.it._y "'hatso;:v~rf_ domicril~d in h.1geri~ or 3b~Da.C, any fees, 'COrI'~1'Il'S~ 310ns., bCr'l.u5eS, 9t"atut.i~s; ..iona'=.i.ons c r o the e :;!a.Y.,m(!!".t;s e i-. cot'l:s·ide~a.t:"ons iIlt;a.t.~Qe ..... e . e
I

'fo:..:n-j ;-t't'~ll-a::'td an.a
c r

M0S1t"P.5 a
s

:Q. ~"AY~'UV")
....h
Ross

:_l
to
t"'l'oi,lche

vae be
zos

'=-.0 lIa!.ldlt." e xamLned
s"} •

t
aone

2X~i1:-..8

I cur

e

t,;:;
,

ce.cen
'r'ouche

es

i ch
&

w'""~;:!!
CO'.

thei;l

eeh

ts

acdI tcr

Touc~.e seas

'W2,S.:.ls-o. t..a 'ha.\f~· accea s co PF!.l.'5 beoks.

A't!'h~1· ... . as

. l)

'

'T'!Hf :!;t..3te!!iif!r.';;;s :n[Ldd t n :2 [A) .l.r::d '2~-:. ~ above sha.l! .a!?p!7 nbt:. only to ene. pe-e-red ?rece-~'E.:\~ ~i-grr~'.:.I;l;:r.;t of .t a e ccn+r ac c but. ",.ls9 to, :'hi' c-oiH:-C-!!i<::.~l.!:al end PO,5,l:~On.l:.'-i!l.~c.~

t:n-~

me.n.t i;1 ccnce ~h

a Lfnq

th~ ·:;CJr..r..i5;3i:-~n.$ tt':Ct:'l

I::he A.l-gE::':llln~;

ua.L pe r i.oo .

of ~.;~~c~~r:~~-:e c!~~=
':.f._~ p-C~V"'C~:l.D::": o~ _ fj:"l t;h~ -cons@:qlJ~rli::e.:ii

l~r';:m~~~s~'~~!ld~~~~n:~eh~~~r~:en

~~.~:~ g;~~I~~~~:~~I!:~;.~~:1gg~!~,~:~~~~:ih:!~:;~i ;:eneae
~ta.t~,;:.,i}oIl1:,5 ',;J~!L -t:"Cr:::l::.l.~J::.~ fault.y cc:r.s_-:!nt o E S·onr1tC".aCh r..,rH.il r.l!sulti.:'lg t.he:~~~~c;.m,

Skikda quir-e.d from

pr-o j ecr s on t.1UH, the

a cost

t'eimbur·sa .. l~ b

ceiling'

pc Lce be

eea i e and est:Abll!:ih~d

t"'.e-

separate -eodd eec p eoj ecz

b.an!;

acccunee

p eojec E cost.

'r"·el?orot.s pl:'io::j' to ~ did Exhthlt

theit"

~['e~e..ntat_lon
]41
j

ec arid

ce e tev
~L. a meet.ing held in .]-anua"t'~ 197~ r Pri t::::'h.al:"~ a:"_ad~=:;., iri.f-ot:r.ed ':ViH;':-1. Q: !:.:,is new t't:'otocoj,. AI: th_:' s ame r;;.~;r.e t~e¥ in.fo.t:rned ;",'[:-'!.'''': t:hat. tbey , al"'Ong ',.(~t.h .ali O.!:.~~[" i!ot"'l!.lgn ccn-. ee ac tee e in .;:1ge~"A, wer-e b~i.:-1.g ds;':ee; L.::Jo sl.gn a ,af!clarati"~I1l that no "C_o1I"lIi'.issl.::Jn" ?.ayrr~e.r,ll::S ~.a,d be e n r,ta~'=!. ~~, !:ha.t e Lme I?ritch,=I"~j' R..~ode~sugg-e!lt.ed t.~jH, they WQu.!a Iccm~ -t.le~nll and' infor;II Sona.t:."·in::~\ at -th'€! ?ayr.J.Bnt.::;'.
j

by S.oo.al:r.<!lch'$ auditors 'rhe 1975 and "?rot:occls" did not

1-Sat.

~5.
.fQ"t"

'],9.

nOt i.ni:.lude for: had any price

an.y adju5tmenb.'!i ad.just:nentS
:0':-

t.."if:

GTP coneeue'c ~ompll!t:;e'a ccs e s mi.llic.n e:nd -28; ISC ~ fro~

p"Lqvtd@

the

GT~ -::t:ntt".;!;~-t.. 50tH~trach

rep ee ced Ly excluded th~ ~'iI,o',a,~dOf b~ ccmpensa on GTP. ~ I;hs

the! GT? ~171l e.oough 75 than

cor.sioeration
~'r'!el fQt"~~d fj:.1 cone

telling

?RL had

co.nseq.U"-e-1':t:.upon t..."1is ~'ileeti;t1J; j;'i:-1:.1 ,?roceede:d 1:.0' .aaa ts c in the pr epa r ae Ion tlll¢l e c aoci e. lJiJdated :;;:"Qi'IS~ t'===~ct"ts t.::J .~ ~ec~m't.;e"!: 19 1'97'5. _ TonE! fig~~e5 us ed ',,",Bre:.1~~gfr':'I' .t.ak.~n ~!:O::l -P·t:itoh.g_r::'d.RhOCf!5 i~t~rn.a.;I. cost r epor t s , v l.th che CQ~Ji'.l.iS"s:o!":: payments' b.dCIo::·@d out. The-~~ wDr~ing~ 'we~7 • .;l@a~l:,.· v Ls Ib.Le , and ;;Ii rH~~IJ.ssa["y i;l'a~t: of r\~;..t~I-:s '..tork.HH~ 1:1.. B5.
j

Hass"i wee

race to .Jf'P should
claL'tI l'll.

c Icn

t:Q ·~1.t.J'Jd·t"a.w its

at.
ve Le e

at ::!9-.H i E:x.hibit

fWw'i3'~e"t;", rat-bet"

AYM:ol we t-a :.her: it'i:Eotmecl :::;1:.2t.'L.. pr!:t.c.n·acd ~odes ~a-d r-eve.t-eed t:..hei r aec Is f en I;:Q' acme cLeen". A.:i~-~~"!cov u nde!"a t.and ·tl1~1: a docc~r.:er.~ has b~Il!!:11 de Ll ve r ed to 5>:JrLat·:-a.c"h ;n~~,:inS: tne necuee arv cet'ti~tcati-Qn. aeweve r , th;3 ~~d o~r; _ been see.' by AY:,l,:.-t not' ~.5 I:.he!::'e any e t recne es e mucee re la.t..inq to this s:.J~ject.
11 j

oE~ e.llE!C'!P Ioss , liSe .t'l;."ansfe'rreg
of t.h'B Hasai R'Mel

the' ~Tl? cost

over'runs

as costs
on Les .125' the fI-assi

pco j ee t; and cont Loued t:.a as Yur..billed r-educed r ace Ivab Ie Jf!P'.$

r.eco

ro

t.lleo

Einancill.l and l}l~

e ce aemenes In 1~7&, and be.sisj

s. ,.

El:!:hibits
t

Son:atrach the

.i nc-o.Lvamen

on

thi~ ~ev~~5al a p~oblem ~~os~ in tbat en ~xa.!tin.a e.f on of ~'f~.u;1·:S. 'o!fot'~{lng g..a~~·:r;.!3 -:;:11' 'touche RiGs,:; · . ou Ld .d i 5cl'o.:!1;1~. t.he:Si!!!~o!I:7iller,-;;s. ~y:·t~ i..ri £:=,!:"~~~ ~.r L~.;:ha~d a.hoae5 i::.ba:tt.he'l we re not. peeper-eel to "do~t:or _o:..'l~lr flies, O!.:"I.C, t.h.at.. ff' eay p.lp'!;'~a ware r-emoved b,efore. '~h!!!! f~!Q.s we r e 5",'0,.on!. ~~~d to 'I'OL:c::h~ nOS:Si A~:-~L~ '.rJo'Jld "hgV~ t.;j in':p?,-;n Touche Ross that t.h~s \.idS t.h€! caee •
I

~5 a tasult

at

RIMel

project:

~oLltr4e.t:. w.aG ~h..an9'~d to t:e:l:uso!!d· to et

.a -compj e t.a j y LOSt. nne GYP Les s I:.h~ GTP report.

t'si.rnblJrsa.b'li;

scnaeeech

t-eccqn txe. ISC
t

as a Hass i R' ,"1£01.::c;is·::,. Exh,~b 1 t "l''5 los~ t.hem back as to

J 1.

:::,an:sf~rred to

the :be.ok:; ar'i!C eeccees. o~ PR.:.. .!.nd con tiot!!!d
t"ecei'Jabl~s.· exhibit l25 and see

!:::xhibit d.

61

a e J. H'jJ,-ce.i·,,~b.Le~ t"epot't~d O[ to $1-1.6 t.he in 11;$ E:I.n..!!ncia.l s t aeeaee in ts to, l'ts .:. 78 9 sore

"lulbil...!.e·c

be Iov ,

"'Jnbl':'l..:!a 77. ISC ee c

on e ccoun e rnq

procedures
051

oiI.nd'intlO!!·r·na.lac count Lnq cont~.ol of
I

m"E!E!.sU1:eS of

lO-"i;.,

asae

mil.11.on GTP .and

;lCC¢UfLt::S ,oTic '""u.r.bille,d i.Jt"'oj'3cts .. ~ !bu:!d

"t"~cei· .... .at>l-e~"

PRL twh.i.ch was. E'ebl['"ua-r-y 1978) !SC of
i.

de.!.a.y~d !Suhmission ~ neW" ¥lud.i t·ot'S t.here vere

a. ge,ner.al
'i\ndersen aeou

r-apo.r t. da!;ed &" co, ··the (".a.A "'j,

ac ce Lbueejal

S·kikd·;;

5.6 a

t 3.
tr

,ISe' thaI:.

Arthur Laeuas

'Th@G':'P and: sklk2a
~ 81

~t':;:ne!ct.s· t"h-eti

wece cr-Lq Laa..l.1..:1

pr tce. ccn

ec e.s ,

infopned .irnp~ct

se r Lous

c

Einancial Sor.a t .:"acr.:

ac
I

23-2.:1.

t..,""0Z! ·G·T?!

eenc c ac c '.-Ia.5 co~p-i13!t.e·Cl in

l-97·l

.mC·IH't.aLnz Le e on ve r ieee of

PRL pt"oj:ects

with

Or' I!a::-l.:t' 1975 1.7 ;:ililll.on

.ERL had ees e over rune s-t.e:-iin'S

li1 th-e .afilCt:t":.1::. appro)l:.irnat!!l:r oE I~' at 25-16) and .... '~s .a:1ti-clpat'.i:<g·

'RSSiOlu'l;iDll

E:ontc".aotua!

[Jnr;.et""tain~ie.5

ErrLt.lsh;Jou.r.:ds

We l;lC!Iv~ p r-ev Lcus Ly "!"';I.~Si:!"d '..ri.tl'l lI1an.ag.er.t~·nl: the e ree a of l,u'1.cert.a.i.'1It:,.l.e:;atl:..ar.:h-ed'to the ~lget".!.all: ccne eec t . Tbl!-rei.s little doubt that the cOiitt:'a"Ct'lJal doeunene ar Ion is in confl1-c::t: ',d t.h ttie tomp;;my' e .... iew oE the f n een I:. ~f !:.he pace Lea to the coric re.c t s . l,-hi:ist [sicl 't/@ app:>eci:.!t:.@ tr...e ~r-oblern5 q.f obt:~i~;'n9 any tu r nne r t;:·la·rificatior:J from Sor,atr..a-.r,;;.h..r th'!!

s.

pOI::.·~nr::ial .Ei::'la.nciaJ. Lmpac e

~t"eat ,::IS to Ifl.~k.e t e 'resolution ,,:J.ta-l co th-e cone.f nued e s Ls e.eece of PRL and to ehe businesz sense oE" t::::"e cC1:!119ony ¢or:..tinu.in.9 1tIS voek at Sk!kda-.

ene

oe

the:lie

ence e ce In e ree

·(s eo

!PRLIS 'The "tlnc~I:'taintieSI " as.se t.s E:l1glisb I..:n.oerta.int. ies wer-e
51

aeecun !:.i.n:S .t-ecQ"t"ds. d i{3 noe
and lia.bilH:.iB5 of !'iU.; 1976 In in

con ee in

an

edeque

t-e

r:ecocd

0f

zne of I:,h~

con.t.~·\I~ntion
~;,.r.. had U. ~.

of Section
fail ad
v

t2

coepan

Le s ri-r::.t of 0 f aCI:9unt

ao:cl that

tc k.e-ep .\01:5

s·;;mmar i:;::ed· by

the

aua i t.Ol"·s, ~.;

follbws,

:.i.f!.

at

2:~

prope

~ books

ac:::ot"~OIInct@··...r t:h i

C'Ot.1!;'M Lee

1)

!! P?L'

1n.teq;n:'et~t.:cn
part
i

of t he. S"..iJ.;da conu c ec ca an'd t.he
ittc;·or't'ec ~ suos tarot tal losses

liI'lll ir:~LJrred on ~el:tlf.!me.Lit;~ me.3ning.~~l qU..:tntl,;r;:a;~(fn \..,~ Ho can b~- madll! Qe thl!!·sl!! losses e.e fH:·e~~,t but t,.le areal; 10_ !? ri:.ic·uia·r eonce ee Ino Lude the tollo· .. 1l:l9~ (,iii. ~ ~8~4 0 ~. ecosded coeue ee Lee.e to c~erhE!',ad:;3 cve chee d r..ecoV13'1' :al!-ow.eCl

tnt'" n t; of

t.he

e e nheu Ld be

'Of i9-·Ht and U'I ofE·ict!
tit

1967."

~ 21, 19-78,
.&

1.~~_:1
eesce c (~54;.) Co. to the of a:oustO!1 the ~rom t.he. office of :,c;l[1do~
;"'t't:1I!'r;'

uecemba r

o_f Ait"thuc

Allcetsen

,aoo

'r

r:'J:n~!~~.~de~~!~~'l~~a~~: 1_.c!l:- __
-:I ..,........

Ar:cleesen

~ ::c • .on t.hi!:l,~ examin.!l.':,ion

be Lanee

ahee e of

PR!. and

fQ-t"

i.n of

cne
C~LS

_c.... ~ ac

t..

.

not paid

{D)

Ap.p:L'ox~ma.t!!:l,! ~~1o~ tQ
revenue ~

t~eJLJne,
~lH;'Ii con

£.3,1.;5,(:00

1;7~
I:: ~aO:::t.

~~~dm~nt

1ncl.n::-dt!

h~ve

Gut.

b~n
Our ex aJrrinat ion ve'a m./!!lCe in. .a;,,;:c'Q~d':'r:i.c-e- ~"'-1hh· gen~:~alTJ' -accepued audi':.ing s t~.,cl..!lt cds and ac-;o"t"'d ±: n g.!.:t lncluded· such t~sll::S of ehe ecccunt.Lnq t:"~cot'ds and suc'h oellar al.ld.it.i,n9 .peocacdo re s vas we c cn.s Lde r ad n-ecessary in Ehe e i.ecuns t ance s , excec e thaI:. 'JiI! ""~r~ unab Le to ccrif ij-m or ..J I:h~r~ : Lse c~t."'·t·-obor-at;n i!tC"C"CI.1n 1:.5 eace i·.. .a.-cle. and uncilled ~~ceivabl~5 {~1~179;,OOO, $~],7S~,DOOj ac-cl edvences u nde L COn t r ae e s {I.a. ~:2 90 r ooa , Sll, 699 ;000) from COID9-g,ny's pt"inoitlal cue t.ome r , "L'hi..= m.atJ,B!' Ls dise'l1sseci" in ~he follu.wing j?i!raqraphs.

t..a.:.o;:en, as.

a;!!.~fl:a[ii~.:11;

that s·ut!h liabili:tte.s '3_r.:"p.IJld ne t:t'e~t.'ll!d t.o be co';' •.sioel:.e-d fut'':het' at c.h!! f Lna L 5:e~tl~CII;Pi!"n:. cu::

.5:C1 ;e:,-, is.!!-. IOId:t.1nee~

the

can~:r:!l.ot..

{c) A?pt:'o,xi.mia:tely 1;'~J67 ,!lOO o f cce aa rel.~~_ii1g t.~ t.he 'l:r.:o·c@· he.!!:: axche cqe r s e re 1:-. ~_XI:~::lS 'O,E t.Ho!:!! .;rut' ch-asse prici2: ~9Leed 1:-00'1 sons eeacf ..
(::I)

on
t~)

Th<e total t.he Sf!.ika~

V'ena."1t.ie~ qen i;t"llcts

that.
aJIlo'O'L!:~

mi-got. treccme payable t. to [.8, s,z 0 aQo.
j

t_r.~

~t"ojacts W:2. SaO
J

!f9J. In !:!'Ji:O:e.sa _at a.ilIHC!~~l:ec c.hE!t furl:.t,et" cl:u.ms -IIi 11 .be raade. At;. 3"Ot.h .rune 1"9 i7 ~:RL. ha.d _.1..iIocl-udred "0 in zevenue s .:u-::-o~eiTIlbll.r.se~b_la 15t~J e s s r..l, '3?ll S.Q 'bein9 the e5t:iJ~u!l:.~d -se t t.Lame n c 0·£ e·:<dstir.n;· cfe t as . hav·e eade ,.yo~~ rt is cl~£..:as. "'9ai~t

S~b-~ontractcrs and ~e~rlcrs~n the Skik ~

_

r\t .rune lOI 1977r t:t'le acccunc s. include.~ a t"~_cei';l:b~_~ ... ~ O (Ll~8&J~271 ~f which will ~~ u~b~ll~d) t~ ~~~p~c~ t: t,:r."e cornt:le.t.ed GTP. can t t""a.ot-~ We !<:~Or..J 0 f n-o aq r aemen t ~.,! ~(mC!l·~rac.h t.o· p.!li~ fl1~thet" BURI$ to P:lL for I:hei~ work an ~TP.

ilrS92166C

~.21

'I'h~ COf't rac+,s wih:h Scnat::'"acn describEd .. b·elot"l havre no t; uee a accouaeec for !:i-e:.parately!l$. t'~quit~d by ebo OOIlt..l:'·dC=.S and fc·c A 5ub5tant., a.l ge.riod the eys t ema .fill:" eepct-z fnq <::;Orltt".act C:C5t.S wa-re: not 0gera.l;infl 2-ft-!!et.h.·~l:·. Do-cumE!-m:ary S=l?Fort .E.Ol:'· c;e-I:t.a ~[J. e.cans ac e Lons is Lnccsnrile e a , In a n.lJm~~" olE: c 1:.rr.a.1:" -:;.e$'P,!!ct-1!ll th6 -:OClp.a."y· ~ a'Cccunt Lnq peccedur ea hev e b~09r. Inaceque ee to pt'cv Lde for eha proper r-eo:;O!="ding and alloc?~ioo of costs an'O e xpertee s and to assure ~t"o~et"" -st@h"ardshi9 of ehe- CO.:J4p.anY':!:jas s-eas , :~s .:8.. eeau.Lc , t he net eeoerenbj.e b~~anc~ o:C-4Ei .;1,'9-6.0(1) ~ $12 Oa2, OUi!) canner. be ael.in@8ted by P_t'oJ~:c f t"OIJl the· t eceoune ing cecoeds ~ .
j I

One gar'ding eece

yoat"

aar

r Ie.e

I

che dudit"O"'t"!:

had

tak.en

~hQ

~a.r.\e_

position

re-

Exhib-it

8S at. 1. _~:"I.Ge!t.'sen r.. Co. hit't.heJr nob ed r l'S76 e that:. cseeus
.A

thl3 i 1:" if",abill

t_y to, d.acu:r.:J-ant. any

Gu.g-~cs t Ion 84 at. 1:

;;..ha.t

t.nll! \.Hl,blllE!d the

,~·!:'"tt1'U"1"

San.o'1t.t'ach s of

.te!J:"mlr:;~te~

tvaofe s ..... ouLd he cecove red , Exhibit

ski.kda

S/5 ccner ac e Ln occeace

significant.

We 'il Lah to empnea Lee our: ~i8r,;;.' o E t.::"~ cc ll,:~·t.a.bil Lty r!! ,t~,e GTP ro ce Lva.bLea , We CO:n9 ide I:' 1::('.';-'. r--QS.~r Ion :0 ~~ unarqueb Ie , ~i.o S:!!r::=i.3f:~ctOt"~ evid@nC::-I!:! n e.a .... '.e.en p~ntrl ...... ecl !)'l.:q9-!!atinq r.neee ·.am~llnts will 'bEt r eccve red-

de.Lsye

a.nd .ces es • lSC/'i?RL

we!:'"!:! 1:.0 p repar SO:''h!l.t_rac!:l. --

tinal

f Ln anc LaL be en denE!

sr.e cenenc

E.ot" SlJbmis.;ii:::n to

tn-is

h~ir not

'l'he eudt ece s ec eed t.h.. !.:. iiI~h~ i=enal':.i~s a '... lc-n C~11 be ~~:.!'e.s~d n unde r- the see t rcns d l s c uaae d above eenq e from 6 acne.he ';0 2 :te/us i.mpt'Lscnaenc ;ar:d/"3~ a ~ L~~. - -r'ne ~11(l! 1:01;5 ; u t:"~her Stl9:983 ":@',cl ·r,hat c.11-e: 0.5. f'ct:'~'ig~ COl'·J:-'UE't. s r ec c Lce s ~.t t. of 1"977 ~a.y beve been v Io.l e t'ed , at -L

g.

252 in t.l·iI4~ e~lJtt"'!!C"t.s PRL~s '.... ce e ret:ordeo i::If 'en ene
1;;...

,19

·PR!.';;;

f i.ni!ll

eeccede

• .E:>l:1"'.1bit F-!i.l,lQ~abl.e

::lppraJ{i.'Da~ely b. of
JF"P
I

~1i.l

:n.illi.on

to

H.!ISI!i"i al·Mel.

ExhLCh,

12:5. r!.ll the as-se~:3,

a'5 e+ .2. 0:'1. Skikd~ c'ost.s of

~st;lma.t!:!!~

m.!L.:d.ml.lJ~ -I:''OSI:. ze.Imbueaetnenka ~R[,'
So

On October includ!,;tg the

to,

L97'a, .!S.C sold
a.p'?roxim.c,t:.~ly

~u:bstanti1111:r in

4. ';.las $4., ·t'he.

5: i'iLi~iicn
~

113_C:;,~ t.han g;5
~I:.

~~'!i.timated

eo na L

·~I,·SI million
1

'"uno-illed bU$,!neS$, E?~9vided

j;I'[oje.c,;.

2~ by

ceca I'Jo!.h1eSl" thE;!n It!e.fr-.g c ae e Led for- aas!:i,::"a :~e·l t,~ a xceeen

1'to!l! GTP

eecet vem e 13.15.0was d Lscuesed

the. aJldit:.o~s:

See fOir

~

1'25

e

t;

s. of

S@..:~.ion the

j.·3

of

the'

i'urch.ase with
'~r'I

f!..g'L"ee,~ent. acknowladg-r.renL

A.s discussed in. Mote 2( a), the G"!'? project vas complet.a"d and eccep ced by Son.<H..ract".-Ln 1974" Ui'l:bi..i.led r ece Ivec.Les i.nclude Ll,a93rOOO (~l#520,960) in respect of t,h-is eoneccc e for "!'Ioich no f orme I. ~ubm~s$ion h as bee;: i?t"ep'.u·'ed or $u.b1ll1tt~d. ~e' are infQ"t'TO@!d' that 5ori.al:.rach has LndLc e t e d it;.$ willingness cc -dJ.S'O'U;.S5 this ma.t ee e further on the C!ompl~t:ion. ofa:l.l o:f' I:.h·e' CO~EJQny '!!i 'con-t:c:ac t.$. in A.lger ia". No d.Ls cua s ions on th@se costs h ave eaken place s rnce Deee-Jrli:lI~r r 197'6 aile ehe ee i~ nc ecnez-eeeuej, basis fOL" including tnis orojec~ 'in any GI!!t.t:.le~en~ ol! t..h~. Ski~da. co·ntt::actSj discu:ssed bel~w. Fu!:t:.ne-t'" the Company pr-eaenc Ly has no ene Lyaea eve Ll ab l e to g.I..l~?Oi:t che amount a~ la-sue

t..r..e .a-llo·,w.!l.t.ibn 'pa~ti~s ee c fcr::.h

pur,r::...... . a.se the

pr Ice

by both ,for" as

en a e each o·f in "EXhibit

as see s ';ias individually che Aqree:rnent, ~

b-arq-ai;";,ed 127.
C01'lt!:"'~c:t

Do!r to

'rbe t ~X:hi.b!t eovencea

shewed

foC" il1!nb{Ui!il dsset: shown as

r-ece Lveb Laa»
a,

ne e of

-{the- only

n.at:..tin9l

"S'2,'17L~70".

~xi:dlHt;

HS.

which are s-uitabl~
8-5 at 1-2.

for pne s enc at.Icn

to

scne eeach ,

-race Jvahj .,a,nd
8-1':;'01,01

es

r

net the

-cf

ccne e ac.e H ~ls1
I

r!!id'llanees,·111into "unbi,U~d' ~

it.s

COI:i",~~!""~nt ~a~~:!!i
II

exh'ib1t

:l'"tie _a,'uditot"51 ~ana@re-CJan adverse
51:. ~ oS ~

op1rLion ·on

tl1a"t

fla~s!.

re ce I '/~h'h!~ 126 Ion is

vas

reduced ~n tha.t C"eC-01J~'c'y aecune , ~nilat.E!ra~

PRL ~s f in.ancial ,82.

stat.ement

·a.t J, on Form 1 G-fi: in of neceebee in

f~cJn ~71,1lG11051

try ~'5,117j151,
for end. the t.he

a.t 5.
t he

Included

Neve I:"t.heiless,

rsc' --

AnnLla.l .Report f-i..l~d
o!,.~

a EooU1ot'ee)l:·~ltu'l:iticn
"'ISC1

reduce

Stat8Ii1e::1t

Itl'!: ttl e 'f iaca.l 19-7:8 _... so-eet

y~a r 1'978

wi ch

the

co-m.is:!·ion million"! It.t1e Porn

J., t",

P-L"itchatd

Buy!}r gercent in

believe of t!le based

t;n_at. ult!.Ji!.at.~ ot"igina.l
On

ccne i eue s to

t"~fle1:t:

aseecs As

tbe

dollar-s lO-£(

~ir;l.y approxllttflte orappro;lC;imately

t.nirt.y-five ~·2.r15(],OOOr" n g ISC Ld , 'I'hu:E;" 1977
t E'Ot"m

claimed

Lsrd

"unb Lk Le d .reC:l!ivable,s",

too ~:T:EJ

e e.aee s

plitrt

Sonr9.t·r:a~h~.s

eceIon of the cont r ec e s tcrs: , -.assumed to 1969 a{tt8~ ~r.Q'l:.he cooucacuo r was d i SiD i.s'se:d by ene e L t en c , was comt" pleted in !lj74, The final cost; ·of the p.rojec.·t a xce edud the ccfltt:oact.'.J..:!L·l even •.il3a b~' i1~ptoxlm.atel:f $),500 ,(]QO~ r : 1'he- .s ube Ic Lar y provided Eor the- ee.ccveey of such cos t.s on ehe . cee t a of uindt!t':!:it·andlnqs·Erom meet.ings w.it.to t"~~res,ent,~tlves of the ej.Len e that e he f"in-al con.t:--.act pe-Lce wcu Ld 'be ~ene'9otia.ted in eonne c z rcn with t he tina'l $~·tt_le~er.:t. of matters '~eiatir.g' tlJl othet wo"t'k_ in ~i'l;-og't'es5, ACco~(Hn91yr sue I"!: ccne eee e costs have been car e Led a.-? unb i Lk ed r ece.Lveb.Les., ~ ~~ Form 56
r!!t

1.1 re-pla,ci
sone on ccech ISC on
1.5

On

eons e euce t,h~ neaa

fon

and

Ln pac-t

PRL'!S rlJ.ffic:uit"ie.s r;-a~h •.!!:h,J@"

one

vi en ehcwn

,

I R' Mel idl

<lun;::ii!_ll;1d

la-So' as

f Inane

ac e t;eli1~n·t$ y -$1" g mil! wt:en so1d

~:s: aPf?r:o)dr.:atety
ion ill 00 t.Q-be,r;,. .20, 1978,

~,S ~ 1 and Un--e.,
'lY~

JF£l

S books .e t only

appe ox Imeeej ion.

wa~

valued

~:2. 150 mill

on

October

84.

!5C :s

t

vaekoe

subs:id~iary Aql:'@:e.ml!:nc.
I ')

e l se

enee eea

into

a coe eeec e taL Hubert

7 end sta~ed

~-15.

As to

casts supplled)1

011:

ene

Skikda

cont r acc s ,

C,Olllfld,ssioll'S

(r<verkor

"'Iitf! a_ Sell;l"i-'ln

nac Iona L,

lG~~

(emphasis

Costs L"cu~ted On these eenu r aces ace e~·~ect.~d to be ['eimbln:'"sed by t:.he client .ant:! -:10 :::;.eng~e-ioEt..s a"t"e evaec ced to be in-cluded ira the fLr::a.l settl-ero-enc of ccne eec amou r; t s', I, £~':'i~haa.Ls. S.up? 1,i,:2:,j) '.

c

ala. lmat;@ly

:Fo-:;- Le s

z t scaj, ~r:

year

19-7"1,

!SC' s

E'.or~ lO-l{. of

reElects. tSc

approx.has at.t:rib'utec

t;r-anslatian c r ~"i ina.l

p rovi ye rkc
r-

ded

to

'!;.:he_-

COr'.JO'tission idi!d tn-at:

by

ISC',

·A·t'th~J.e

S'

o.t the
1 'iI;

$~! iJ1111ion

"urtb'i Lked

r:'ecl!'iv':lb-l~s""

which

'~.:.1eueme n t cccv

senau

I t WQu.!.d r eee Eve

!\ !}.:',

of

I:rl"e.a.moun~ 7 of
II

of che

'Supply 'let:"ko~

cont:-r3cts
Aqt:'eeroanl:.

'l-et'k.O!;' ae.ae .. d e

r e'ce Lv ad in

in

a19f!t"ia..

Article

pa~t t..h.;lt:

tvet:ko~] snaIl pay ';.0 (Eter::\du.lt.J I;.he S~!iI of 2·~ 0: t::~e value. of wb.at.eIl"6r aoru::=:act.f$) ;:n~y 1?e t1.~.~:t:ter;:J1 ~!~ya.ble in I:.!t-e ~orm Ij.f ~ cc;n:ra.l.E.slcr':S '-";-" one i.rr nce'e thI~d ~at:"t:ll[!s" r~i.!I'P'hJilS..L.Si :i!l!p"pllg-d I: i:l.rLd Ar-;iL:l@' 11 0 E t:he W~'t""~ot:" Agt"ge~e.r.:
'!:..
:ii [;.:3.

Art"ii;"..!.-e· 1 d~ tb.:L
t

(0 f ·The

th e. vaeko June 16 a nd
I

e Ag't"eE!r:ten t: 1 ~" 19
'jI

• E:<!t ib i!:.. 78. ~.rJbe~.ld bi

I:;.

A.I ~

t~·d:

ti

t

REHldUi

I:. Le ttie r- -a is.ru.:: Lcenc.t y e.ca ee.s t:o
01

• Ea.L".h 1:1 f the par t.Les . eq rees t.:;. ~ C!I.fe:g-\.l~.Ld t.t. .:! conf teencial na.t.1.rrE: ·of: the pr aaen t. .a9t"el!mgr.1;. !'e~;~5e ~ ... t!lt2 t:"sks e-o» i~ ·.t\l·~t"{.a. due 1:.0 t.he e.r.J:O:!rI::'l:;o~"'90;l of n.t"tic: £!! i of t.h~ cr es ene ~:;~~-=-:::.~nl;.. {-=m~hds_s~t1I:.U~.t.

t.he

de~·-.e-tlon.!5

!'I!"odi t t cae Lcns

old

Ar.t Lc L es

:5'. 6

6i

7

oUI'?lied) E!4:hibit 776:. b, to

.

cl'HI,nqiC9 ~,er.ault

I:.!le -~5s5~nc:ell!~ st;it.~d I:.h~t

(!I;!,:,\pha.s is f.ound

supplied)

~.

31t 2.

. ~ind.llr

(

i.E ve ekor

it necee se ry , he, ..... oul.::

fot'l...'!lrd

~ppi;"o!Ci~~tely that

t,'';O

months

ai;::.s-r SQ[l.!t.-:_""a<:h Ilske.cl ..,Lth Alget"ia's

;SC/~Rt cOiru:l-li!ntarie·s

pcov fd e ~ffidavit.s
1;!·1t

the_y !'lad coapj.Led

ana t-;:(ts..

l!!

e e <\.

'"anti~-aqe:n.~"
e f Ee c c (eee mcnub after
~G

and

che prov La I'ca.s -ot
.65 ~ o~ t.he ~~) ut cee eor-s po:!;.aioil

its. 1;.Q.n'L.'!:'.act
j

~o s im Ll ar'
cna A.greement: or: oE fnl3:B
II

g,:H-:!~rapb I5.C-' s

and

a!?p't;o~i:r.al:~l~· Sj?eci.al Ol!.t:Side

BI?~rd

e.",gag~cl thy

put t.l ng in

on~ si:':.gle f"orm@r·l-y

iiC'COU.nt tb!! a:e-pat"olted

3'i

oE- r he ·C!.i;;Ioun.ts ecccunc s

~O:Jr.S"el ques-z the

i.'l'le.sltig:at.e p~i'~en'Ls

LIE uleg.!!Jl cace
E!'.!~'t"IJ;~tI

i;a~~o..get art {aee

and c9~i'S..GiQ.n.s

t nec £ d·.i.ff<2'rent

Lcneo Ie

I al1,d afj:'iH- ISC

bd~

Lved
F

i nqul r-y f't:'"o;n
s.Leo
t

C';:'l.I1ffii3S-10n reg a re Lnq 3'9"r s':Ipra} 15, L'376, an
j

i I: 5 -ac::.il1 I t.Le e ~ le:l;.t@t:-

!_)£!ralilt.ing ~x-hlbit SO which t.h@ tl:'r!nsl~ticn Is 13761 S-utie-xhibil:. Sl
t.a

gt':!II~h ,June

IS:::

aecut-ed

f·t'om The

~e01-.i:lU~t., di!!l.e.ea
Dr

eo her

~ffid-a'

. -it)

..

to ve:rk·ot'"·' s pe es Lden t..
Ei..'Igl!.sh tran.slation {Affidavit

i~ ir,al e

let."";:€!!" In as ~

Thus,

as

RenalJ.lt.

aune

12,

"comman

r i e a"

and

hf e

Fr@:nch :!nd A and ~ c. cee.ee in

t.he.r'eof of

ace

t t ached

A~ 1;0

ex.hitiit. 75.

caec re ,,1

!'l:£!l:.rea.iJ

translating ~f·eld,avit:.l.

rnent was nc t; ch enqed and 2~ of. t.h~ ncn i es t.o

be

pa.Lo

::'0

aSXl3ult.,

in.

7SA \.il1ich

e cans La t Icn

Ls sl1:be~hit:it.

ue her

COlMll6S

{ona" .

e exe-s" .iSAJ. of

f r.om the

AI?t"iI
I

2.3.

j

lSl?·3 r Veritct"" -_;'g r aemervt

.

n;:xni~it;
provLeLcne wr.ic.:h

T:h.el:~a.Et'5l:t" t.he ve'rxoc to

cds

Le

ce.e r di~cljS:.:se5
"i3I

~~.:::l~o:f the
ctre ['e£rCiTli

Ag r.eemert e
1T'• axe

nd t}~e "d~ Le r; Lcns"

tlJ'L.l.3 L!!adIn~ t.'·H~~ ee.t.Le '"accounts
(.3) a t.

·~.1r.,dcone e irie":iJ :ilat.et'"i~l i..l.) L! [t~·
c

omi;:;s
:'ma!:;e

ions

··Df :::-a~t;:· ~el.;jjt.irtg
'J1

1;0;;)

e e is

r.rrepar~d

T-n'l.lSi .ar c.Lc Le S. of Lr cm 1'5; to
:'~Q-

~he vel:J;;."o·a; cne p~ym@.nt·

E th-e·

epp.eox

li'

'S 1 ~. iJ

ill

i a:n

c

E s!D-cal.lJ!d

A,'9-l'"~e:r.lent, -i~ ;:,h_a.n~Gd Ret:1aUlt -Ls to r ece Ive

by Lncr-e as Inq
baae d u?on-

:n

e nd

L.:inbi.!led

'2~eJ.,vables"

Ln th,at

it:
USQ

a:.nmln-E.0.: si,l?pl .. con t r ac t s · -; of df

Ve~k.ot" eece l..'.. ed in r wh Lch provided that.

,;lge:::'a-. 2'i· oE th.e

~~rtlel~ vaj.ue.

t:-.~

'!e~ko,:::, rlgt'ee:~er.t.1 e s ve rxcr

i.ill.ied to c Iac Loae t~e r l sks :;;;:':at,ecl oy i z s df "irH::~r':!li!:rlic!l:!:'i{!s."! i.~"',io':..3'tf':m o t ,",!.;e~i~::t.l.<!.''''' and ~he ~on·t;:;;'"ict pr;::;: .. !.s-i·c:l.s: ;

whatelJ'~=." conr.r-ec

reea Lved i~ Alg-:e:-id

'..;a~ to be payable"

in t~e

:Eorr:: of

!;.ec:.-et commi:5i-

!."S~ {Co, fa.iled to di~crOsi! che r i:s'ks cce e eeo by i 1:.5 f 11 ir~9 aff ielev itG .wi t.h Son.atrach ;;,!,!ga~d use 0 E "1 nee cned i'eu: i.9a .... hich did not. disclose Lr.s (;ont.imJ·ed use or Masri (or the v(!-rkor A:gr~l!:!ment or the, pa:7TI1en cs eo Rh·.a.s Ld 'Z.eg.ha.c:-) afl:.er bging wa..rnec that. sueh a.ct:.!.vitl' c'ou-ld result i.n lo!is o.E it:::; bU!i;iin~55 t'el.ation~hip in ~l.g:~H:ia,~

::OJ]

r""'g

exhil:l to his

"t,!;

31

'and

s.'S

I

~I

SlI.ItIC'Ian

L,t~oducec: the- S&? rep,t"e5enl:al:l"/~S
Ar·r.a::x;t Wh¢ o';;.,oneda ::::cmpac-y, A~

!·ather-in-::'~" ~$":..

.....;',bdul~ahman t "A.RJ\'!'}

Intt!:~'natior1al

~ loca:.~oj

-in ae Lru c , r.ebencn •

PoOL

(I;~ Ea11e.d to disc-loSE! t.hel;is~s c reeued b.J' its ffli.'1''3 fal!lol!l' cost repcs-e s ',.".ith So.n.atra.!l:n and t~en fail iO"Lg t-o pecv Lde t.he t:j'pe of finA·nc:ia.l .st.ate.mellt. and 5U.pP-P!,"t de scnae eecn eaqu it':e'd ~ (d) failed' uo d Lsefcae t.,.'a::t t..ne (Ion e e.aeeuaj, t.a.tior.!. is in cQnfl-:"ct. w Lbh [its) vie"" of t,he ~he pa:rt.ii~rs· to, the, O"on.I:.~.;fct~";
II"

ta

would' ben~fit. rsc/S&.~

issue. of a 11.

IS;:

receipt.s

and

invoi.!::es sign

Eb-r

I:.he

.no.nies

pe

Ic

:OtO

t.he

$~~.roa.n end
eli

A.F..::... .....ou.Ld dccome.n
t..S

a c:onsult.anc:.r :;Jrep.:ue. ~

ccnarec

t w;i.tb 87 ~t 1

deeunenintent Qf mliljo~ unce e-

E. lin l<:n H 1.

s.:;.~ '",oul_d

and Exhibit
i!lI

~l

(~) faiie:d !!r.ubsidi.!·ry tal;) t'ie~;

to cU~l:ll1:i"Se ::.oal: the v Iea i.Lt ny o'f ~PRL.1 -:,.;las in d::.:.nJI:i-I:. b.~ca~se of. th-ese

In

1975

SIiIP made

~W0

gayme.nt.:..s to

Sal1'.ma.nof

5"10,000

I:'i.:!ls

and

(f) failed to disc.1ose that 1 t.s 5cbsfdiar:y' is bocks a.n.~ t"~C9t"ds weee . :!:i'a de'fi(:·ier~t t.h:!t its eud l eor s expcee sed t.he 1/1~w tha.t the 5I.lb!ddi..!lirj' ';;.'011.$ Q"ic.lating t,h~ E.01.9 [ish CQ.l!lpan.ies .~ctr· .:ind

t:.hl':"ou.gh Leauenc a

0: ell!}cks dra'W'fIron ba,nks, ~ayable
nhe . c':'le.::ks to cash.

to

th~ ~

ord~r

-.of an
1,:

failed i;o.-disr;::los.e that 15'c's E·i.nanc:.ial viab:!.!it't '""C!I,t:ii 1n E.ur~he[" and qr e e c..... je~Pd:rdy ae ehen .eLce ady r eported by t-t:e ecmpeny because 0"[, :::J.1i.png ehar til in9s, e t.he. Eceeqc Lng.

{g'

S&P. eiup:l.0YE!-E! 'Who t~'lQ'n cn~vert.eO

iJ7 at receip:"ts'

~

~ (Exhibit 90.

8'9 e c "2-:.1, 39
:!t

5-7~ 5)

SdQui:!,2n"~

fi!'t:.h~r~in-la·,.., each of cbe

issued

1 a nd

to

SSP

for

t.'_,10payments.

an .ex~~rlde.d cene cace was eqe Ln paid

0(1

AJ-I.

T'he commission
t:~!!

s;:a.:tment"en th-e CO;'l.t,t".!Ct. a $"2$0;,000

t:~[':Q'l.ii"Jh .~RA under'

9!lis~

of

.services con-,

and cons eeuc ei en contracts conve e s Len COI:i'.lcH:atio.n
ta

Er.cltl

the Saudi

A.l:'_ab.i.:!rt Salin..: des al"inat:

Watet"

that was

no

s e rv rce s ve'e e c'cn.temE='la.':.;;!d "'ccrt',mi:5lsion".' of ~2l0 I:he

O-r

ce ce J.. ve d and 8'~llibit:91 ve ce the
raac"e

that at

the 1-2~

~arment:

("S\iC.C")
1i15

fOt" pr-epc sed

Lcrt. powe c .lohall !t"1:G"nqEa!-

strict.ly·a 91.

t.o S.a:m:man. and S7S,iJOO

qener a e.Lon p.Lan ~·J:.J-rr or :Phas~ th~

i(.nown

the

A.l Khafj i ('I!A!':""} and Al S&p _e.rrt@re,a i.-,.tq fili~ncial

i?dY'lI1~nt;8

,'000

1:.0. a de:5iqnacoQ(I E':a,Ei't:, in Geneva. st.

A"'

pr-oj.ec.ts:, rnoeof

"umb!l:!!t'.E:!!d "~cOOlin t:: .a.t

i3tr i 1;::::3ih' a ank of
~-~I

M iddloe

men c s ~i.t,h

v Lce-accve

SWCC as
\oi'/!.!S

de sc r tbed
AdnaJir

be Low ,

S".,itzerla.nd, ;36:.
AK and ss
P C!llSQ

Ext,ibi·t

B7 at

4-7j
i'I

ac.;:oJ:'"~ ~_

90 a.nd 2 JIll 1 ion

sa.

The vtee--dcvaenoe
to b~ F~id. ~ 5\

of' s:1CC

sunman.
t.he pr t ce

~
o.f. e.ee

t:¢ot.['"acted

eo

9o!l¥ ARA
So

an ~cdi

I:. i one I

$:); ..

throlJgh

·S·amm.a.n was.

"'C:Q;rImi's5ion'~

on

Ei$cal

un a:;Jj

'tll'l:Ic:"J ISC'

aud I tors

eons ice red

to ~

txe • :ot'

nebulc!,Js

consull:inlj r epee se-nc.at.Lvea met. wi.th "t"eso-lvir.og a pt'-oble~" S!.t;;mao
l

.and represent.at-ion

t7~~ !!;er~Jicgs"*

9'2: 3t

at

tnt'":!

Lae ee e s c Er te e ,
t

1:;0 u i-scuae tv Sa5:~n.

2.

SliP hoSl_d --

hm,,' to

documene

'9&yment,s

,.:;~ Tra.c.ir.g S&P had 'cont.r~c.t haC!
21

'Comp~_n-y

I:.~

~i!;_~

BI!-st: $10,0210.0 in s~udi.

pe r

ilLOn-th.

Eo c a::ii lon.g 87 .ae 2.

ae

a re.sioe;!nl:. w"it.t'! Bes~

l!ro.gh'lf!er was si.g;,ad in

Exhib1t.

'The he hoo:;"3 to of
I

a,ft.E!!'!:' 53M:nan.

ii1Eorne~ s.&:·p

S.l._p tha,c

a!..t:l!a.o:fy

! ....

e ce

false milliof'.

and

:;1.i.!!lile.a.dillg ·..,rotth ~he of

l

-tne

[act

I;tHl:t nosa

rscts
ee

abilit.y

n:..inority ~~

int8:t"est. The

Be$1:. and

~!!!!'quE!:eted h!!
15

eo

aLq n t.ht!! ae a t fo:!;"
ro;

's ecuxe

oval:." ·:?tu-O co cut

bus Lnes a wag .of th~ prt.;:~

s rec e rcn
of·

.~glt'eer.;,~n.t. $10." 000 per

E'!i!''W' _$t!Lt:'\I'lce~ to !lal' ..I~d by l as S"'i? no

prollidoE!d pro?'!:!ct

by

11:.5 ~bi.Lit:r se rv ices vdce

QCJJ1l;l!et':!: on.
.t'C!t.h@!:'.

b.asLs'

and

q.'!la.lity

month

ve r e

d Lr eecc r a

$:2

501)

its tne

"f~S

=oIIU!ieQt.~Qt'.o the

a.fore-sa.!.d e i aka cc

p;;tyrn~ncs t·o lSC end ~ts 'rihich

pe r- 1C19nh t ~ "92.

and

'by i t_:!:: aud i tors

mc r e th.i;lon $4, COO pe!::' month.

-uoverncc , an.d d Id not

at ec toae
·?Lac'tk~~~

t.he

8; ~t). ~l:'III! Eun.;j~ 1:.0 mllJ..:e-

bus Lne s a r

ea ul

eLnq frar..

t"l:-P'';SI'.!

beceus e of: Saud-! Lave

the

~aYTliI!nl;~

!:'t'lfe.!::"t:'ed' ec

in

i'dra:graph

9"

axb·ib.i '9,3..

t:.

91 ~ ·On E'ieb"ruaty en t,o 2.5 r 1-976·, June Si7P 5i.gne'd lc2r 1976, a

OTHeR QUEs'tICrt~aLE: ?ll'£Z+~Er;ITS

-contra·ct

E.'at: t'i.J-II. by v i.z e. gamman which. the able

99.

As

Set

f-::)rth

in

t.he

:CO:'1!1:IiSEiilonI not l·i:tit~d

S coep 1::0

La In c, ISC IS

ques

e rcn-

'Thet."t!arteLj tra,!'\sfer had of'all:f

c r about

~aJl,il23 In

va s .pa.id Swit:.~et"la.n~. ncnbe e- to

forei.gn

p.a:.r:DlE-nt;.svece

of-ficials
I:.

cf Hie' .ihOV2'e

a di20~ig·nate~ adv Lae.d

·ntnabe't"~d

aCCC:Hmi::.

d Lacu a ~2d ece rv

ne.t.Icns ,

To

th~

C.ormilission'lS

fl reser.

kn.owleHJg

a'-:-:Jd ae L ie E, c.hile~

5iiP ofEicials

of

tne

Bc-counl:. 3·-~. ee

i t Lee of
t

a silJl.lla.r If"aq.
Le rne r ,

Q..:;rJ:;\J.:re: oecur At:; t:..ach-ed
former

red fn at
Exh.il:l.t

least
t
La,t:!n

~i!!a,:c..ag.ua,
iii!

~rans~H 91\ * $1,13_6,42',30 -95. accord tng

should
pt.!.-.riJlg

be "aile. fi.5cal 92

E1<hil>lc B7 at y!:!.ar
",t

r'l,,~Ol;'i :::::0a. a r:.,R,.:'\ a bota.! 0"(
ft"Cffil
AlfI;'~d

and a.

'het:e: 1:.0 as
direct.ot" o£

"1:a~ La.
Aeeedcen

m·~rttoL;:1!tilOjm
cper e

197.15.• s&.·p ;?2I id

ISCls
ill

t

Ions

,

E::<h~bit

3. Sa'..Jdi A,·r.a.biGln 'Tender n,~ul.a.ti-ons s ce ees
r

r eqard Inq instruct.ive;:

ISC'

S

e z cempt-s to :tSC's

to.

Se':LUEB

a ,;;ont:C'!lct doing

Chl1e~

I~ a

is

highly of

A~ti~)..E!:. 81 of to- IS~!
S

eh'e

as

method

of

busini!s.s~

tt is

=:;:'tldy

~udi

to!:':::;:

ens ch r teen securing t ns.er-uc.t.Lnq l1onc:etllir.g ef f·orl::S to

govl!!t'nliLtln t, ~f1ll:1 '.rho i n t.h'~ ~",-en;·nim.erft should

C·!;!· id -fat:' tl:a

I'Ilf $upf!.li~L 'Qr ccn.t;r.i3ic·':.Q.L is plJO'l/Q:'I...o be pe~gon~lly t O~ t:broL.li:ilh an in·t:iH"rnedia-ry e ither d"it"'!!!~t"ly .or .ino!.t:"!!ct.ly, .offered or at.t.empta:d to of.f~t:' >IIi bt'ib"e t~ Gr.y qove enmen t; cffic!C!! o-r I!rn;p-ioyce -t:onne-ctl!!d w1r..h n!!!': woik. fQ!:m.tt'n~ ~h.e aubj ec c i:lt t;he ecne rec e., his con.t:~ct :EI,l".la,!l be irr!J"lU;!:aia I:ely c21n..te'll~d. a.nd cne "deSlQ$ S. t con;!: l~ ~ c:at·ed in full. !.!'I additl.On~ hi:!; name ~nal.l he ~['I')Si·5~d· Oyt from [the list ofl ~upPli~Ls and contr~ctar5, ~nc ne~es.5,ao:'V action. !;nall be t::.t.ken to b~in.-::J h 1=0 t.o e r re t ;"
j

gc'"e,t:l)m~n~ coner 0 ff i~ia:l.~ the pa:{'~ene.s in

ecce and ,i.t demon~.,t .a!::;e.& ho~ loSe. went ab<?ut •
fQrei-g t.hey n gov8!l:'nmen 1:.3 -ce.c(!ivinq ~ CORPORAT"ICN -T·rust che !?at'.t ~ 'iDC'l'I!I) :Stock of 1:.0 p r qv Ide
e. ~::3

to

tile r:.hocs

'ot."

vexe

for:

a.s:;;lsting

rsc

1[1 its

s ecuce

qO\ole,rnm(!n1'.: convrecce

THE: OfF'ERRED COM?ENSA'i"tON 100. lSC In cct-n 'i!Sit:O!b1i..sh'3-CI t.,1B ~efet'l:'ed , OCl' fo_rmec arlf! initiall)'

~

92· (empnQsi.s 96., i:.he f~es paid
t.

$u&"pliedl.
tl::l
J ....

CO!Dgensa.tiM ol,.,ln@:o_ all "D·C:") es ..... n.Icf

in

Samrna.nt:u·c'.Jg-h his e t;'f! t"eco['d~d byS&?

lnt.el:"rnediat":I

Eat:.ha~-i.'1-L..1.W'5

196.4. t.he

of

t i ~m

J

~R...I\

p.:xh

is i

93) 89,

.e'nd ISC liS "-LlO."lsul

t·::ng

Qerer',t'"l!:!;d ccnpens at.Lcn CO~:--t!ns.a.tien iJn":;
("<'::! t

COJ;,t:Io::-a..tion.·( Plan
lli

set-vices .... ~
9-1.. direc;:.!¥ E.;<hit:::its
f!.:Jicng,

a '1DefG"-r'red
r

(th~ i 1:51
'::.Q

"Pl~n!ll)
IS·::

put".p0rts
cer

ocher-s wU.n

d~.Ee-nd.ar..:t'.s :"Leit~ct"'j .:lnd knev 96 a·t 2. of

·Ho[k~L

artd

St':! i.a •... . et'''.!

i::"l.c-en.t

Lve

r. r'emen

t. ben-e:;:

Qf

e tee

t:''3 ~ d Leee

.and
r

rnvc.Lved

t.he pay:ne-n.ts z-eEeer ed ec above.

:o:e:y pe c scnne L,

Dec nes wic.b
iii

o'Utstand[,ltl ~.rO:ll pet"

bo.t.h cceuccn sh aee s and S4 c:ulilUlath €< SbOi't:'-.:!

'9"],

94

1

9'5 a.nd

pt"II:!.~ert'@a so aees

~rq:e're~ce on Ltq'IJiu::.t;.iQn~

Se!ecoi::ed sidiat"tes

officet:'s, ace given of

dLrec·torg

and

key

pe eacnne Un.dB~ ahe

I of pla.nl

ISle .ana ee key

i·t:.5 su~pr"eret"r~ t:;he OCT 9'8
at..

t_he oppor:t-uni-ty,
I

!;JfJr~ha5@ personnel

shares, c·or postih1-!! ~l-I

nOt

inCluding. fU'l:;u-t"1e.

ebeec.

·prese:nl;ly u:r.CfU'_

being the

tte':'cl

qy

:ecm:mc·ri "S't.¢ck of .and 1St:' a.n9 la:t2!: 101. stod.: its

;)CC f~om st.=bsidia:'iesr of

OCC S t.rea:s;ur¥. underth~

·O:Efic:~!,"s

~nd

cHscr.iclJ.t.·ioi.J

p Lan

, !:'xhibit

OCT i?,'t"ogr:'la_l.r r-ace 3& at of 2)'L

i.ve .Il.llocal:.ions.
]'1. of t sc

$cheod.uh:!

I

·.xv ~

'Jasti-n·g TtH!

DeC pr'ij:..Eerrcd

seccx , ~

104 •
D~,ce..ch"-'r owns ~50 "GO 5nar-es. :U, i,919 '-1975 f4S%} of ,f.Qt'm 10-1(-), DCC'~ «or.'UOri
.£j1:..at.fL5.

e ase e.e of DeC ccns ts e 9rim,a.ri!y
at: .1.une .30, Lcena , and 1978, loans occ ow.ned

Co~mOJ1s heeee 'CCC a.cqlJire.Q made or

I:.hat

ti~tendani:

K~n!"U~al.ly

C1·f which!
ban~

t.hese .ec

.shaee s of

s tock

..!r.d 'w.aS' ali::lc,aced 7oC'":il lO-K: stClte:s t~~t.

eneeee 'tl~th

.,;11';;"0 c.cnt:rj.bu~ion.s

caused

ace

pref@rre:d

stoC'k.

'l"~e 1978

20,

1978,

!SC

h~.l,j of

notes
I

and ececune s eece ~ 56 at

rvab te from
34. rro:n pel:

Gee tn t~~
~;1J9ust.1 1965,

the

f11an

',.,'i11 56·:at

ce 31.

ST'9rOB5

:for

eec h o:f

the

.ye·:ilIt:"s 19'9i

to!:':OL.:r;h 2.0000',

ag9·reg~te tb.roug'h

.uJouht ~un~ 30,

So·821 JG9. ISC

Exhibit:. lOS.
:K:en.Rea-u'!t"

1977,

~tcQntl"'ibut;,edn

$lSB'rOOa

yea!

to

QCT.

15C' ~ 197~ e.l
sc

FC"t"m 10-11: dcas .1000
vestl3d
j

:'l.Qt:.

dis-close
.?it"·EL~e~re:d

:.nal;

..Defendant
Which

pO:!:iseossed

[lCC

$hO!lI:"(:!SI

at: 34.
coe e -

I SC:: subs idi!!lr
r e

tE!!'S

pu ["cb.dised
pt:oevall,ing

rsc
:;;tctr"k!1!t.

com.. on e
at.

$'

tock
ti.me

from nec.
cf t:h!!!:

iii t

DC::::'S
r che s e

h.e he

r@:ceivec
has lQ6 ~

in the
or

19158 d..i."J!dend '.rIll1 ro;-c~i1Je a d lCl!!ct.ar. of Ross, Exhibit.

ano

.co,e-s not "Shares. ISC S in<:e
.j nc

disC!lo~.e

e he bel1!?fit:

ene.e

than

ene
the

I:.ne
L" at:

pu

eece Ivee
~~:SL!;

t.nes.e c-f

to

a.nd. then

"Sold td

s tq;lck

eo, "key

per-sonne

cons

ide t'a·b1e. loss
.!i~

has

aeen

!9611,

e nd : i s

cne ot: the

toe

subs

re c t.as

e nd , u.Ltim.a.l:elll ~ his

;:0 IS:::,

E2:hlbit:..:5&

JJ-:3~.

Ch~~rman .New YQrk sta.~es
fa.i~5

of

th!:! Bo.ard

St:~bbin5,

,

I

a m~m,h.i!'r firm 197"g

The. "Dct has neve c been .audited.
I;~

92 at. 12. assccLat.e s

The ben.e.Eit$

Stock

E:xc.n.at'lge. owns
tha.t

56:
(111)

£!It

29.

15C"3

fOt'1!J lC.-~

defend.;ui~

l\.e·nn~allY

and

ewe of

, e.r e di.siiOuss-ed

I:.hat Ross to
di~C'10se

100 sndt"e$
P.o~s e.Lso

c·£. DeCts
;2 r

o:;;;:ommo:-] ar-e a but ah
'Il@!s.ceo::! Dec p-ee

oelo,"". 102. for each !n 19.6:13 -,,

PQS:S a·ss.ed

550

i<So

c".L'!2!d

pec de'eldred
j

a di.1Ji.j~nd M.a,Y'3
I

of
f

15 aaeee.s to holo!!rs and
I

of of Ross

it.s·· pree-:!rt;'!:!~ eecce and C31Dd3:l0q-

5b.aI(~!;j be:nef"it 56 at

obt.llnea

In

t.he-· 196"8
0'1:"

..c,L·i'vlderHj And WOl.:!ld r-E!cel'le

do-l':!!:G. .Qt n fcom

disc-l'OSE!

t.h~

i::omrnon sh are E-xhibLt

~nyable at. 33.

1968

c

on.

tie ~.a.s ·t:eceive-d

t.ho se shaee.s . ~

1:.nat: .jat,!!. te ene e (see

56

Oef~ridan·t ~.4O!'1cw) eece

.1te.ru,ea11y rvez ·lOOO

2-SI". Lerne.r , fot' a ee-::-iod

~.;I.I:ayrapbs .106...,.107 th~

'2550

107.

p r toc

eo

;1.971,

WitS

a

,;;firectcr; or

rs~'s

nee pt:"-ef@t:'"t"lild ehe.xe s at
·O.tlts.ide ene ~lan end

t.tme

of

the

196B ~~"S

-divi.dend
I

..... hLcb we t-e 130 and

nr eclece saor , RO~·!CQf and
Ler·nl!t" s.erlled ChilE! See and a,l~o

an oEfi~et"

of an: rsc
and d ::ect~d in rhe
""

SUbsidiary.
}:SCI

The-['J]a,ft.eor,
Let

ves eed

imatedi~~e-ly.

ISC e s II c.onsultant ate

s act~.yit.!es ion
$
I

131.

oritz·il Which
pa~·21gr.aph
'.;.0

..discus~.E!·d
_0

.Com:'l1lSS

e -to-r.)"nl:l.;'=1':.~

105:, ebcve tha
I:

-arrd ·~xhib·l·" Loarne e
OWr.s

Ie.'
'1 •

I3C'

197 S of

. roen
OCC I.~

of of I I.

t.ha PIa,,"=,,'"""hehave DCT: de.fenda.nt

receiv:ed
aj

t.h·e:-Oenefit-s

ai:

[S:c.ls

for.(jing scss ,

l_O-_R fili1:s,
commOn .!5

cl.i:~~.lcs_~

15.-2
[lCC.

!!ihar€3

.~17!)

genne

Ly , ,';lfrf.!d KQnne~lll'

:~. t.etne'E' and
I

~.f. L.

to:l;~

and·

~o.sl;ie~5e.$

3000

"'~sl:eCl·

iJreEet"r~d

S_M2LC-t!s

Collsctlvs.ly

I defe,nd.ont

Ro~5and

t..e'r-n·'IH' own 73~

te9~lv_e~ he nes

In tlie 196a qividena
received
C::;-

~ and

dce s no

e -disclo·sa
~::,.j~~_!d..

c E t.he out.s t,md i.n13 nee eoma:on shar es and

72" of

th~ <lu t a t.ani::ling

'4il.l

cece.ive

Et.-cr.l thos~

l~l
a,mO'l,l:t"!.t:.

c!
e

~Q!'l.f!!y,
1

bu·t
1:.0 purchase

appro:<Luate.ly
,

':$24~ ,OO!] was
ee a:nd. ::il.a Ln e.a-l

e xpe nded
n

in

J_1l6. Et'S.c;a.l,:t'eat:'5 rn.a.ted,a.l
j

191'5 seatS

!:Jr.rollgh in

19?5

I

includin.g

t:;s

?'t"o:c:y I5C

soiiciting
eO::Mi1.0n

One

y~8.1:"

Lcne

d.e-cora

i{llqlL~.~e.

t.~at"

>H'IY, 19761,

DeC acg!;j,ited

ane ee s

E.,bible

tOl.

112.
to

"i'h o-t ~.315 ,Q'OO' wh.!C~
:;: 1 i:1g~ de i i.''11
~.n.

'Was pa!.d

i n easn .

2:·~h~::d,.t 3'6

~:t.

J~.

't'he

deccee

'!:::Q;t"

C"'.C!ivS· !leet;

s iqliat-¢t;-i~.s

On -funds

I 5C ~a.n.k: 'acc'cun c a ;;;1ai.r-tlt.ained have tlo~o£!!n u.sa""d to t:t"a.ns.E=-o.tl:. !SC atber has of f Lce es

s a id vae

no
r

t

s tlo1 e e
a;

t.n a.t·
I

the at

!?u!:=E:~ta:$i!O!!:-COi':. E
,g_
~'I:'

de .E~ndi:1.nt

It.enne a..Ll~
::'iiHmea.ll:i.

:o:t;' ~!l"qu~d1!!. defendant paid end oth~"t" Keunea

:!S':'::corporate Ll y ·iilin·d his fo:-

amou.nt

al!!

e nee 5B-66.

and

tee

(re·t.~r!~IIl,"'!~!I:~ "0']

-family
defendant,

eo and

f"r!:liii. '~ilquad.e. .and ncv fer known

E';i"bib!.r:

lOCo at

:3-]-5-4.

?@-r~llisi~e!i in

~enn~ijjl1:t
t;

di rec eor e

amcunx s a~~d f.or

;_:;.tJr~.os.e:!ino

prliX:i.se-ly

April
~::.;t"

3'0,

1911

and ,0:;:,£

.june

2-6;

19i'S,

tct"

o!;)tions
9

ar.>i E:u-turC! t.ock

cpt'iens

oy t~@ 113. have

ceea Lss ion.

t:.he !;)uI"chase

too ah.ar-e s 0 E OC"Z ccaraon

ownea by

boE!!~rt paid

t:b.roogh

a

londo

....baeed expanaes as

IS'C

~u::islq La cv , l:3C Eti;::cpo.
on
t.:'~(!~

in::;!:.it.l,l!:.ion C:OffiJ-:IonS ecc'< 'lias: e:r:te;u:r~d ve.s
ij!J.~

cc

which no

he

was

L,dehl:.e:Q. l\n QtJt.l-ar.

;"s
~::J

of

JUf'.~ 2:61 lSl7~

1

I:.hat 5 tc.::k

IS:C:: Europeand cut n r acc ed s
j'

PiiIIYS I:.he K':'lquade
tJ:j,i!!;,L

, !.dds
t,

{l~l ISC.

pen:cell:,
!S('j in

h ad to

vaj ue •

:?tJtc!'!:a.se

DC:;: ecauaon

on

!~~ books

art ease r eco-r ds

due

f~o~

RosSi in
j

necenbe r EJ::hibit

13.71.1 t""he l-a5t '3-9, !tJol,:! op'l::iQn

tI:.!lyrr:fe!1tt·herean ~g.("aem:ent:.s b:etween

La im.bl:r'sl3£ es e coneut
ii

I St: E:U~Of!i! un:d eaeey ecccunc E'"ees" •~ has
t

t.t1.i:! b Ul

i":'I.S [-rom s

':uc

Ln

L'lat;:-"h

1~79 ~

.Eu["op~

in

a u~E!'ll.ir.ig, 1'.0:, bl3en u.sed

~ngin;eo!:1ting ]:O~ and excjue filmil.y 10.5.

anti

Dec: 'and R-osS 'o ....:"k co i ilC-::,

a:l.~ Let"n.er ctih e r fa!,le·d to 100 01" -in ~hail to

'o;'l2!t:"ei'nst:a·nce·s as prcv i ded and

·""he.ra: i;.~·m:I19:J.fjto.C:!<3 ~..,Ias sold E:;~hi:J!..t ;.:;en;,.~all.,Y aae l,lC 'at: a-nd 75.

ad.mi:!'llf.:l;'E:r:!t.ion 11 q ,

rca.

in t.he -:Pl13n.
der:endant$ the

fl.l t.hOtl"gr,

Kilqu.a.de for ISC's

al~C$ t

i 'lel:.r

as

.a

1St has ?l;iet.sch

disclo:!ie,

.s.umrn~"t"rea Lceece 106, lC-K" o~ .10] e t;

de f enden

~eliIileal.ly

end

n Ia

(Exh.Lb.l.ts F"o~m

f.:rileo

ceus e 1SC to disl:lose, through its· lOS above

t e r s jes.cr-i.hed
'. t~h the an.o the

99)"

p'ubli::(i!lngs,

ii1:~J.,u(Hng 15 0001

Lcs 1978

in par<a.q~aphs COI'Wl.\.i~~i>:ln,

in !'~5 Eilings

cesc e tees
space.

x.i Lquede s uppo e t

as '!~~ptQxiift.ate!y e,acil i tie::f and
II

aqua r e feet

.cot!'"':'H,m_cat.!.o-n~. 'to

it~. ar.a.t:"t:!b.o!.:cers

0 Efic:e

Is i toOt'· ACCDfiIDiOOa.!:. tons

Thes"'e filing~

end .5?ac~

IS-C'::Ii c t.her {and

eepce-e ..!:j. t":!l! ;E.acillt:.!e~"

'to" d is-clase
Joe aced
1

that at

the

PERQ\llS;':'I~S UQ.
(I.t: lSC In 197.0., d-ef~n{l"".nt pu.rcbe se .a Kilquade, t;i"tle to ·:;:enr;.oE!!,fi:l1y· sed u api?~oxi;;natE!'l)' -$16Q
j

only

"o.f~lce-·

alJ.p:po~t.

~i":qu:ade e

gao'

a~1i:idef·~nd·,;Int. ~en:il6,ally!s and l:.E!lle·): mach Lne y ' e sec're Ln cary

dQn/:.iO-rt=li:Y

an.oJe d,"",SK

t.ypewe.i.ce

f.!.1nd~ to Land tooit in

larqe
neer

house lJ.nd ~.;_:.prt"c-:<.ima.te-1'1.a5
tl.','31~r'ld {"Rilqr;J:.\de:"'}. O\li~ natae . E!:<.hibits

aC"C"~5

:h'e o..1sem~llt. '.... hi.c·h i.s uae-d D/1 cl~.E~ndeu;:1:.
vhen she ececmpa ..H'~ ' him,

c~ 'farm ~.erJ:le:lllly 111. S543.0(l1) end

Duol i::t, in his

o~tE!:".da.:".;t lOL iJ2 ..

xennee.Lj

::0 H.'ilqt.rade.

S€''a

KiiqL!dC-e
f

~7S.

By Ju~e )"0, of. lSC

19701

Def:€!ndan~ -:<ewne~!ly "l:H!.d used
1;;.'1

.a n addit.iof".~l
diss~.rnir.a:.ed Eaile-o to to: !SC1s· she r ebc Ide r a and ehe and ~r;:cu"t":ate11 c Lsc tcae

£u.nds on

im?l:'ov~r.,enbj on anc Iquee

eae houa-a :In..i 9t'";:)un-t:!s ~il·qua.ce, IS": ex;.erided 'E:<hlb!.r. 1Ql.

tn- ...e5l;.~:l.9 pul;l.l..L.;:ha\t~
, and de dcnoe ne s

.ap~'n:·:'Qxl.!'I~t.t:;ly $97,00'0 Eor 1'370

tot"

ad.eqL!a.t@'ly

D·Ut;i.n.-g t he ge~lad

th reuqf

1973,

an i,l.nrlet.1;!cmiTI@d

~ennf!,",l.ly ~nd r r Ie t s oh beve ~a.iled

to cauae

rsc

~a .adequ~c:e.ly

and

~~Ciu:ra.t,e.!.1. h ave

d i se Ics e p:b1:i:cu:ed a~dil:.ic:"rtal

i:

cne the

rnatt.l!-rs fact. that.

-concernin.g d@fe~.da.il~ l~C.

Kl1qU.a.de~«e!'lnea.lll

·-dest:-ri.bed

tcrnad of aS~B

cve e to ISCis vas-e
j

bank l·j!,nders. Th~ s eoek

and cett.a':'r. assets Lender-s Leee ive p~t:"agraph:s

abovt!.anCl

held. who

as" ~ollater-a1 the

by too
col!a.tl9r~J also

bank when
~:5I

·"",a,s r-ece Iv Lnq

~eneflts

~rom

9-100 cash

above
dl"H:3

~.ele-asea

!::.hB.}' cece i~fot"r:1e"d

s

th8

noue . 'tt-e is

C~orn:rn.is:SLon srt..af"f se!l.

t.!"'.a.t !SC

115.
and

crt June 218, I '3179,t.,be
t!";e

COIl'..rn.l$S Lon
was in t.he

vae
a Ld

i:i'lifct":'i!i~d
s

pt"'e--.sent:.l:r
r

~t·templ:...i.r:t"g to

anc i;:!":_e eube id r

i-a,r¥.

t:onfir'med

f

ac

t,

~hat

ESC

e. ef

mee.s.t

ve

shredding June the 14,

c·f cccpce ac e cccu .. aen es whi-ch had begun on or 1979. ?t"ict" of t.o Ju,l't@ 14, 1979, rsc vas and COUrt eve re of

abou t; 118. -0£ the I
t

~H::i:;O POR IMMED!';T"t lNJU:4.CTIV5 R!.:.r:;.'fl AND A~POl.~~T~E:Nl'OF AN ';G.E;lIT C? T1H; CCU:RT ;"5 PMYE:O FOR BY '!'H~ C01'!:HSSION

appear-s 'to t.he C:er.w.1.-s-sioll that
is
50

th~ Is

w!'ong.Eul

ccneuee

ir.':IM'_,i!=.en,,~y

't,h~ ccasu as Ion ' s action agQot of: the

t ae C:omm-:'ssior'!.! S
i!Ot" 1-5C
(-e-!..dE!~'t¥

defendants be tak;s'n

pe rvea

Ive that.

it

L'np-e~a.!:.~ve tr,-at
f":Jll i t i cn ex tene pf t:~eir tv

lntent.

to' s ee c a. re-=:ei'Jt:!t' or

ec e i.oe unl$tw.ful

jm."r.:l!~:dlateol1 to" detscine and Ec p!:'ev,;;nt
t he
I

t.r.~
d Lapcs

who would

be '~'IIlt;:lQW'IH'ed,am,ong otlie~
r;'-!!f!:!!cred to

!:.b:..ing!:'1 to the

::h~
fun.ds

,!1;t=!"J"iti~s
_P.G:S: I:.

o.E, and

fo:;":e.i=]n ·t.ransactions by the of ao-tendenee and
Ct"
I

ebove ,

us e of

rs;:

r'~v Lew t h e an agen t of pcwe r a of rbe ~ll !SC' us-€!

d Lapos i I;.ion of

rIse

S

asse es .

:;'ot' t.h.i::; eeason ,
t ::;UI:

ne re

Ln ·.an.d 'Other

of"fiC'c~s

and d Lr-eo

t o.r s
is

·t.he Courl:.
~.I-.. .

:!ihoul-.d be dl?E='oi~'"!iol:-~d t:h ins w,i e .:~s.e t.s the by

d:o.n.s

and

ISC,

e.he s ~,l~ o t- othea"
,a,-OOl.lt

d is-poa i..1: Ion c E rSC"I:$' ease
dn .rune 29
r

cc
5
0

peeser-ve

0:: ISC, to eevt ew ~.ll d Lspca h.i:O,n:s
o E, and
ta

s Lnce

em

J .!Ii no a r;y 1_ 191:8. E r equeaced

.l;179·

f

che
o-~

a_si!;i,E;!.t;s ur Lnq d f lSC
I

E?er:!.od compia,L;:u~d the il'ld! in

to and

r-ev I.;w c ebe rs Eot'
1

COml'O ion. s stat iss ,all as those

the- Immed idl:.~

pr

cduc c ioo., .as '.Jt!lJ.

S ~und.s.

v iduo!~

de.E·~ndan

cocuaenes
the logs ercee of e Le.Ls

vh Lch

ESC ar.t.:I,.(! poated

de~tt'"0Y~r.l9

as. moe e

Eu Lj y ;h·ay-ed in·ju"l1ct.i.::JOl

for

the

CC"mmiss-io-r.'_s he re Ln,

ii:io::iorl.

snr@cd'E!d dccuraenns • ee the exc ent

tSC .:Ig~eed to- turn h~d ClJ5t.O,,-CY or

over conc rc.L

prel"imlna.t-y

:a,nci t:..h~ Co~_?lalnt:

it; st-_il

thet"-Itof. 117. 197'9-. -rbe Comm Ls s Lon ISC -sold r he is furthQ1:" .assets The adv i aed thal: on Or' a bcu
t;

/s/ June to 18
r SUOS'C'!:'

At"thtJr

H.

S.::hwart2:stein

p.::inci_p,a!

of

its

BS,~B S'ub£idiC!t'y Lasuad a c e Lee.se Ln C'"lsh,

j be to- ~l2fo["e

d

!::

S'i<,I"QI:"!"!

me

t.his

enc che r p'ublh: thaI: and it h~d

ccirF(:I.. a.ti6~.

por.chas:er"about:. $-~G

st,ning
n.otes ta.l:.ives

9th d~y 6£ ~ulr, 19'9,
NO.;:;al:'''I Puo L i.c

p.IJ!:"~ha.:;;e-C~:S[iiB for

m.i Ll ion

aaV.9_i"\ces.·

'Th a conen Las Len h as been

.~<!vi eed

o.y. r epr'eaen

i·s

composed

of

the

E~·11cl' ... 'ir..'g:

S750,OOO

in. c aso

t cque

L to

the..

ne e

$9

mil:iot"l

;>'!"y~bL~

OIJ'!!'"!:'

10

,eat's,

t s.sued

by

gS~!l,
:!I

tnc , (now a
qene c a I ::lcligation

5ubsliJlary

':I:

~h~ pur-ch eae r ) but
j

wh.Lcb i"s no!:

Qf the p.urchase:r

.'ina an i:1fus1on
i n cas!'! ~nd

into

~rSaB, r nc , ~f
no ee

$"5 1J'r il! ion
.~liie:l;!;I

'C-i;II5.h. 'Fh~ $75"0;000

the

$''9 ;ni.lll.~-n

!.mstiediar.'ely

261 TABLE lJNiTEO STATES DISTRiCT FOR THE COURT OF COi'lTENTS

DISTRICT

OF CO~UMBIA
i

SECURITIES
5'00 NQri:h

Capi till

~~D EXCHANGE OC 20549,

S~ree.~

CO~~ISSION,

1.

P-relimillary

Staterttent and

'Washington,

II. Plaintiff, CIVIL ACTION NO. 79!II.

Need fp~ Irr.med iate Relief ~f a S;>ecia1 Agent of the
The Defend",n

A,p,p';>'int",e'nt
1 3 Its

Court

t I.SC • .

V.

IV.
&

INTE:RNATIONAL
,J.

S'lSTE:11S

a SMAil :.1.
ALBE~T

CONTROLS CORPORATION, THOMAS KENNEALLY"
C'RH:TSCR , fiOFKER,

rsc Failed to Adequately and Timely Disclose III ic i t and Q'~~st i.onab Le ~ore ig!! P",yme'nt" in Report,,, Filed with the COlUrnission ..••••••
"Un,billed Receivables' ana Illicit and Questionable Foreign paymen:s
a.

v.
Defendants.

;<AyMOND G.

H. ANGULO, HARLAN M. STEIN,

and

3

I>:an ••.
Algeria Saudi ..•

10
13

c,
c,

Arab La

17

SECURITIES AND EXCHA~GE: COMMISSI(iN' 5 STATEMENT O~ POINTS .II.N'O AtiTHOiUl'IE:S IN SUPPORT Of' ITS
MOTION FOR 1>. PRE;,LU!INARY INJmiC'rION AND OTHi,':R

18
V!.
The :Jef'e:-red e. Co~pensation Corporation
DCC.

..

EQUITABLE

RELIEF

16

!(enneally's

O" .. Li.nq s with

20
to "'r~eze

b. Vl.!..
'1111.

'The Need Eo,r prel iminary tile Assets of DCC.

Relief

21

Kilguade Argument point I. False and Mi-sLead ing St'ate!Dents and omIs s ions 'of )laterial Facts are prima F5'cie Violations of the ~"deral securities Laws Wat't".a~ting preli;nina.'ry Hell.af ..
!.SG1,s ?sriodic ReoQ-:,:ts Violate the Reporting Pray isi~:1s o f th.e_ Exch~Htge Act - Section l3'( a) ,oi the Exchange ,\ct a,.,d Rules 13",-1, 13a-11 and

21
22

r5e's

Ma.rvin 'G. Pickho-li ~i11iam G. Ku~nhle Arthur M. S.chwartzstsin sammy S. Knight Secuzei ties and E~change Cornmi.ssi.on 500 No~th capitol Street Washington, D.C. 205.49 (202) 755-1674
Attqrneys for Plaintiff·

22

Poin~

II.

IJ~-1]

and Rule 12b-20

th.reunder

~olnt III. rEe's Faige and

t'redet"i~k of this

rHo smoten m~mo~and~m.

,

S-t.aff.

Ac coun r an e ,

as s Ls t.e.d

i:"l -:ho=

Misleading Stdt~rn~ntS Violat~ the Anti-Fraud Pl:"ovisions - Section 17(a) of SecClxities Act and Section 10(b) o f t h e E'~ch"r.ge ACt and aule 11)0-3 t1H~ unde r ~ re ...,', ~

t""

;>Le?d'["a,t,:~o:l

~Qi!1 t !V"

rsc

t

5

.?~ls~

:or.d ~l isleading
Viol,at's ~he ?!:'o)C'!J

St'aternB:f'.t:s

prcvision5 of t~e Exchac~e Act - section 14{a) bf the
Exchange ACt. and ~1J!;:'s t.he z-eund e r-

JO

269 268 Point ccnc l us Len Statutory V. The Cour~ Should SE'ecial Agent • Appoint a 34 36 IIpp. Cas.es Ba·x.ter (1'976) "Beman (N.D. TABLE OF AOTHORITIES

v . !,-,flmig iano,

IlL )C.

425 u. S. 308 ••.••...••.••••..••••••...•••••....••••••.••... Co., 454 su",P., 1.:110 ..

Appendix

v . 'Cerb"" ?<,oducts Mich. 1978)

7,27,28

S"curit i"s .. nd I:xchange Commission ,j.• Aminax Resour'c"" Cor.,cratio,n, lvi7a Transfer S·ir.der) Cel;! fad.Sac.L.!<ep. U96,352 (D.D.C. 1978) ••.•..••••••••

35 ..

* secue i ti.e
427 F.2d

5

and Exch'ang e Commiss io n v , Bowler, 190 (4th Cir. 197(}) "

35

• Securi ties and Exchange COli'ullission v , E'als taft Brewing Corp., [1978 Transfer Binder] Fed. Sec.L.!l.er;>. ~!f6,5a3 (.D.D.C. 1973), acpeal .~i!l9.

cca

9,26,32

"'securities and Brewing Corp., F"d.Sec.L..Re!?

Exchange Commission v.Palst,,!: [lS77-1978 Transfer Binder) "'6,111 (b.D.C. 1977) F. Su.pp.

cca
.

23 2'l, 23,25 34

*Securi~les anq 8xcnijnge
Refr"ctori~s cs., 400 *Sec:u.rities and E:xchan'3e Mining Co., 327 F.Supp. Securi
t

Commission
1248

v. General
(D. D. C. Golconda 1975)

Commission v. 257 (S.D.N.Y.

19711

•...•......

Amer.
196'S), *Secur.ities Schlitz (1.978)

Le s and Exch-artg:e COfi"'.mission v , Grea·t Ind., t ne . , 407 P. 2d .453 (2d CLL ~. denied, JS9 U.S. 920 (1969) and exchange Commission 'I. Br,,~ing Co., 452 F.Supp. 324 .••••••.••••••••••••.•••••••••••••••••••.••••••• E:xchange Commission (S.D.N.'!. 1976) Jos. (E.D.

..

25
9.22',25

wiSc. Inc., ..

31

25,28,29

*Securitie's and 42'5 0'.8upp.310 Securities Koenig,

v , Kalvex,

9,22.25 3'2,33

and Exchange ~ommission v. 469 1.2d 198 (2dCir. 1972) •••..•••.•......•••

·Securities and Exchange Commission v. Management Dynamics Inc., 515 r.2d Sill (2d cre , lS75) • Secur it ies and E:x·chan·ge Commiss ion v , .'Ianor Nursing Cel'!ters, Inc., 456 F.2d 1972 (2d c ir . 1972) .•.......•...•••.••. "'.•....••••...•...•..••••••••• 5ec\Jrities ICUrl'""nt] (N.D.N.Y. and Exchan',le Commission v , !'aro, CCA Fed. Sec. L. Re.,. ~96 ,815 1979) Commission v , ?arl<l",ne (id eic. 1977) ...•••.••..••.•.. Nort.hwaYt
t nc

.

23,34

23

..

23
2S

secur i e Las and E:;<change Hosi",l'Y, 558 P.2d 1683 *TSC rndustriss,. 426 U.S. 438 Inc. (1976) "9

,,

II -i-

271 2.70

U~HTED

united

State~

4574
Statutes

(O.S.
and

v. Na~talin, May 21, 19'79)

~7

U.S.L.W.

.

29

STATES DrST1UCT COURT ~·OR THE DISTRICT Of C-aLUM.SIA

~ule5: procedure: 1

SE:CURI'l'I£S AND EXC!!ANG€

COMMISSION,

?laintiif,

Federal aule
Securities

Rules of Civil

v.
I:lTERNATIQNAL SYSTE.'1S .. CONTROLS

63 •••••••••••••••••.••..•.•••.••••.•••..••••••.
Act

Civil
NO'.

79-

Action

of 1!f33,
15
r

1S o.S.C. 77q(a)

77a at.

~.: ..

.CORPORATION

at

al.,

·Section Section Securities ·Section • Section
·Section *section

Il(a),

U.S.C.

20(b)

15 U.S.C.

7,t(b)

.•..........•..••.•.. 7·e,,~. ~.:

24, oaas Im. 1,23

:Jefendants.

t::,xchan'3" Act: of
12, 15 13(a), 14(a), U(d),

1934,

15 u.s.c.

·section lOIbl,

15 U.s.C. 7Bj(b) ••..•.•...••.••....•. U.S.C. 781 . 15 u.S.C.-78m(a) •..•....•.••••..•.•.• 15 U.S.C. 7Sn(a) ••••••••.....••.••••• 15 U.S.C. 7SOl(d) ..

;4'~~
24,25
24,]0

SECURITIE:S AND EXCHANGE CtiHM.l"SSION'S STAT£MENT OF !'OINTS AIm AGT!lORIT'!:£S IN Sm'PORT OF ITS MO'I'rON rc!l. A P.RELIM!NAR:l

INJUNCTION I.

AND OTRER

2QUrTABLE

RELIEF

PRELIMINARY
20(b) [15 of

ST.',TEMENT
t.he securities §77t(b) ·.'o.ct of 193"3, 21(d.) as

1,23

p·u~s·uant amended

to

Secction Act")

I·Securiti~s

U.S.C.

1,

Section

of

240.10b-5 240.120-20 ...•••.•...•••••• ~Rule 13,,-!, 17 C.F.R. 240.136-1 ...•.••.••.•..•••.. *aula 13';;'-11, 17 C.LR. 24.0.13a-ll ~Ru.l" 13a-13, 17 C. F. R. 2,10·.13·a-13 ••••...•......••• ·Schedu:le 14A', 17 C.F.R. ·2,4·0.14a ·Rule 14a-1, 17 C.P.R. 240.14a-l0l ....••••..••...•• ·Rule 14a-2, 17 C.".R. 240.14-a-3 *Rule l~a-9, 17 C.F.R. 240.14,,-9 •••••••.•..••••.•••

*Rule *Rule

ice-s , 120-20,

17 C.f.R. 17 C.F.R.

.

24,26 25
4,24 4..,24

the
(15

secur i c Ies

E:xch""g-e Act l, and Rule
and

of

lin.,

as amended

("E:<c.hange Act") Rules of Civil
;>rocedure,

a.s.c

§78u(d)

65· of

1:.1>aFederal Comrois-s Lon and
&

. .. ..

4,24 31 -4
31 31

PLa Ln t_ iff this

Secur i,t ies

Exch,ange

(" Cornm s io 0 I;} Ls atoher

n.as

mcved t

-ceur r for
Defendant

a P~·eliminary Inte·rnationa:l submits this Affidavit

Injanctio-n Syst.ems

Equita.ble Relie
Cor:-pora·t.ion and Au t.ho r Le Le s ("AfE.") and

agains.t

Controls points H.

( " I8C"') ..

The 'Co..,mission MISCELLANEOUS Re.port
secur.i ties' and E~ehange on Questionable and 111 .. <; .. 1 Corporate' and ?rac~ices to the Senate Sanking, and Urban Affairs Committ'ee play 12, Rep. 11-13. and the support

Statement

of

accolilEianying

at

Art.hut

Schwartzstein Inj unction

of th"

Cmnmiss L·on [>"y,""nts ~ousing 1976) ••.•....

in

-of its
Agent

Mo.tion

fOr a pr.alimi,n.ary Court.

AppO intment

26
24 .

of a Special
I I.

of the

*ii.a.
1It

sc.

1383, 73rd Cong., Sess. (1934) ....•••••...•.•••••.•••••..•.•....•

za.

NEED

FOR HtMED.IATE" RELIE'P AND AP?QINT~tENT OF A SPECIAL AGENT OF THE COURT seeks of th.e "reI

S.Rep.No.
at 68,

1455,

7]rd. Cong.,

2d Sess. 24 27
of to

T~ (.HI34l

'l'he

Cgrruniss violaUQns

ion

i.;ninary

~e'lie

f aqa Lns t ,ongoing and and

and

S.Rer;J.No. 114, 95th Cong., 1st (1977) •••..•••.......••••••.•••.......•••••.•••...

Sess.

a.1! 4

!;urth'er
t.he f.ail~ tr-ue.

anti-Ecaud, l).Vls.

rapol.'tin<j, failed,

!;'rQxy p rov La i ons
is cont.inuin"9 a)

faceral
to

securities nr.:fke Or cause con.dit·ion;

lEe 'has

t.o be: mdde adaqua t e d Lsc.Lcau r e of: b) the ext:;enr.:
to

*Cas,es o.r .au cho r-i. ties

chie.e ly- ,~.el·i~d

upon ·.er~ m.a-rk:-ed ~y a$t~:, isks ~

.its

financialarid ot:h'~[' c)

which to

!-SC ·~.~s t"elieo cc e.a t n business Eor,.ign

OrL illicit. and revenues;

que s t Louab Le fore_ign r i sks its illicit and

paylt'il~Hlts

the

questionable

272 paymen.ts (ii) (iii) to ""esent its ability ability
~)

273 to ccn t i nue doi nq business pel:"formed "u"bUied abzoad , and F'Jrthermore, existence 14, 1979, such ... Special corporate its Ag",nt is ne ce e se ry Beginning documents per th'" day. ;;0 insu.-e the

(i)

to
1:0

I as secure

ab,ility payment

fOl:" WOl:")< already of so caUad
1'1

of rsc'!;

records_ corporate document.s 1'979, about '..hen

On Or about at The a rate a.ctivl·ty le"c<:1ed o'f

June
apprml~ continue.d of

to' its

zo colle.ct

$ 31 million

tsc
15 bags

shreo'dec of

cec:ei vab!asn;
c e i v"b·les" Ie)

the que s t Loneb.l e n·a:t.ureof ·t.hose
its 'in ab i 1 i:y to comply ;; I tn the ties

!.lnbille'Q ['eto",
0E

ima·tely until the to

·shre.dded 28,

"eques for

certain record and

on or shredding

abcu t .rune and

ccmm rs s ion of

foreig n government-owned
suppor<: for certain costs; interest

con tr ac t i nq autt.ori its ttle that claims extent of g) for of

aocounting

p~otested

the

exi~tence

this

activity

oE
f) and

""nbi11ed defendant

receivables" J! Thomas

rsc

~~rough

its counsel. in
the of pas·t major tors year

"escalation" personal

Kenneally's ISC's whiCh

y

Furthern,ore, program to

ISC

has

been in an

engaged appa~ent .

in a
effert

two o,f his· lobe r.ature fllrni·sh 'ami his to its

a ssoc La t e-s in and and ex!:ent rnaintai:l hI and

pu rpoz t ed IS1:

af' disposing

subsicia·rie.s and out stave in off

. mploy .. e Ince·ntive e .fundS have 'been

program; used to for

co.

s'atLs fy, its 6"rogram is

bac.<: oredi being_ of

bankrupt·cy

!?u-r·~hase, Kenneally by and

a summer lobe US'" and directorq;

Th is

carded the

c i rcuraa tance's

;"he ~e the worse

true has

·res id ..ni::e in di5~osition and i) other.

Ireland of

fam.ily; offtc~rs

financial been

cond I tion and interests true

company

appears

to: be fa~
be and the r e I ied its

tban

ISC's_assets matters. also

.represented to the the person to

by persons of fin'!!noial be to

who cannot

On in du .. shareholders. an inand to .be

c.:at.ecial

':·"gard the of and appointment, Agent "ctlv pursuant of the of to Court the to, In

a pub.l i c company condition appol~ted th" approp.r and to of

The· Commission equity in powers of

seeks

vi ..w of

company,

thi'sCotirt, the past

a Special p"",,s,.. nt
I

dependent ~epor t

should

Ove~s~e

thes .. actions of ·the ac t ion real

"fEett,

men I tor

i 1: ies

ISC """dente cf·

tb e Co err t as safeguard the

i "'1::e cour-s.e pr<J!='erty of

111:.e i.n order
to the of "evi .. ,", and true ISC's

to pce's-erve
Lnqu Lr e into'

tqe

as ae t'a

~ooks

ana t"ecoras
of ISC's

ISC,
to determine

t"'lten -to owners of

interests

·the disposition of

assets, involving

rsc -

its stockholders. III. THE DEFENDANTISC
a Delawllre cOrporatio.n with it;; pr'incipal has fields be.n been of engaged .net~y,

nar.u r e and fllnds

ci.!::cumstances

transactions

expenditures Defendant and/o'r s .. lf-d .....l bg plaoe of busine,ss in ISC,

Or asa e t s tor
and i.ty to bo

the

benefit to a result

o_f 1105 oontrol recovel: funds or

persons, assets or

is in

ofJ:i'cers, enforce

direotors any liabil and

employees,

Houston, services

Texas. and

ISC ?urpo'rtedly equipment its activities Countries, in the

.rsc as
rse's

of an·y i!O,,~oper ·... . tth
the

primarily agriclllture, through in

providing and forestry.

tr,.msact:ions

oversee

Hlings

commission

to

Much of in

hav'e

conduc t ed

as-sut"e ccrnp l Lance wi~h

the .federal

5ecurities

.laws.

subs Ld La r.i e s o"erating ".rid developi~g theCo!r.lllission recen

foreign nations.

particulady is the Pac i.E.i"

Kenn<!ally, wbo owns or con t ro l s 42% oE rsc: s common stock, · ..as, during the per i.od relevant: to the complaint until early lS79, th .. Chai,rman of rse's Bo:"rd of Directot:s and its Chief l'lxecuti"e Ot'f Lcer . After being made aware. t~aJ: t-~e Comilliss ion intellded' to fLle an ac t i on against h.im, Kenneally <'esigned thEl.se nos i t i cn s bu t rema ins ·an IS'C d i'rscto't" ~ The r ema i n i nq indi.vid~al Defendants IjJet'~ at ~!l times r e l ev ant eo the c ornp la Ln c office:-s OE ISC. . Althoug~ the ::,;::·w.rn!5~ion :",3 :-'lOt c:.!r.t'EHltli :5ee:kin'0 pr-eliminar-y. a~ains t t·he ind i vi dua I De fe~dan"s, the Comm;'S5 ion respect:fully CeSe.-ves its right to se",k. re1i e [ ag"inst any or all of the individual Defendants should i~ a~gea~ necessary. re.!. ~.e;

underdeveloped with Act

lSI:' s common stock to on Section 12 (hi of and

registered Exchange stock

pursuant try
r

arrd , unt il !n

traded

tll-e Am"rican ~o S .. c t.Lorr
:$ -, spended u

,exchanges. Act [15

November 781J,

1978, the

pursuant: Commission

12 .o f t.he

Exoha.nge St.ock its

U.S.C.

rsc's.
trad.,ing of

f·ro:n t::-r~din9 for' did (lot resume

a t~n day on the

r;erio(I.

Tne't"eafter, Pacific

stock.

Ame·.r.ican or

eJCchqnges.

t74 Trading
the

21,
~n the
United

in

1SC cornmon stock

i5 conducted

States

in

3ft",r iinnual

ttl'" Commissi.rz>n ini.tiateo:! Re;>.qrt On Po"",
IO--K,. that.

an investigation, began
repOl:ting inn

ISC in its to
the

1976,

Co-inmission and

eve r- the-co\,mte" 1SC

mat);e e ,

is

re-q\;lired
its

to

and has

f'iled

Annu:",l Rep<it:ts ending
co Reports Jlme

'lith 30. ~

the Co",rni5s ron oen,eta,~ly
C_",r.1llis-sioh See

the

inv-es ti.n" p''-'blic funds,

it .. as conduct
.'-olitical s, 1St

~ ·~.n... w..

In t e r 1 lnllest'lg.ation -. , .na
and the Imp rope .. or i:lllestig"t
ti;

0"

Fot:!!l 10-[1;'. for

fisca-l

'1""".5

(" ,Y") is

i.n-to s Lush

ille<)'al

con cr rbu t Ions reported th" t

1.7 C. F .,R.~ S 240.13a-l. Quarte'rly generally

ISC also

"eql.find
Current

E ile
on

,.-i:Oh the Penn

q_uestionable

10l:ei9n

payment tnl:o"gh

ion

Reports
17e.

on

Form IIJ-Q' and

B-:":'

"'as be ing ecnduc ted <Ii ch th .. <\ss i s t ence i_nd'eperideh·t au.dittics.
fUl:th.e·r

a "'_spec ia 1 commit tee· 0 f .0"
cu.ts rde

ide d i"ecto.rs"

~. R.

24D .13,,-11

and

13a-13.

I n addition,

1SC has proxy

o.E s!?"ciaL

couns e I and the company's 1976.1'00= 1 0'"'K; at9. to re5ult
·be

filed
solie

>lith

the commiES ion and distdbut,ed

to i til
C.

shareholder~

L:1.:.
the a nd the

tiff.

~)I;. 109,

ISC

i ting'!lated:"ls. In i·t s Annual

s"e
Repo,rt.s,

senet:ally

17

e, R.
-

-S 2"40. 14a,-101.

reported

that

'in""sti9atian d H:rt·lo3·ur"~'

was "l.!)tend"ll
sf rna tte,rs

1SC c r ig i nally
'thrqush F':! 1976

repar

ted

g I:owth

in

ear" i;'\9
en

in
5

a Wirl I:.t,e-n r:~'port

wh Lch mi.ght

and ,avenues
revenue

EOI: F'l 1973

f~om ~ 2.9

m i.I I i.cn

determl[1e.d

to .be m<tt.erial

t,o ·.til1;l· Company' 5 business."
t

!Q_;_ Th.,.19.-76 ?'a:yme t s n

S

0.£

,0118 m i.ll ion
of

'in

~y 1973
for:

to- «al::1 iog S of

~3 •.4 m i 11 ion

Form 10- K ~~e?o ~ted
to- f'ore·lgn

'1e,n.. rally

h~ t "PPI:O)l; lma t" ly in connect Id .;'s ion

$.4 0- 0. , 0. oo of

on

r,,"enlles

~J-J9'
began

mill'ion

FY 197'6.

!I<Jwevel:, in

its

f rscal

go"e~nment been A'-ff'id..vi

·officials unccve red,
t

wi til con t r ac t.s "'<'lli,l.e·(I
t

year.
$9-.9

1977,
",iUi'on

rsc
on

to tepor:t
o.f

5Clbs_tantial
ion.

and i-ncreasing
In FY 1978

losses:

a.t $'S milUonhad Schwattzstein in

demcns t re

ed by the

revenue!!

s,z8.3 mill sot

'lSC r .. po"ted its

a-nd .i t.s ,,')I;ll'ib-itil, of dollars
of mill and
0

t.he !,ayment:o rna!:!e '~,;re contl:-act,s
'secllred

lo".s e s of· $ 43 million
197

.on rev"nue .J:epot:ted

.~ Ii mil L·Lon. ,Mor.eover, 27 s tod<.holde'c s ' eqlli:y

t-h'e tens· 0 f mill ions
the hundr sds

the

·were

a

,bt:l!l 10-:;( aiso

.a d .. t'ic i tin

va l.ue d L, "hiGh ISC

lo'n·s

f dollars

.• The ae t ua I pa:ments, ',;"I:e aware

c f ~S "J mill Lcn , Fur'ther:nore, w-et-eunable
of

1SC'

5

aud i tor3,

./'I-,I:thU.r ,,",nde s .. n • Co., r

a nd th.e

Lnd Iv Ldua I

Defendants

he.re:,in

of,

'.-ere

to,

and

did

not"

e'xpres-s 'an op Ln.Lon on th"
co!)~"ined in the

fa i I:ne$·.s
10-1':· I','ff.

far

lar·ge::-Cl.nd

fa~

Illbr~ signi-fic.ant

to ·tlie amount

of

business

ISC

!3C' s firi.an.cial

s,·tatement·s.

197'3 ,"0=

I:.. ce.i 'Jed· than !ly the

WaS d·150:105.,d' i.:n i to'-sf 11·1ngs.
1977, -when lSC tiled re'"ul and' its 1\177 Porm 10.-1<:, it

faUof

1>)1;.

S6 at
IV.

<'-2.
ISC FAILED ITS ILLICtT IN REPORTS at least TO MlEQUATEL'f 1I.ND THIBL'f DI-SCLOSE .Ai'lO (:)m::STtONABLE FOREIGN ?AY:1ENTS nLtp IHTHTElE CO~tM!SSION~/ 1970, during

had' _,e t, tn mak ema t e r i a 1 d 1 S C 1csures v . . .~ inv~s.t.)g~tion; .h,ow~_vet'·, t,ne
t

ti ng £<,om its th.e· public

in to, rna 1
'~et""e d~.sure.d. "n·t ic-i pa.ted 31,1977 ,"on.

COrrl;l't1:issiC!Hl

Since
eng, aged ques

a pBl:iod

of

~ime

in

~hich

ISC was
~ rid

the t-- • t-be t niles t isa that

ion is in its
in the

f ina 1 S t "9.12 ,a,nd .i t Ls S

in ;oak Ln'g t.ans of
i.e pa1:men.t:s .ISC made

mill ions

0 f ·do'lla r s 'of i 11 Lc i t
ion
00

it '"ill be completed
at 8-9.

near

futne."

AU.

Ex.

t icnab

a:f f ec't i ng hund r-el! d 5: c f mill no d isclos!lre 'Of a'ny of these

f do 11 a 'C$

of

lQ-K

c6n!:.r-~cts,

?aym"n.t~"

only March,

In Apdl

i978,

ISC Ened

a "Cu"re'nt
Ex.

R,,[:>o~t·,"on ~orm 8_K tOt The
r SS,
i~Clt"oh

1978

r "'Mal:cn a-It'").

Me.

!08.

8-K sta.-ted
&: E·,rIgga·s

that
("N_p t son
I

pot" ourposes o f ~rd;3 .~otior., the: (QlfjJlli,ssio,," I~: d lSCU,S~ io:n will foc.iJ~ on ,th~ Epi s·e and :nislead i~g na tu,~~ 9 i: r.sc· s Cur-::-en~ R:~ort. ::ned on ~o-~m B~~t~ ",_pdl 1916, I t.s 1978 Annual Repott On ~":" !.O~K ~ile·c· 1.:1. ;:eee!ilbe!:"' 197"3 and ISC 1:$ ··mo.-s.t. (ecen·t_ Ft"o·I(Y "sol !_·C-1ta t. ion rn.::rt"e-t: a.i s '. As . al1-eged i in i-ra c:omp·l.Q in t ~ th e C6i:1m iss ion .ec n te.n,d~· and w"ilJ_ ?l"ove at a trl~~ .on i,t"s clai;1l fen" ?cL"m..aIi.eTI~' .Ln.j u nc t i ve relie.f t.-!\at. pr~.viau,s rlnn~~ll QU~I::'t.e.t:'ly. ~nd. ~u:t"t"e~t: R.e'O~ts. .. EUed by I_SC dUClrlg toe ",,::-lod 19/0 t o da79, :ont_'~ned

!S~.I s· s pe c i a I ££$'. ~, had

cu ts i.d e ccuns e L,
.:t

Wa t son ,

., L·tar~h-a.·ll.

su.b:~i t:ted

:~-\2'?o[".t to

r-SC·'.'s :sp~c i a L .. omm; t t ae, c

rsc
ria.cu.ce I>Ora it

a~

.is

irlc.omp·lete.

oJ

Howev-e:" ~ .th.e :""·at""cn 8-K

d

La

~epo~

t thCj t ·t.~e

false and misl~ad.i~g L~tcrmat~on and omitted ~aterLal !act~.

'1]7

Repor'!:;" refer'ted

to

$1,6

mill'ion

In

corrunitittents,

of '~hich .~5",B

'ilIill

ion

~_ ISC wa.s ",,1 e to ob·ta-i n and th e iden".! t'J 0 f th e .cot'",orate

'off"icers

SHi
'00

milliO'l

in

c6:ruuitments,

ot .",bicb

"ho ",ere
$·11.4

invol<.'e<;l .and "ho.s"

c,eCiibil tae. ts.
(W.

i t'j WaS· <;:"a11 emg "d cons tl-t.u t!!s· e, se e ~ _" 1<918)•.
On IS C'·s bus iness v, GS.rbe<ti. Prod.uct.s

million

had been

pa Ld
"I

Eailu're 454

to d La c Lo.s e material
E'. $,llPP. IHO, 1:'0 the the 1323

agent.s. whicll. possibly .';e""on5" p"id
i

ben'eEi t ted

gove·rmnent

off ioi"als

or "government

Co.,

D•. Mi.ch.

con.nected had been OJ; other

~2.1

m11:1.1o,nin cOmmi·tme'll;s, of '~hic,h .·2.·2 million and involved and
$.6 que'stions of conflicts 'qllestionable ,,·f

Wi ttl t"eg ard

e Hat: t 0 f th.e· paymen·ts 8-1 concluded: f 0: any

to ageI)ts

0< ·l.E'iteres t p;o,Y'""nts. these

improprieties;

million

0 f oell"r' ger,·eric

Y

and operations,

March

The March a-K made o'illy a 'vaglle,
',>eIY",er..t s ,

d isclo"ur.e

ac.tions TO da·te, 0 related

no ad ve r ae e- f' • ..Le:c,,-

of . these

'trans

....

E.g .:

L In 1972 and 1913., a total of $3"20,410 waspaio by check .to.a. cot:'pc):'at~ agent~ a company incQrt?¢:ra,te:d unda r the l.aws. o'f a for~ ign·cOl1n.t rY.t b al"f t·he ~ tack 0 t: 'I~h. ch was. i owned by an official of ·t.hat tOl:;eig'n country. some of the 'paYJlle'nts were mad.. Imde.r a cont·ract for 5"r<.'i",,,"$ • but th ... · Draft Re'Eloct ooflclud-as that l't ap'pear's that no serv}ces were ?erfo·rmed by t~.e agent. on the p,roj'ect .Lnvo Lvad , Seve;ral 'of the checks issued for paymentl5 to the:"gent company' were sen!: to the ,offi.c·ld and two of th.e checks were "r.,:Jorsed by~im.
AfE. t.he
E;X.

~~e t~~ture e:f.ect, 1~ "ny,. of. ~:le, t""''':,sac·clo.ns, payments, ancl res ~rict~q c.ornp-,,~y1?01l~l"S loS s\Jt)ject to many flPI i ti~al and eccnceu c facto, S wh i.cn a 1:"12 not 5 uscap t,ible 'to d e t"e'~"'inati.6n •
~~~~~~II~~~~~

7~i~::~m:~~s~o~:~~il1:;t'~h

TO date,.
as

ISC has not publiclY:
by tile

~ev-is.: ad

c'his

se a oament' .

.

purthe"('rn.ote~

o'emoris tra ted

Sctl'wartzs te i,n Aff 'd.av' • t , the •
5 ig-n

government·s if Lean t. ins t:ant:es . l'<lgedan
officials

of

!ran,

Alg'e,r ia .. nd Saud i Ar<l.b :",.=re .n·ot 1 n ia. "" .. of the

t,imely aware

payment s oomp.1ai'ned of h e r .. ill and

lOB:.

f\,rrc)1

a-~

were ee aur ed oral 1.". arid by ":.~. d av i, t; that ff" .: . "
and

t.bir·d pe csons , intermediaries

·at 8. The ,'larch
that certa.~.n

8-K

also

d i'5c105eo and

tha.t

"'gim ts

h'ad

nc t, b.een

em" i.ove·a i n con~ectlon with ~h~ securing . .., ~

'Dr~f t Report

$t,at~d

~SC ex..e'Cutives

of E i.c··i:als

Cit busLne ss

if! t·ll.at nation. 22, 1916, when _ ~ ['1 ed TqC 1
1 t'S" .

B, Dece~ber
t.o th,-2 pl!'·e.sent,

197,6

<'cr'", 1 O-.K,
N

and

·th:e, rlJjr·af·t. R,epo.rt .. w'es [1ev.~'.r !"l"f i rra.l, iz ed ~

The 1·978 ,c,ontained

incl ud lng

a sen ior' enlplo.,·"e

(who

is not

a .cm:Forate

.. ff"ice·~·.) ~" 0 The

<,orm lO-1t in the

d,oes. 'not even co.nt.a:i.n th' e va'lue .• generic . a B,-l<.

d i.aclpsures

b.oweveJ:, the fa.i1ur" the

Mar'ch a~K did

not

identify'

the

i"ndiv Ldua La , t.ransactioil
t.O

;Iarch

.to iden.t.if"y

the oountries

'in which ·the ionshi!?

cccur rad , told

Th~s,
in

a.l t houqh tbeCo1l'.m.ission
tb:at the' in.ber-nal

and "th." i.nne~_:tl'.ng ?lIbUt v ~
L:at.l' On " . lato

. ,,,te

timitl<j

of U)e p.aymen ts,

the."ir ielat

the

PU$·ine5s

1-976

'invest

ISC's

im"rdper

"I'he March 8-i< stated (?a'3e 1) 1;.llat tbe committee oE "outs'ide t~ire.c~,ot"$11 heading .the in:V8$ ig~tion con.;s,i',st.e,:d q"f .directa·~$ . AilS t in· NU son arid Robe'rt F. Hed"ina and th'a t , Hr. Wihion' is

and que s t i onab.l e foreign told in 197i cha t the

payment·s

w.a·s be ing

ccnducuad

, .and weI'''

i nva s.c i.ga tion
ea

was ne a r com~1~ ti on, the written ~
n.~v·..".,. beEn ~_

~ Gues.t,
5e~v'ic:e$

r<:ceived S4 3(). 000 in ove r .th.e per-iod- cpvet"-ed by the'

>In ich .has

·a senior

part.rre r q,f' the

law firm of Wi150.n fees for l:egal Lnve s t: i qa tIcn ,

t"e'p~n:".t. 'and board

:nat.erial

d Lsc Losur

~.ave ..

issu.d nq~ has
fail~rB, to' f

15(ls.

0 f d i ::;·ec tors

• 0 ft e ,,'eo arrv ex ~ ana t'._ •• rOt its "1. ~~.' .

almost that

Dr ~ ~!ed in.a,_ [sic 1 "is a. principal in t.h~ man~e!!len C ',c',ons,ul t·an!:. f i r~ :0£ :1ed i:1a & :Tbqllf~son r wh ic::h .has cece i ved $' is 04 , 00'0' in ccna u.I ti nq tees, for s~:~"Vfces o ve t- t.he ?e~iod' co"y~:-~d by \:,:h,'e;! im;.'.e.$:L .i.q a t Lcn. it i Lson & GUe s t :.a:1c) ~I,.l~al n•a s- "!.h6;·~'t·~·::.·u[l h~v.e also ~:~e'n pa id .o r ha.v~ a:cc:ilt"'5!,d ; 141, COO .and ~ 5l, 0.,00 .~~ s 9~'C.t.j ve'L Y' a.:$ c om?en'_5.a I:, ion :;:;j r,' t i :ne :d e;/o:t:~C ::l'Y' ~1e':S5 t" 5; ~-lil's:on and ~Iedina, to ~~.e it1,ves,t:i-Ja,t.i.c:1_. ';_il: .. 2x. 108 'a~ :...
I 4

1"8 mon th s at t~·~ -i t: r e .ce lv'e'd . 'r'~pott arrd

. trie

WatSPi1,

ss s rep'ot:t,
it.s to

in a':', i-ze

di:·s:=r.emirt·~,te a definit:iv~' although lSC has been

docume n t; to r:e.. r .... ric po i
• ... L., ... ~

s t o'ckno Lde r-s , t.~.o oub.I Ic ·t~at
,- ....

Xot?S!ov.er·r

These disclosu~~s'~e~~ 9~itted in ~ll !S~'S F6r~ lO-Kf~. In 19 79 ~ ~~e:di o.a :J.;¢~~r.~ rsc I s eh ~.L~m.an 0 f t.·he 'S"oa.:rcl.

a,S t'eq!Je (M'.

$; ~

ed "by t,~ e ~ 1:. . .:_!,f.E" i.ng

=:x,. 56 at 12)~ iSC .has withhe!j ~~c0~ds and doc.~[m.on·~~, _ ~ _~ c,,-tlud

.218

27~

audz cor-s ' workpapers, a~torney-clieont all senior to

c-equested

by t'he

Commissiorl's the

staff,

coiting
I

Own stated ~he "unbilled are

account.ing receivables' EictitiO-l.:1s fo·r illic it

;;>ractices; and and and

a signiEica-nt
so-called

;;>"rti'on

ot
payment -r~im-

privilege. ofISC before citing

E'uc-tnernore, management

1ndi'l idual tile

defendants geriod,

'escalation"

members tesotify

during

que1;tioned its

cl,airns bursement

incJ,.ude·d

Ln claimed payments. .suppl real iers

'cos t s are ISC also

roefused of these

the COlMlission,
their Fittll

during

investigation

que s tionable :rolll certain Furtl1er, acccune

mactoers, the

Alnendment to

privilege. da ne, and tn.at

~I
poctions of

sol xcit-ed and

i.~f1ate.d

b iUs to

who rebated the

Eiowever, which belolol, are

Coommission' in

s investigation

1<:ic.~ed-back

moni.es

lSC. of

La a t Lcn of

detailed

the accCllmpany ingo affoida'l
a~ in v ialati<;>ns injunction g.-anted ... d n ~ of and

it

SUlllIllaor ized 1SC is ties relief. appointed engaged lalols, unless

apPt'oxijl,lately

$31 million

s and

tlunbilled of

receivables" for.eign aVer ill thl'! Lcit

clearly about

establishes t·o eongage

sohowirig the ieder

is jeopordized
dnp other

by ISC's

_approximately "aymant_"

$23 million long

and

is

.... securi l

questionable of

\ihid! Citst

shado'""

warranting preliminary

a preliml.na.ry ["elief certain the

atoher of ~he

equitable the Court

integrity

rsc's

manage.ment. she.et aoove, in its

::':"1
197B Form lO-£{ financial were deficit the statements. unable of $5.3 sheet to auditors equity assets in

i:>

an agent Ear it.s by

.ISC I S baLi!lce (on which, as noted

to per:orm
hold".", i,,,for:med "arty on the

tasks

a.5 prayed public· its and

ccmeu s s ion,

rsc'

s sharea EuUI' r"late<1, events

its independeAt
a stockholders'
"'·5.

invest:ing

credito.s and present or the

...Ll L no e b.e in acU"ities·, impact be the able of

expr e s.s an op rn rcn )' shows
",Uliol!. Howe.ver, ~Jl

position

["egarding

past

the those to

rile

is includi.ng in equity

b1l.lance·

tr.ansactions "IIiabil i ty of

Lnvo Iv Lnq its the eote"rpr

as'lets, is"" and

app.roximately Th<'lS, the

million

accoun ns and deficit

·unbUled

receivables." great,,,,, than

IoIi1.1 .not of

assess

stockholder-s'

may be ev an

t.h..· future type of

financial

cond ic Lon and judgm.ent coo temp!at

oper_"t.ions e d by the

company securities

·"ith the
la,'-s.

~ef?orted. Of ·unbi.i.led the ~3l million, ISC states that ~2iJ. rn.i Ll Lon represents tJ·nder Contraal:ual5'ro'lision for add itions caused and under by

informed V.

t;ederal

"UN8ILLE.D RECEIVABL~S" AND ILLICIT AND QiJESTIONASLE fOREIGN PaYMENTS
below, tllings, the that Commission's i rl'lestigation
5

r eceivables"
Req.uests

ze I at Lnq to ".claims
.or ,\cknolol.l.edgements" to

As will revealed, include

be shown ot.her

bas

and

Customer or biU

to cont!;'act
",·ucil i te",s de.lays

among

ISC' is 'finartcial :..::/ in

tatements of lSC's

values as

ings. _'i t.h r'espect
events,

adj us t,."ents escalation

as -as se t.s

"unb~lle.d

receivables"

contradiction

• force

",ajeure

s,bnor-mal

un.f"ores'een

which The Commissi.on <"ese.l:''les its .. ight to ask t he CO",,1::t to d;:aw an ap.propriat',= aaverse infer-ienc·e froln any Defend,ants I t:ef.!Jsal to ·testify. See, to. g., ~ 'l !'aimigI"no, .25 o. S. 308 at 318 (19751. ,JSC defines "unoiUed receivabl.es" as ~ollolols: Af.f.

may not Ell. 56 has

be sufficie"tly

ant.icipated

contract

provisicns."

at "-13, H.
attrihUl:e<l

-se
to

$11,7·00,00.0
$lA,6~4.,O()O to

of its contracts oE

"unbiUed in s

r"cei'lables !llget'ia
t

con.t r ac t s in

iQ Iran,
Saudi

arrd and

$i,8.20,.ilOO

pcov

"Long term con z r ac ts g.enera11'1 p,-o'Jide for cus tomer pay:nents on a p r ede ter:n·ine.;l· bas is '",h i.c!'> may pr e cade .oe lag behind r-e'venues earned r.o date lH'.ide r conrr ec c ue I i Lon , by reVBilues ea["!l~o in adv arrc e GJ f CQ,n r ac t ue.L ca'nner". t d a c e s is an • unb iI.=;e·d t Rece i;lable ~ an/a the amount by ~""hich .con t r ac t u a I bill l nq s precede ~at"n~d t"·~\i"·enUes is wn.·r.-f~a.!..i~edC'",=venl.le C!a['!"::'ea as ~advances unde r con cr ac t No amounts are included i.:l
s Tne arnounc, ·,...hich a re

con t r ae t s tionable'

I\rab La. these

Examination c·cunl:.ries

rsc'

illici

ql:~;;t.hat

paym~nts· in

i-mmediately

demonstrat.e$

I

~

unbilled r~ceivables unless manage~en~
that su ch amoun t s I,.J ill be real at P-'l31 ;:'ff. E_. 5·6 ·at f-!J. ized.
It

1978. For~

l~ of the ~?inion
lO-K'

Z8Q

tsC if

may ~hese

neve r

realize

t.hese"

"unb Ll Lad

receivab!esn th'" to types !SC.

~

pa:-ticularlyof ac c i.v i Ee s

'and

Na t~ral

Res·ouree·s

who ",,,,,,e 'in 'p6's itions ,9t-ojects. i.n Iran. of

to

influence

tne

a:..arc

foreign

counc r i e s become
the' ing awarding of

"ware of
contracts

of

the Gilan
throug,h

an.d Mdzandaran
]:5C'5 "~ge"t'· ~S~2 paid. as of million TIle June

~os= of
Shamsedin as of

the' paymencs
Golestaneh. June 15,

were
Th.e cO:lllllitm"n~s

",hich

sur'rounded 'rha accompany

made these and

S<:!",art~stein of the

Aff id'av i t details "unbilled will rsceivables"

payme n.c s-, t!l'''' rnaterhere.

en Gilan milli<J11 million ments en

~otaled hail of been which,

",hieh,

1977, $H.l

'5.8

the ial

true risks'

nature

of

cert.ai(l

commitment:;

On Ma=andaran million

~'are
had

to their

"e.ali~at.lon.

These

be summarized

briefly

16, 1977, S5.5

been

paid.

pay-

a.
ISC' [,"SHL") Iranial1
5

~
subs Id.i ary , Stadler an
t

these

cotrul'lir:]lent:s we're made to Licl1tenstein in order
t;

var Icus

numberad

banK accounts

wholly-owned contracts and

canadian fro", Renovat'ion

uur

te"

Ltd. the

in

switzerland, E"urtheunore,

and

Fr

nee. the

~I
Gilan mill set

A.ff.

'l!! 22-44.

"eceilled D,evelopment

r an ien

government

agency,

to c-btain
b i.d price

con t r ac z .. ISC/SqL ion. about Af~er trying on th-"¥ to ·"ece recc~p

IJrg'm:'zation for the

("IDRO"), design,

and Us
supp Ly ,

had'

eo

reduce tbe million

'i e s cortt.r ac
contract,

by ~}

subsidiarY'Techr.olog, and

Inc. of for

("Technolog"),

awarded tne~]

ISC/SHL as

immediately

installation
consultant complex, of Ra'sht The near

t·.;o pulp

and pap",.-

complexes.
of

Technolog
the eont

was
r ac e s .

as well ·"as teac:hed

inc:.rease ar.lor.g for

.h" pref1·,. _ mar9~n . •~
G.o-lea t an eh

the ~cntract.
,~ska~i tha t ·and amount rS<:/SHL as ?~esident known

IORO'S The

the aW1i'rd and p,,·rforrr.an.c,e
in the
0.,

An agreement ISC!SilL would

ISC/SllL,

and

first

located (the second

Irani·an
"Rasht' located

province
pr:o_ject) ~n the

of Gilan
'lias Iranian or

near

submi t a claim

"cos t: ,,~calati(jn and 7, an 1975,

'. increases additional be f'c r e to r~sign it was into m"de

the city

"GHan'" complex, of

contracted prollince s ar L'' project)

Lnc Lude within
for "real

this

c La.tm

the

~3 m,illton

f.r in 1973.
of was )!aczandaran contracted In eOmiTlitted Ir~.nian then first other ord,"r

'(!scala.tio~." itS es~alatibn Concurrent

nowever,

by ~Iacch
Aska~i the Was

the cit:y
i.n 1974. obtain $22'.3 the mill

S'ar,i U

(t!')e 16,

"Hazatldaran" 21, 30, 43.

realized of

~laimr
with

as~ed

for to

Afe. Gil·an Lon and Royal then of

Technolog. the Shah

resignation, an in"estigation

.and in

M.a·z,andar.an t'o

"rojects,

!SC/SfIL high'rankir.g

t.hat illegal

of !·r"n

h ...d o cder ed •. "H. 'J~

pos s t.b Le

;:0 make government of

paymen cs

various

peyme.n e s on Gilan Tae new pres.iden,t
Hu r

45-47.
I

Officials

"agen':.sl1 fa:lIlly; pres

including ~ Sid

p.rince As ke r i,

Abdor're·za, who was fr.om

of to

'l'ec~.Jlolog its use

Dr.

~1otaz·ed"

r eque s t ad

atE i dev i ts

a member managing persons

the Iranian
and ~li"ist:r:y

Stadl~r

t.e r as to

of

age-nts

1:1 Iran. Moreovet', proer

SHL ignored wh~.n Dr.

director

i d e rrt; of and

Technolog;' the !1inist:ry

Y

and

v .. r i ous

rt:!·pegt~d i'lota2ed

ret:;uests· requested c La i",,,,, Lns i s ce d on

e xacut

e such

affidavits. in

i,n the

<"inanee

'ot: .'Igric:ultura

to review

Sir,!, r e cc r d s
C:._

to

"valuate

esca La ~ ion ~/ .'Inothe.r · holly-owned .. ISC subsidiary, "an9 ::r.~i. nee r'in<;l COl:O'orat ion (" Lan'",") had sougnt a con t r ac c fOl: a project f"om the Inmlan oo r t autho~i.ty which had cont!;acted with Technolo'g to be its cOnsul·::ant for the s t udy of ~he pt;":_oje~t arlG tone p"t"ep:aral:.ion Q·f t-ender of E~rs. Lang issuec.a ;,·5-50,000 S1,..Piss 1.et-te:r of c r ed i c to Askat"i~ t!1€m '!'~Chnolog's ",anagi~g director, payabl .. i:: Technolog !:'e"lalned toe consultant 1:.0 tn,. l" a nia n authori.ty :or the "",,("d e~ the contract and if Lc.Ji.gand its Ir.anian assoc Le t e ,::ecsived ~!1e ~"..;h!C:1 to: st :n'::':1lJt:.'E the pr o j ec t , Ask a r i , clai;zec fJt""~ss-:j-:-"=,~:-om '::;It.~e~s end s¢:.JChi:. a "lq:ss o f op_po~tlJnit.y" comm-is:;ion. rcr t~ar that. o t he r-.... SHL ·"'O\Jl~ no t, qet:, the Giian p r o j ec c ISC paid h i.m S 250,000. lSC/SP.!. ?~J n~ve cbta~ned the Eunds ~~~.this payment th~ough ~h~ cei~nurs-a.bld pot"tl.cn of r:.he G~lan con er ec e • AfE. ~~J ! 7-20.
conr.r ac.t • at La

S!iL !:efusedto tho
t.

~~_·nt.,. _~ _~c, h nolo9 ~cceS$ to its 0"_- te h escalation
1'-, o .H . ..oI

becks

and

the

va.Li.d ; ty .~ of

claim~
~!I.

should

~e det~rmi_ced
::'.1

th!:! basis

fotnH..11a.e and

i cas
..... .

thet"

tha.n or. ac.eue I

1

!.;&ng

de,ci~ed

no

c

co

cur

sue

·i;~

281
282

claims .for s uch r.efusal is could Olp.pa cen t: ha~e an ·.:!!.!llion claim report ance that freight S HL

~n one ~f

the

Iranian

Erojects

(dilan) been reoei

in

th.amount

of

$8.2

incre'ased examination th.at in

cos t.s • of

The reason books it~

bU.t th .. t payment $3.5 mi1.lion that this

had not. yet

...ed.

I Art add i tional
o""n). The bal-

SHL's

by
illicit

~he Iranians

re~ealed

of

"unbil.le-d ~8.2

'receivables' ~as being

r ama i nad 'car-ried

SHL rrad .Lne Luded the contract s..,ppliers Iranians for and the

and questionable
c

?ayments auaed

s t.a t es 'Sh~2t the as

million

on ~SC's

as'eqClipment to to mark up

co·st,,; .. tha t SaL had their the

its
ion the that

,. u'nbill~d of

recei'17ab'le$~ these

~ I3CJ s ?'Ot"ltL 10-·'1{ states receiv a bles· _ is subject

furthe.!:' to:

Canadian

Invc ices
mark

-for

submis" that
arid

reali:oation

Llnbi11ed

to

the

kick-bad<

up ~o SaL;

forwa.rd.er was of ,~

can t·ract

was giving: it.s "escalation price. to

SBL • r·ebates· claim" mee·t the for

1nc1..,ding the reduction

amoua.e s in
in its'

recoupment ".if.

bid

competition.

.lDRO obt.ai.ning cQstomary appr ova.l s of governmental author:itips in t r a.n ana t:h~ a,oprc"O~i ati,cn of f und s to mee t • h b 1 .. '.,' ." .. ~ ',' ~ ""." ?ayIne nt; ce _lgatlon ••••• [111o.wever, r_he .~llrrent political sit'-1a·tion :n l'7a11 ,;=ould ad~ersely affec'!: 01: slgni:icantly delay ~he ult' t .. • "a.1,l;;"t1on af tnlSsettlement although the~e h",v" b .' , .. " for-mal indications to thi's eff"ect. .... .... ,een no

46-57. When Dr. Motazed and continued service" t.o insist costs Pri"tsch bElfo.re on he a detailed '",ould wrote' analysiS

AH.

LX, 56 at
ISC's'

7 and f-15.
not

1978 Form lO-K does
was an its riot .for by

d i 1ose ~hat its claim fo~ D~ost lSC
e s ca 1 ated the cos t s but $3 million
~l.'

of

the

equipment to

au t.ho r i z a escalation on o r about

esc-al..ation re'presents had in to

'l

legitiID'a"te ISC bid

in by

reality which .i t;

paymen t.s August

SH'L, Defendan·ts tba·t

and. Stein

attempt con"tract for falSE

to recoup
to meet

22,1977,

(emphasis

added):

cut

th_e com .... l' "t· ,,_

on,

$ 2 • 5 mill Len part for

Th'~ £<>r,,'i9n cost element in tile DPR [Detailed p-roject Report) ..-as $82,4'9-3, 000. This total a's shown in Scbedule. I We" bu i L t up from $6.6,514,000 for cos t s related "-0 equipm.",t and Sl5,979,OO'O for costs related to. services.

commitments the and/e.r for

br ibas

and/or

c.ommissi~n . p,!'yme·nts. in ~ claim and

ob ta.inir.g payments balance light Hlegal

esc·ala·tion

L n ~art to pay illegal agreement, and the in the

coram i s.s ion ',,, on "re al escal

a canceled

s c-ic a lled . 6ther

.a t; i·on" .. hi ch ..

1 e91' ~l.mac1' -'

:if all

ISC prOlc't' ~~ "'e5' lnc 1 Ud i lng
appear,; _ 19'78 both hi"h_'Y ~ do"bt·~ul. ~ ~ does' and not

r aba tes, S' ~ ,-.1 ... :,. that

k.Lckback.s , and
~~

payments, the

45-46.

FU.r;thermo'lCe, This letter as p Lace well were as others discussed to abscure in the the Schwartz.stein 'and 52-55. questionable M,cbrdin91y, esc.-alatioll payments paYlllenl;S ugon recovery ISC's at::tempts and are

~orm lU-K the Gilan

·report

SHL' s bus ine'"',, and
r

including to Obtain

Hazanderan
'L,

projects, ther:e·to

its

af.fida~it

wri·tten

ilLicit

paY"J<,mt,s from Mr. was made already of not its MotaZed claimed

Iranian

of f i c La.l s ac rue Lny , Af,£. .infornted illicit the for or that the "costs"

n

additional

r eve oue s w1"h s mak i ng

regard

'wlere

de-pi!nde n t upon it has

rsc:

ill1'", t an d other M. the Iranian

questionabl~

was not incl"ded:

0\"1 which

" .. ymen es which

conc e a Led from' b.Algeda

q ove cnment; ,

arid other contracts; still that ~nd more the rebat.e

questionable additional .,ayments ~eimbursabl~
5.

by ISC/SaL
com",ltted
I't

~o Obtain by ISC claim"';

197& ~orm lO-K
&

discloses

that.

it

is

carrying

al! aSS"~5

i t.s

esc:a.la.tion

cos

ts
from.

$14.6 mi11ion in

~accoun
.

ts

an d un b' LkLed

recei..,a-bles'1

r-elating

to

wet'"e

"c La Ims unde r cont.r ac t ual
l:=d~~:-:;ent.so no c disclose

r educ ed suppliers.

by t-h:e kick:~a~k'S,

I.Se

receivec

=~~
that

?t"o'~Lsiorl5

and

cu s come r .t"eq_u1S!SCS or

acknov-

.::.~:;,,~!:!

-:;:c~::t"~.c. ::;: .'~." h.~~rl~. ~~ " . of
t.hese

Tne ?or~ lC-~ jce3
bein_g c ar r i ed

c e r ta an or ISC's

as se e a

a.r e

rsc's
ha.d en.tered

1978 into

Forn> lQ-K an

( ...ff.

EX. 56 at

P-14), :'he

reports

that

rSC/SHL

in

cen~.adictioo

state d ~c~ounting ~~inci?les or that

agreement:

with

lDRO for'

s e c t.Leme n t. ,of esc~iQt.i.on

281.

ISC

I

5

.audi

t.Ot'S

hav.e

2xpress.:=d

an

ad\~e.t:s..a· the

o~iniG:ln as se-e is the

on

·r:he

_: i..n.anci.;!.i

In

1975, I

~RL en te1:,,,d r>! imbur:;em;"n

into
t

negoti1lt

~6ns

"i tb

San1lt\:ac.h

seeking

ad-

s.r.a.te-ment and that

oi t~e
its

suas Lo La r y have

'to.

which

at:.ributed; s ub.s i d i.az y , o-f 15c Oni::.s.c The fOt"~
t

oi e Iona

fo~

che s e projects. overruns"

HO'".. vi!" , Sonat~"ch .f't"om the d !.s,cu5;:d,on~· th.~ claim.

a\.u:]i:'ot""s in

que's-ti"one::i =e~r:esent

wneLher

repeat:~dly apd .L"fu5ed

exc Luded .the G7P "cost to "IglOee to any

'""hose con.t-rac'ta revenues, St'ates lO-i{ during

Ugeria

a rr.ajox;- port.i.an
.o\CL

3

!u .. th.er

comperis a z Lon on

vi o La t ed fOiC.eign.

::::h-e Engl'ish prac:.ic::es s a Le ot

Co~.pa.r..les Act. ~12

arid

the

Co-z:-rupt t.he ye~r it does

A:if.
m.il1ion

,: ~I 9·0~81. in si:nilar
r e La te to

a l s c disclos~:5 it~ f~5cal
bu~

aa ae t s a projec-t: books in England to the PIC/JFP bcc~s in the Unite~ Stat~s as part

1 Q7' .s __ 0, ·• o ~t .... l;,.lhi·.=h. ~~ not disclose less to
t

in ,~.lget'ia,
ao Ld :c.r

e n amoun t sues tat1 ti~.lly stat:.e:m'ents 2ercentg_ge due, of in tt;e

nari apgearad

on 15C

1$

in

the

fixed-price to the

po e t Lcn pz Lce ISC to

Q'E th·e

con t r ac t., t.he

although Aff. ;;or

r..o adju.·st.;-(".enl:. ~, its 77-79 .. fiscal adeed I, year

financial SLJostanr.ial collectible. ISC' s .Litnitrad goverhment

t?a.r-t.;

~ d.ete~ina'::ian

t,h~'!:. a
'r1ec~ un-

.....a "ade

in"1,,<'I,, in its

G'!'?· costs.
"0t1t1

"u:1billed

r-2ce;!_;Ja,b12s"

I{evet·t·"eless, eneed ,June in its

.tat"ea
",t

1976 Ex.
I~

10-K,

Ai:. ~ 83.

30,

1976,

4. (An.

IjJ9

at

41 (.eOl'.?h"Sis

'~holly-o"""c
has hac

</ni te·d Kingdom t.tn.-es fii{ed for pr the
i

sub:; idiary ce contracts

1

p·ritch'!l:d-Rhcce:;, !,.,~th t h e .'tlg-eria1't and con»

and

s ubs e que n.t; ~'orm. lO-K

=

(~lpRLn)

a;gency,

Scnatrach,

d e s Lqn ,

en-gin.eering ~ IIL-}JG~·).

s t.r uc t Lon o f liqlJified

na t ur a I gas

fac.U.iti.es

ThE;: t~:t"~e

4R

(or

t·Skikda

(~;)D)

ccnc r ac t r ar.~

t.he
i\

(·Ski.kda

5/6·(1

(0:::" H5ki.kd:a exec<utea in ~.

The Company ~rsCI accoune,a for revenues fr .. om 1009term ccn e r ac t.s , which ',oJould Ln c Lude fixec-orice con c r ac es , on the p,Errc:entage of compLetion me:t.hod I wh lch ·r--acogniz.e:s income over th~ life of t!1e- con c r ac t; ~a.th~·l· than irr~-gulcrly as con t r ac cs. ar.e com-ple·teo .end uLz Lmet.e cos es de t ermLned . .' ..• T.. ne pe,t"'c~·ntage of comp l ec i on meth.od t"'"e~uit:'.e's :::hat lh.e .. n·tire aa.ount of a.[lY u~timiitel'r' project""l in.divi<:iual con·or;;ct 105:;<=5 be recognized "hen kncwn , (eml'ha·sis s·i,lppludj ~~ 77-79 In late and ',"if. ~. 1975 Sonal:rach !'RL on of the 56 .. t 6. 1:1'pl""",d JFl' on ccns t.ruc e Lon of hO'o'e"e r ...ark, Hassi to' cornp 1 at e

50/60") 19.11. 1975,

contract .. T::e GTP" and 5kikca
The Skik'S3

contracts
in

were. 1973.

~/.6 cont!:'ac.t~

·N'a·s axe.cu t ed subs idi~r,!,

:n.

F~tn;u~ry ~nl:~t;]ational

ISC IS

whol1y-o:...rne.c

D~'la.~ar:5!

Fr i tcnar:j

R' M.e and 1 Skikj,,· 4. of

reO'1 aced Secau"e the

Sk ike; a .;; and change in scope

6 • PRL 'fas, of ·JFP's

the· U"ed-I?rice

Of a :;as
con
o cae

tr

e e c... :nent

modu Le in of
rei:rLblJ·r5a.cJ..~

the

:la,ssi

~'Hel

field

(the

t'Hass!'

R':·1a.1..1'1

peLtion basis~ en

a·a.s·si R'~lel ·refused the co

ccn t r ac t; ~~as .chang~:d to cec:ognizr:! any GT? with

3 rt:":"mbursabl.e ~eins r aimbur
I""St""~

t

r ac .. t).
r s ' ..

~I
en

port-ions
a -coa·t

:.h~ I-!.a,ssi R'~tel
c.e

ccn c r ac t; '..{e·re p1::'
ice c a s

ti;~ec-?t'.!.c~
;,::: ~

r

Sona,t.r-~ch

co s t s as

s ab La

H:t'a

i.I

in~

13.

!I 61, c,

th i s cor. t rac t -s;::io

C05 ts

as ace I ate c

tJ:te GTP. Los ~

B:y lat~

1974 - '~arly

1975,

PRL had c cmp Le t.e d t.~e GT~ ccnt.rac

I.SC's

1978

form

IJ-K

discloses

that

rsc

is- carrying

the

5].5

~IC '~as a ". .(n.nll-1-~t.W.."ed subs ~.dia f:y ~sc I s Wll0! t'elaw'ac~ subs zd ~ar J. r , P r 1 tcaiH"C ~crr.,?.ar.y , 'Th-e a as s I R,':4,g1 co c r a c t. ce-c ame as.oeLat.ed ~it.h as .weli a3 ?IC. Re e r ertc e s c o. J2P ·...,ill t nc Lud-a
~j

:0:

1 !-'~wn'~u .J t ) JE" PI

with in

~he

flna!
It

settlement t;ff. Ex.

of mattgrs 56 at P-1S.

relatin~
Howe'ler,

to o~l\er wor~ ISC' s auditor'S have

pt"'ogress,

f,ound

no r'5!~iabJ.e

,

,"_."d

denc;e ..

ttla t

So.~a.uac:h .

Ln tends

to

pay

anyth

iog

it made

th,e'se

payment", tha·t;, if

t" a t
rsc
tbat us-ed

'it did

'So

even

though

it

had bee:n "'arned
of and all

more on G'.Ct'. Ai f. ~tl

so-aa.

b·y scnae each
bus i ne
s's

~,:a:s.ri it; ·..,;ould

e is k loss to 'in

its

in

Algeria:
to

PRL arrd

?'Ie wer.e required OJ"e o'f ·agents

a id e xeou te, "h.1eh

..fiida.vHs

S.onatr,ac·h as' to

:heLr

Alge.ria

would '",,'suIt

in

Son.atr,ach adjusted

tetminat·ir.<j and

ISC' s '~:oek. in

Algeria.;

alid to .concaa L

rcr'TTl 10""OK (Aff
and the

,E:~,

tha t pru, for the Skikda (at . ,-15.)

and

.n'p
.• Aft.

"''''''is"a

project

eoa t ""poets

"unbil1ad
1978

'.re~,,_l ab Le s" v ~~.

I?roj,ects
that

an"

G'.CP. Althol.!gh face "'e,,,a1<ies

the

payments

U62--76

.~I
Saudi -:~;::abia

"or:n lll,-", alsO

d'.sc:l"ose's· ~

ISC may
.1

of :.II? to. are

sa
11

million
to

on S«ikda
I nc l uded
..01

4 It
in

a I so f'inal

s t;:'a 5; t~Hl te t se·t t lem.mt

no ~enal t ie$

ISC'S flnan,(!1al
milLion

statemants

in

it's

19'78

,orm

10-1:

show S7.·8·
unde r

e xpec t.ed

be'

the

0 f can t.r acc
art aa"."!:,,,e opLn i.on-. fairly

in

accounts.

'and "unb i Ll.ed

r ecei "'i;.bles·

fa!:' • claims

amOun t.s. stat lng

~,'u,,'~, audi t.or s Hd~~ve t' r P ~
P.n r .. ~ ru.o as
I~

in L.o·nd"n issued
"d c not til..

ttl'a't

~

financial

stat'e'rnents.

f?r~'seot.

r eXa·ting

to .15C' s contract's

in

Saudi

i\!:'abia.

The underl,y'ic~o; con

t

r act.s

it~ P'9sitiQn for
'..'rincipl,,"" fa,ee stan in

f O

).0 til June,

i 978 or

r,,<sul t's. 0 E

its

opera bons
&:

port"e.r

r

I nc,

,II

s& Pll} and a 'Sa ud i A..t'"ab.i gave rrimen t aqenc_¥, an
Corporatiqn '(

the

::,/ 'arid detailed illgeria. AI;:. the
v

t e amo .

hunt

QE ri~e~alti~s~ ISC'could 1978, ISC sold ~ub-

Saline

·r~at.~'!;':C-anversion

1'I'swee

n

}~

Fut""slJ n t; to . a

con t r'ac ts ,

sx .

85 •
0

In tis;al yeae

t·ially.

all

"sse
~

ts

f .J ~p, ISC

"unb·111.,,·d "
til its thatthe,se million. ceiv~b.le$T!

~ a._.Ce"'". .ab L~s,'"

fo. "<' fI,"5" i R' Me1, as a.sse ts ,

'ncaa bee n carry

i rig.

A1 Joba.il

I

and

Al Jobail

II.

ill_. 11'J 86,87,9)
e.d

and ME.

Ex.

5'6 at that

,-16.

f i nanc ia.i

s t a t<si;rien ts

I SC ag t.eea

".Ii t/', t·he pu !:,c'hase~'
"m:~th only

ISC' s flub! i c· Eil ing s h .. v e, ·fail in to ot:de·r·. to pay mill

co d ist:lose, t.h r cuqh

bC·\,Ie'.i'e·r, S &',?,

"ll.nbilled
Tills

r"ceivables"

we"," 1;1 reality

$2.9

9,bta in tho$e' ions

ccn+cacns, to t.he

ISC, then

c ornm ted it :of ::t;1CC,

. ..

agr~e

a "pan reau ced ~
co de term.ine

v... u~ o:e ttl·" "unb i 11ed l
ttl'e "u.r "I; asa manne~ "r·i·ee. The

Ire,197'S

of dolla!:'s'

Vice-Governor

Adnam

was' use,d

Samman.

or. to' .J",!:'sonS W!JomQ!" 'e n tit Les whi.ch
arr,oOJnoing home.

he d'es igna ted.

!.n f ac t ,

!'erm 10-'K is
ttl is'

false

and Dlis:leading
!i;ff. ~ B 3. to <:li"dose eeCil!i"a:b1es"

'.[}' the -

in which

Lt

describga

casn

i?ayr.(ents at his

to at

H,as't
ts

s L, 5 mill

LO.n were !.;ft .EO" AM, a compiltly

trans ac t Lon, ISC has failed

Samman the ·r is·k5: to its of reC:01l1;ry of, any due

The'se

p'aym"n

vie r e made t!u:oug.h

'of
to

the

"unb.i.n·ed

.

or

Us

avoidance

""ila1 ties

of .$10,0.00

e xe·c:ate<:l 1.0voices

.<1 nd

~ece ip cs ana

g'

con t r ac t f 0" con su l

t

i r.g

Lt.s con'cealmen~ paiil Hasrl

~.

'~om the

Alg'.,e",ians in

o,E p,a:rments
$3 mil!

to .Munib !',asr i.
Lon on
tt\~'

ISC has

, ccmm

,',.5 i cns ~

F.!:<.n~s~ o f

G~P,

::"1 ts,c
n

::iiub.sid·t~~.¥ 'l~t-;<,cr·.: al~9 c.. tr~,~:t.~~ wi ~h an ~u;j;e.r'''t, Hube r t, ~:1 iC~':5 w!';1. i ch p,rovid.ad· for t.'e ,~a.yment of . co~mIS" s Ions 'Ion ,::'r." ~c ts Ln AIQ E:! r i a . r ~C cC(lc"-IoalD':Q t h is a.r;-r-an~elne·htfrom the ;;Ig:e!!·riar. Governme~ t ';nc' ;?t'"o';d~a i Alg-e'tidr'!, d-ffiCials with an ·~E.~idavit. ·tha·t no. age"nt·s·· WErre being us~d i>y I'e ~~or in A1ge(La. ·Aff. ~ 64 ..

!l~nalJl e., ::~r" s erv
So E;'C li;~:::'

t.3

serv Lees ~ ,\ff.

Th'E$€

docume n t s had be en ?r:ep.ared

for

him

by

I SC!SiiiP ~

comacn a cock of iJCC
a e e SuO/posed co pco'" ide with
WI

A·ff.

~:<.

56

at

31.

DC.C' S pre.Eerr.ed of ~. ISC

shares and The ~ha1'es

~1r S3-98.

"off Lce.r s -arid k'ey p~ ",sonne!"
and to such n!ti~ement .9£Eicers ben"fits.· and key

r'se

has

E_ailed

to

disclose

t.he:se

payments

or

the

ciaks

which.

its "are

subsidiades
.II

"death neT

a.lloc.at:ed

by

the

[_let:'.so.n.ne1. and

~ncl that

I!I

ur1billed ISCls

t"ecei'lGlbles'" eont r ac t, could

b ec auae

o'f

,saudi

law,

ir.cluding

t.he

r Lsk

~e vo Ldad, i t.s name stricken

from the

of oct preferred
in 1968, 'Jb ich is

which not

was' issued ·. i thin .

as

iii

dividen.d
and

en ~-Cc common stock
. lmmedia 1:917.

~h.e Plan

',,~ ic." ve~t~_d u ., ~

pos s Ib.l i ty of

its

being

prosecu·t,ed

in

Scn..ldi an

A.t".abio. Lnve s eo r

Aff. into

95. believing
ISC f\lnd" the plan DC'!', through

FUt'"ther-mot:"e, the

nond i ac Lo su ce s mislead 'i roVi th '"a's

"contributions"

made,

or

c aus ad pr~f"rred June,

tha

t;

IS C' 5 ~ i ~ ial anc

d U"!. to an

a.b i 1 ity to compe t·e

to be made , to the
share.s from Dec fCit"

whLch ~h.en ~5e'5 -th ... ~und5
U

to ?Ilrcn.aae
through ISC's

ori th~ basi~ of the price and qual~t1
d. ather

of its 5~tvice5~

J'allocat:ion. were

From

·August, per

1965r

?~vm,en~s

1977, iha contributions
yea.c 1978
the and
tr

~15B,DOO
equalled

year,
500.

for
AlL

fiscal at .34.

"contribUtions' to the

P~B,

Ex .56

of

dollars le an~

in

illicit illicit .leaq
t

arid questior.ab_tl r ans and ac

payments other c cun

e-rigag"ed Lnc Lud

in i nq

que s=

In p.urcbas·es In its

a.odit1ol1

'contribut'iOlns", f rom the DCC at

ISC has

sllppot:ted

DCC through
t.

t i oriab
t.hil~,

t Lon.s

r

in.

ie s

c f ISC stock
where to

p t" i.c"s above be Low DCC's from

::he ""arke
cost, the

Nica,~ag.uil;, VI. ISC
1

t,-he Ivory

Coas t , ::../ CORPORATION in rSCI s ;:"'nnual

i,,·stances

rsc

cozsacn s<:ock ISC sold

[,,11

!3C .c au s ad

THE DEl"ERR.EDCOI'!P.ENS'\'C'tON incenti.-ve

subs idiari~s The

purchase

common shares

Dec a.t: D~C' s
'''m"loY''''5

S

emp-loyae

?t"og'2:'3JI1 a..$ d i s c Lo s e.d

c05t .. 'at

s\lbsidiades

Reports

for 1973

on Form lO-K,

as well

as it:s t'~cent F'o'C;;;t lO-K_-'s compensation
Pla.n"'

the market
Th,,· Form

""i",~.slllte-ring
10-K discloses

trie"

the'se

sila",,,,,,

to their 9 101.

th" 10$s.
th a t t he r'e ar" participants outstanding participants, be"n allocated by tHe does not

ill.
in of the

a-nd fl.ro.xy raa ce r I a.l s , cons (the "Plan"), ~ Detec""" a't""e ISC pursua.nt

Ls c s of

.a ~Oeferr~d

B'87 "ha"."" "Ian

of and

common "37,1 B-5 are OWfled a result tJ,,:rtici;::anb allocation." tha.t the,e
r

Compe,n.satiOfl
common s t.oc k to the
t

Corpo!:"a.t ion and a De'ferred d~esc:t"ibed

(. DCC" ) whos" Comp,?"osat.icn in ISC's filings,

stock shares

held of

by 13 1nd iv1dual
DCC prE!fe.rred oc 3,769' 23,981 The

p~ irita"t-y asset.$ Tru.st
D

sto.c.k former

wh Lch 9 ,.1.35

("DCT'!).

~l"a..n as

by 11 pa"ticipaflts,
of in Aff. cjre ana who th.e the di'lidends), Plan, and 34.

Ln ~he Pl"'n
to 19

("as

the

DCC h·a-s ou ea.e anc ing
l!quid.ation The> common,

common s·ha.res
.\f.E.

and
~ 100

cumu La t i ve p.referred
and Aff~ gi.ven ..and Ex·. 5.6 a to
t,

sha r e s
31-J-l. "eqt:ity
OE~F

nil"',,
"'orm

pr·es·en-t further

W'ith·a

pref~rence.. s he r e.s of

a"", held
10-K

Tr~st

for

pee ~~~ purpor-tedly 9.i:ricet"s·,
d-irec·tot"s

p r cv i da

sx , on!y t·wo of

5£ at three his

d~s.olose, of ~CC:

ho.wev"",
D.efendan N.L.
t

inc·.entives·'

to

"s-elected

k.e·y pe r sonne I

subs :'..ant·ial as"Soci.ates,

beneficiaries Alft:"~d

!{,enneally II,

ISC and its subsidi~rie5 who ~ar~ gIven ~he oP90r~unitl

~o 9urchase

~L Lerner~, and 73% of -DCCI5

-Rcss

~I

togetli.er:,

Own d~pro:tim.ate>ly' app~o'xim"te 11' 72% of

out$t:.;rndi!"i~ L:ommOI1 shares "C.t

:_/

se e , a Ls o , rif.f ~ ~x. ~2.91 :;-~q.at".d.:..ng :SC' $ at.t.empts t-o oo t a Ln a: ccnt r ac e t~om Lhe Chilean g·overn.~e·nt.. '"!'hat ::::':-:hl~it is an :SC e r.ud y of t:.he '::hiiean ~ove.r:nlil~nt. and ·",ho in t h e SjG'.;et":-tment s';,cul:3 be app r c e cbe d, rt. a Lso e x p La i n s t~1dt lSC s h ou Ld h ave the p e r son s 'to whem· p'''y"",,'nts a e e to be mad" e s t sb I ish. a comp any eo <eco;.lv" and d i.sg.u fs<, pi! '{ men Es •
P

s t o'c k <lnd

DCC'"

pr~fert'5d

:..1

tt'"

the

290
being of the held by ;,he DCT for shar';s in the these and possible future al1-ocat.ion. Kenneally through Al1- but and his allocations entitled ~I 1- ()2. VII.
OWIIS

291 6% equitable po)"e'r

".0
these

to

.issue

an

ot"der Co.,

freezing 400 F.B"pp.

assets, 124.8

(See, (D.D.C., the

e.g.,
1975)) issue to of

preferred

held

by de·fendant and no·t

asscc iates unde r

~
to

v , General
ensure that defendati.t

Refractories assets

we.r:e c-eceilled the Plan. Thus,

1958 were
ROSS

di v i dend
all to
J

cannoe
arid his

be d Ls t'r i bu ced' url~il t .. o as soc i a ca s are

"vested" inunediat." s Dealinqs· that.

shares benef with

which i es, Aft. .oce

whethe·~

Ker,neali~·

""tiUed

8;enlleall:?,

Lerner ,a,.

l{enneaU",

KILQUADE that the

ISC's

197B, Form 10-1{ common steck

d isclo'ses and
v

Kenneally

400 ef

aha

r es

1St::' 'S 1978

F<!lrm lO-K

s oates

{~5'J of DeC's s t ock ,
benefit (~. 2000. received acquired has or at Aif.

was

allocated to

950 shares
the the For:n !'la" the that the

preferred the !1Ia.ximum

Ex. 56 at

28,

n L, According
those shares for to

10-1{

co Kenneally 31 fl.2-3),
EOrnl

from "ill be

unde-r each

as described, 1991 through also, Aif. til·" h.
n

$19.,085 fails

010

years

Company own s a facility in Dublin, Ireland, containJ.ng app.oxima·t:ely lS,DOOsqua1:e feel: of space, suppo r t t'ac:iJ,,i:~es and visitor ac coracda t i.ons , which is used in ccnriac c Lon !If.itb the p Lann i nq , coo rd Ine t Ion and lldtninistratioli oE the Company's operations outside ehe tinit;.e<;l ~t'"'te5. Ex. 56' at 1B. That disclosure i n Kllquade fa Us near to state, ho .. ever, Ire 1 and
(~i

The

10-it,

however,

disclose net. urider

KenneaLly plan "hat 28n.l,

that Lquade" )

3000

ves"i:,ed .,refecr 1968 dividend

.. d shale"5 and ~ails

·.;l1ier. he ~eflefit

E ac il i ty',

Loc sr ted

Dubl in,

in the
may receive

to disclose
Ex. in 55 at .. in

cons is e s "f pr LricI pal ISt:: has f\lnas the

a house s i tua ted on B5 ac res' of far:nl and;
5..

th a t Us the t

fr'om ,thei'r 10-1{ discloses

s e.I e , 11ft. that

11 n.2-3

us e ha

bee n as

a. s umme r res id e rice o'f one and millien

for

K'enneally; in coeporate

The negotiated s eoex that ef Aff.

1,978' Fo.m

19.7 6,

a pr iva t e Ly of ISC com,"o';

e xpanded

Ln excess fuc.;nish in

dolla~s KHqu",.de;

transact-ion,· K!!pneally at

DCC purchase $)0 per at share.

.12,:;.[)Q

share'S 10-1<

to purchase,
-residenc~ i~

maintain nar.te; in office

tha t ti tle

to

from the

Til.e Form at

fa.ils and

ec

di s c.l oae

Ken.neally's

and on"

t"!la·t yea!:". spac"

ISC The <It ~nd

d Lsbu r s emen t s disclosure is

transaction deter;ni.l\ed The to lose value o.f Form

occurred

a time,

a

price fer that

at

a number shares

on I<ilquade also fails

",e·riO·at to state

Le as c ~243 ,000 that the and only a desk, us.ed by

shar.es

by Kenneally.

DCC pa i.d cash to 'to d ieclose acquire

these by

Kilq,uade
t

11 lOS.

10-1< also

fails was able

sell

in.g shar:e"

Kenneally's. i.n sfte the

defljlib.".y
t

typewrite.

e Le x macn i ne

b Ls shares

DCC, Kenneally

caah

Eoc his

basemen

W<1 Lch were him to and

K.enm.a·lly·' s s ecr a o,.ary ~'hl>n

and still
o,f the made

no con t rc 1 ove.r ISe
h is shares at by virt,.e when, it

an<:l r stain o f his as 15C's have

a 1 arge
inter"" t

pe ccen tage in Dee. of the to Kenneal1r Bo.ar d that

accompaniad

Kilguade; his

~nd

~hat ESC funds
to and from

are

used

to
i,ff.

tr.ansport:

"",nneally afld also

secretary

Kilquade.

the

t~arisaction Executilre

a time

Chairman been evid·,,,,t as

~~ 110, IiI
It ..ith the was

114.
not d Ls c Los ed

and Chief {SC's

Office!:"" assets

should

him

that Kilquade
and St.iltes" he to
'dd5

,,·as

",,"sed the

~n conne c t Lon Ccmpany's that ~,enneally

~eCOVerY Olf .,aper b.

was questionable Relief Dec ISC's onl)! ted, seeks.

cescribed

abo"l~.

planning, outside at Form

coordination the Kilguade 10-1 al~o llnit~d While ~ails

admin'istrating on.l.!:,t.Q thet'e.-~\Ef. that th~

The Need forpreli;n.ina.t""y to ~.e e, ze the I\S.6 e t s 0 f to IBC shatenclde.'"
S

operations had visitors ISC's

extent

~r~ 11.'t,
Certain expenses

Thus, ~.15,n t"o
e.5

undi.c1os~d

empleyee

incentive discloSe and Internation al arrd Systems bpok~q ~ Controls cc r pcr e t i on feesn• (~\irope) LimiteQ added J\ ('·ISC to

ae n..t. i a).ly\
.a

!J"e;neE i,t:s. If

ucs tan t i all:i liquid"

de f e ndan t ne n ne ally'

c f his

Ssoc Lates. them.

DCC is

i t·s 'asS'e
to invoke.

t

s .~ill this

pr l nc.; pally Court's :E:urope")

be d Ls t.r Lbu t.e d to

The

ccmm i s s ion

as

II

corrsu I ting

IS.C Eut"ope

29] showing; in" th.~.t th~ of d.e~~ndcin~:s e.r.e .engaged. 9t'" .are db9i~~ !.o en.sa·g,e 1 3.-",s. 1975),

ioL. t ioos

t!1" ~rov i a :.C~s of
DY'1ami.cs, I'u,.,

the

~ede ra 1 se cirr i ties 801 (2d Ci~.,

5,I';.C .. '1. Ha-na"~merit

515 f.2d

~n'l·i.need ng.,

a nd

a~!Ili·n is·tr·a tj;o.n

accoun

to",

Af ~.

1

113.

'ISC' s

5.8,(.

'I.

"ai_s"a£! (D, D .'C.,

3r-~,win9 1':-7 h 40.0

Coq:> ..

eel! ~ed.
j.)
I.

Sec,L.

R"O',

\196,11.7 Refra,,·t-

O'. 9 Z, 020 ,sections 1] (b) (2)
0,ii~-5

Corcoran,

S. ~. C·•. v , G.en.aral

ot
.of

til"
the

i'{)relgnCorrllpi:.
;:;xch-ang-e Act the (lS

Practices
U.S.Co

~_"t,

"iolates

Co" ,suora, $e".

~. S"i',l-. 96,815 is

"t U-s 4; s, E.C " v , P·aro
at: p. au thor

[i::u't"rent] 19791 . (.c::x;::har.c·e Act, i rr] unc tion s

71lm(b) (2)]. to

c,:;,; ,;'d. tha t ISC es tablishe"
in

L.Rep the

•.

95,2A5
i z ed

(N-.D.t-l.Y. b'Y'
6 ta.

finally-,

Form 1Q-& Eails

dis\l!Qse

Se'ca use

C;:·o~.m.is·~ ic·n

til te 's'e ek ~y. the

S~",.;;ti o n ~1 (d J; the· l)u~l i.c

'Sgc u[' i.t leg in t.e.·r-est·;

A-:::: ,sHe·tien t, e is noe

:2 0 ( b)) 1 imit.e-c

to

Ls suanc

mo r e na"t·t"ow

c[J-rlstrai.,.,::'$ ·... . hiell
VI1 I• ARGDM_ENT re.l i~.E· .. Th'e

pt:'ivate
need

part .Le.s .mus.t sa t.. "sfy to 'obt~in i
no·t ~ho1;oJ irreI?.arabl,~

si.mil·ar

CO.m:mias.iQ"rt

i';".j u't"y or. a b.,;;dance.

of' equities fevbting an i~1unctton~ as'would a priva~e plaintif1
r sc ~S .P.A.LS .';~D ~IS'LEA.D ING STA.":'ENENTS AND OM! S3 rON'S E" or )!ATERIAL FACTS liRE ~RIMA FACIE VIOLATIONS ot' TH-I':
fEDERAL SECURITIES LA',jS \'k_t1RA.'1TIllG ISC has 9f, PRELH!niAill.' an,o th':e't' is RB .. rZF ·A.S shewn ,:·a.i 1J to. make abcve, .a,d~quate Def~ndan.t d i scJ.osut'e f.ailed·J ~jU~.n'9
0

in

.at: ae ei or, grounded

~ho).el:{

Ln ·~qlJ!ty •. ~1.a:n.a5rem~nl:. Dync'rn"iC:~1 I:lc~ D~·~cm'·cs, 51·5 F ~2d at

I

$OJ..ot""~. AS $I·tated

i n .'1an.agelrlent

ana.

cOritin!.l·ing
6~

co

Ul i~.g

a}

i t$

t,t"u.e f;~n.anci.al illicit

cOrldit:.lon~

b'} "t;.he -e,xt~nt ~ayments

t.o. wtd,.. ::h t"t h.a$ r eLi ed ./j·n, C

and otR,r

q~estiO.ab1e

to obtain

business

~ncl

no t 'as no or d i na ry 1 i. tig j n C r n qu,~rdlan C.ha·rge,d !;Ii ith. ~afsg'uerci in.g the ~u~~~.~ ~ntere~t In enfo~cing ~~e secu~~tie~ laws. 8enb!, by ma,:.;c,l.n~. tl:.l.e .s-h,o,..,inW z:'equi!:"~d DY S i:·atute :"ha, t: che deIend~n.~ is' ~Ilgage.~. 0;:-' aacu.e 1:.9·~nga.geFi in il.le:gcl acrs , the ccmm Las iOTl i.s :e~ ..JIi;.i,n~~? p"t;"cte,~:t the .!?~~i rc Ln t e res t , -s nd I't.he ·star:tda.rds o.f . ·_h.~ :?u~.l ~:I;: lnt'7cest not; ~t.e -::-e,qu ire..ments 0.£ priv'ate 1 i tir.:;ation mea~ u!."!! t he prop~ l'~.b-y and n~ed tor in j·u ric t'i ve t~ l.i.e.f II: . [T ~.Ir!a, :5EC. ai?pear s be"to ~s .~ s tat:.uto;'y
'11 !

i n ~h'e~Ii:; ~t'·trceed ing'5

9aylrd=~ts or d)

~la.ce

on :eSC'5'

abilit.y

1:...9 t"eal,V?=e eus Lnes s

il:.~. Ij~t1biJ"led
in ce r t ai.n

~eQe.iV"a~le~1I fors i.gn

At ~ idav a.dr:li:ss·ibl~ ·t'+FC.Civ.P.
OIt

i;_;,s, to RuJe

'SWQl:n 'iliv~sti:gati\1e

t.esti!f~ony a p r e I im.inary

~ri~

dac:=~e~ts

. .are

rsc: s ~bili its ~roi'loy~e

toy to

""nti,lU~ 'doing

"~tio."s·;

support 5S.{a.), <i.E,C,

a sne\"ri:lg at
.S ...8.'C!

irlj uncu ; "VE!. tn:~.t'ing.
Corp.
;a~
I

inc~I1Hv~

?t'ogralns)Jbstan-tiaHy

ben,efitting
t

only

v . ~al$taff.
~e~,actori"s,

S·t:ewinc ~

aupre

,

d·~,fe·"dan t .remu'" H;t
tq

and tw(') of

h Ls -a:ssoc.ia ee SI and "e')
b-e.ing: used fot'

h,e ex t.e ,,1";

l"

Q2,021;
<8.'

v , Ge"e~al
tr..at

125(\. in

wh i ch corp.o'r a.te! .~unds
r

have··~ be!:!·;) and are 1:1 a·
SUmJil;e:t".

t.·o ~1.lrchase ~ t)"e·f~t1da·nt

i'i10t;eG'v~rf :::an

showing

def~nd,a.f'l.~~ Yiql~·l:.i.:.'e

are

about e,

.t6

engage

vto l.e z Ion s:
·}!·Ut".$.il~C

for;1ish

improve'

and

ma'int~

"esi.d~nce

r~e :i.i'::£-r'req

f r orn ?dst

ccnduc 1972).

S .. 8.C.

V.• ~1ar;o~

Ce~ters.
d i sc Los'e of the th.eS9 ac~i·,r.i·ti"e.s
5·~C:1.lr i t

In,;;. 4SB E'.2d
C6mmis.sidn here

roaz

:.2<1Cit.

complaIned 1·iu-J5 and

o i. :ar~ pr:-i5!'a 'faci~
t.he
~ourt·

·ji.?lat.i.oris
;;I

The

has: ;nado:' the

t"equi!:"sd unc t ion

~r'irn..pi t:."estr.e!:;
;\c.t

feci~ in'g

:sho'.. .Jig d

:'0

fe:de.ra,l

Ie s

snould

'o['d-e L

p r e LL"inary

w~'"t"l;i;n to is-5.u·an,ce C)f ~i:I.t:lon.s of

a ?ce:i. Lmi-na=.--y inj prov i s Lcn s . ll~~~ U(ai 3,

E"IJt"the:t:" v·'!"o-

~:'le 'repo'rting 13a'-1., l)a-1!.,·

(2-xchan,:Je
I

Sect proxy

i_":Jrl

i~.( .:d
is ions the ".r.~i~

"J •

..;~s.

5c~.lit·z·

B.rE:··..,in::;r

CoO.,

s~ . r a , c

.and

S.:=::.C. whet.:'~t

v , !\"a!\o!e:<,

~. :~~li~ :aci'e E'

e nd ~1.!l~s

an d 1.216~2a.)· "u1.~s· ~4ii-3

the

!?'rO'1

T.he .~toper; shaul.d· be .gt-~·trte:d

E!~.:?-i}.clarc far is

~et~["~ining

pt"~linii.na_t":r mad e .a

(~"ch'once_A<::t

S""'tion

and

.arrd U__"'-,9)

.. ,;cO

w·heth.'et· t:.h~· ComIi'."l"$~:~on has

p~ ima

29. lOb (5) regard and to and l\ule 15 .. its
'5·

29> ha.5 made its At 1918 tria! ,~i.ll this sho·,.ring (filed for ISC's with Ln December per"revious In adi:l.i e-i.on to the information e·xpressly r equ i rud to be included in a s e a cement, Or. report·, there shall be added s uch :ur the r mate c i a1 in fo~a t i on i f any , as maybe nece sa ary to make the required .statemen t.s , in the lig·ht of ~he circumstances under which they are ·l1Iad·enot misleading, Ru:e 12b-20 i3 app l Lcao.l e to 452 f.Sup!? Section at 13 832). (s2e S.E.C. as pLescribed of cu,rrent '~ithin in Form lO-Q. t.he Rul'e RuL .. 1301-11 r equ Iz e s the filing in the
?Ot1i1

100-5). most

Ttle Commission

r e cen

t;

eiling-s:

:'orm 10-1\
on

Repor-'t;s u!?sn a fix·ed

cccuze
time

nce
after

of

evenr
the

s specified
occunene s of

1978)
manent

1977 .• ,,;oxy materials.
~elief, vio1a··ted the the

ios

claim that.

a-I{

p.,doCl

of

av an t.,

injunctive also and

ccmm i s s Lcn

"t:.ove and

.fil ing·$ have of

s .. cud

tie.s Section

l a",s"

th,a t c,.ertatii the of Exchange

its books

and records
by the

Iliola!:.e Foreign POINT

IJ(b)(2) of
Practices Act

Act: as

promulgated

Corr·upt II

1977.

THEREuNDER
The· reporting "technicalrequl.remen·ts". explained wb~ch as

REPORTS VIOLATE THE REPORTING PROVISIONS OF THE :::XCHANGE:ACT: SECTION 13(a) OF THE EXCHANGE ACT ANI} ROLES 1301- r 13a-11 AND 13a~13 AND RULE 12b-20

ISC' 5 PEiuODIC

v , Sos.

Schlitz

Bre .... ng i

cc , , ~,

.:

prov is ions

of

the

E:xcba·nge

.",ct and

ate central!

[lot

met'e

Thei.r in the

s i9n ifica..tlce
Report

ty were
Committee

nThe ?utpbse of tequirLng Ls aue es of securit.ies to file r epor c s ",ith the Commission is to insure .th-at investors r ece i ve adequate pe.riod Lc reE"orts conce cn i nq the operation and f i nanC i,;,l cond it ions of ·cor"o ca. ticn". " S. E. C. v , Il:alvex, Inc" aupna , ·425 f'.Su~p·. at 316. ~-These pub l d.c of reI'Or~.s, OI.h Lch provide a vit:a.l
la.Vis.

fOllm.s the

Committee 'Act:

'o·f t.h e ilouse

infor:n<!tion eLemen t, in "Clea.rly 13(al
t_be"

abouc the

the

affairs.

of

considered

Bxchange

cc epc r a t Lcns , are s~c:,u:riti'e:s under

d i sc Los ur a scne",e that an

No investor ••• Can safely buy o·r sell s .. curi ties upon the exchanges without having an intelligent ba5is.f~r forming n i s judgment as to the va Lue of the secur~t1es he buvs Or sells. The idea of a free and open public market is - bu Ll t on the theory that competing judgments of buyers a nd sellers as to the fair p r I ce of a security brings abouc a situation where the market ",rice ref12cb, as nearly as pos s Lo Le a JUSt price •.• T]he hidin and secretin of important information obstructs t e ope:r:'<! two of _the market as indices of real value •••• T~e dlSclosuce or 1nformat1on materi.allv iml'0r·t·ant to investors may not tnst·antaneously b-e ceE.l,ectedin m,.rk~t v e Lu.. , but de sp Le e the intricacies of se cur Lty values, truth does Und relatill,e ly quick ac cep t.ancs on the ma.rket. ..•• Del <I. ed inac.curat .. , and misiead in re ort.s <lte the tools of the unCOnS<: on ...b.le marke.t. operat.ot: and the recr"an, corporat..e offlGiaJ ~~.
4

th~ Federal file

t"~qui['e!'Oent
t he

issuer

!:e!torts

Section

embodies

recruirement

supra.

425

f.

Supp.

at

J!6.

Wh·en. a~epot:t.

which

is
13 (a)

r equ Lr ed tq be E Ued
is violat·ed. Cir., 453 v,

is

materially ?a'rklane

false flo" i s rv ,

and mLs Le.ad Lnq ,. S,,·ttio.n Co.

S·. E. C.. v , l'!f771, (2d s. ~.C.

Inc.,

558

f.2d

10a3, Inc., 920

10·'85 (2d 4Q7

v , (lre<l,t c .. rt.
Corp., 400

American denied, at at p,

Industrie's, )5·9 U.S.

F.2d

C1r"

1968), Brewing

The reporting provisions o~ the [Secuiitie5 ,),ctJ are a very modest beginning to afford •.• aid .•. in the way of securing proper infon.at.ion the in\l'estoL. (em"hasis aupp Li.ed )

!j

Exth~nge 16ng denied fo.r

(1969)

~ S.E.C.

Falsta'ff Co.,

.?~,
F.Sup,P.

94,470;

S.E.C. v.

v , General
Kalil'':', Inc.
t

Refractot"ie·s supra, .425

~, at

1257;

S. E:.C.

F.g"pp.

J16. lEC's

sec e Lcn 13~ a, of the E~cha.n<Je Act req-uire-s cor por ac Lons ['egi5ter~d
wi th the the Commiss ion, Itlc1ud 13,,-1 il19 !SC,
tQ.f

ISe's
finC\ncia1

19Ta Form 10-;( does
condition, t t.s illicit

not

d Lsc Lcae
othe'r

a.;:cut"ate.ly <,;uestio.nabl

se r Ious

Ll.e

",,,escribed ."nnu"l
l(}-K.

repo·rts Report:s Rule
9

'~i th

and

.. "ayme.nt~,

Commis'l Lon , Rule f 1."anc·ial £ i J. i<l9·
0

r equ I ce s

:.be

f il ins of on For:tt f

'incl udiniJ ceq u I
l:"~S

s ta~ .. me'nts,

gener·aUy

13 ..-1~

of these payments

on its abilitr

to Obtain. business

or ·secure

,~ys s

E Qua r te:r1t

Repo·rt s

inc 1 ud tng

1na

nc ia 1

U ~e,~e n c.s receiv.a.ble.5.tI caused by
arid

I;' R. also,

Rep. NO. 1383, 73 rd (Ong., 2d se s s , 11-13 (1934). ~, S. Rep·. 1,10. 1.455, 73rd Cong., 2.d se s s , , 58, 74 11934).

Ue"sca.latfon atti\lities,

ll

c
Ehe

Le

ims

,

the

ri

s

ka

t~· ISC· s and

bu

s

Lne

these

inber~st

ot Kenneally

his

twa

197

associ"tes

in t·"'" D",f.. ~red compans a e i on Co.porat:i.on,
summe e residence

o r ~he f..unding
.patty

nave

made rep.ea~ed

.11ega1

?syments

wi thou:'

·bo,a!:'d i:nc;'1edg.e

and

of Kenne.illy's of
ISe

by rsc , or
~. 58. non-d

t he

related

dis5'osition

prop".

acco.unt·lllg be ceus .. a't it.s

"elevance

to the

~.,"u;i.lity .of managem,mt" (~I

subsidiat:l.~s. .ma~t;er$.~ and

Sae,
trius

AiL

Th.es-", are all

und l ae.l.c sed

anc p.;:>ss,.i'ole

Impz ope e exae c Ls a of corp,ora te aU1:hari t-:J;

even

ma:te:rial

their

i.ac.l.o.su r e con s tI t:Ut,S!

",hen made '~i'oh of' an unknown

express board '.·PP·n,val,
nat.ure ''''h~ch migh.t. ,=~te:1d

'they fa,~

could
o.e,yori:d

h"v~ the

""penou'ss '::or.~
qu.es E..ion

.52 marketin,,! at pp.

!". SUE'P, at a'cti"i~ie's);

832

(!ailure

to

disclose

S'o~e.ntiall:r Con>"

lliega!
5'-1010",

S. E. C. (fa i11;re to

v , "'a,lstaff disc-los!" r i sks

"'r~wi:>9 s-e r io-us

9.4,463-47,0,

(in"l1<:ial

condi tic'"
t;'Oc

Nea,S,'Uired'a·gai.ns1: t·hese c r i ::;e!.~ La , ISC'.$ na t ion
is

actiV'i

ties

in by

fOt".8i.gl1 ~heE!'.

of .com., .. ny, fail".·", by

to disclose

to whLen bus,ines_('l s.ubj-ec
Cl?t"t"'~cti"ng. to

:l'pe the.l"

r e 1 a r: Lcnsh i p

1:0

i·ta

bus i ne ss

af fee ted

i ncu .. mben c managernE!"'L~) ~ ~iJt'·ths:" S:_"K5 and and the prqxy rules m,c.te:,t"ials, ther'eundEfl';, ~ at ISC'

by hot is'

i t s defect~"'e
~iqlat:e_. Section

Form .!.3{ a}

C:Q'n'::.ir.ui.n·~ aU.Ie.
r

including ~P4 III 94

1:2:b.,.,20. 5 .•~~c.~ :v.

reflects,

'on the qu.al i-ty .. nd i.nt"'j'ri ty. 01 .manag"meflt artd because

&\~.l.staff.

Bre.wina

COl;'p.,

47 L..

PorNT

nrc's

f I\LS f: AND. iHS Lf:ADING :;;TATE:1EW:;'S V,I6LA;-E. T:E .ANT r =f~UD PROV!SlO'/oiS - seCTICN 17 ("'I .OF Tli.E SE-Ct!RrT~E., "C.ANO S~CT~JJN lO( 1:» OF THE: EKGHANm: ACT liND RULE 1Qb'-5 TliERSv_NDE.R

1~'C'.s fore.ig·n in an ·econom.i~ and senae,

illic

i t and questicnabl t h,ey of also rna t~ l" ial

e pa~.errt$ in III tha. t its

~ra

mater'tal
tt.htl

not; cnl~

r.e E lee t.. on

inte-gr'i,ty

"bility

rsc :nall<'1>gement.
I'; r aan

!1ay L2.

~976,

repoJ:'"'

to t.h'~ Senate
REiport c·t the

Banking., .8ou.siog and
S,ecur.itie.~ and

.Af f ~i rs cornm ets;e, t

e n t i.t:le9

E:xc_b~nqe ._Cotr'.1~l:S$.icn

On Que::! =-.i9r.·a~1·':!!··

a,nd n.le9'al
.ehe mat;e~iali

Corporate.

p~yrnent$ ;lnd' ~racticas
and qUia,stic[lQbl-.a

t"e Ca;r.",J_s5t<in discus'se'"
?i:!.y:J\'sns : ~I t In d-et~rmi!"ling

I::'y·of. illegal

-C;-on'9r~ss in enil::·ting
$

a.Xi?'~·~~sed

~ne '::..he Seri(ni5n~ss

~or~i.gfl Corrupt:;:
c::

Practic.e's co r.pc r-a t e t)l:ibet'l' .:

Ac t.

whether pay~ents are mate~ial
whether in (1)
I

considera~ion Should be given ~o
Ln araoun.c: (2')
t; .. 0

they ·are significant th:ey r el ~teo
tQ

a.l though

'1Qt

significant

aGlOWn t:.

a S 19 n i E l;:ar.rt aracun

f: qu:s 1. ne.s S;

~]}

L~9a.'r:-dle5 ..5

oe

tho::!r i

sLze 0(' i~paot

en .bu.:s,i!"~es.s, .cot""p_b.rat;.e·9·~':i::ia.l$

Th'9' :::'::Hn'mjS$ion ,r S ••v01uhtat"y C;i$c:.la5~r~ ?t"og"t"Ciwil ~ n cou r aq ed ~o["O"..ora,tton:s t-o conduc t in~~rnal. irwe'::rt iqa t.iorrs e rrd ~ut.! iC'I:!'

Co ('00 r a t-e ~t"" ibt! I:"'rl i"~ bad bus ir.ess. r L: out :: ree. marke t:. sY·st.e:·m it:: is tJas'i:e: r:ha.~ th~ 6~'le Qf pz oduc ts should ·take ?l~~CIf on t~e bas-is ·c·~ pr.ic~, qua l itl' I 3nc 5e'~V ice. C.J t: ~.ora e e hr ib-e 'Cy is': undarne 11 t:.all y. de s 1::...: C~ tive! of thi·~ 04~iic t.'eileT:: ~ Cct;.'c.t"at·e brib~!"Y of ~v-r~ig[i Of .f i.c.ia La t:akes· ?l"_ce ?r'imat'" i 1y tc· as.s i s t; "';;[)~;?;:n-'a ions t; in 9 ~ in :Lng ~v~i nes s • T~ 1..:,3! l.ore i gn co rpcr a ~~ b ~ i.~e t'i af n~(;: ts ·t;~i::v-e!:"'f s t ab-i I i ty c!: ove r se a s bus i"~~ss fc't'"~i~n' COipb~d~~ nrib~~ al~o aff~Ct Cur dem~stic com~~!:.·i ve ::.1 !-iJIa:.e when dom~:=i~ Lc f ir-::ns eng~g~ in s.u c h pr-~~~
L

di~~lDS& :heic ~atscial que~~ionanl~ an~ lll~g~l ~ay~ents.

~.~~.:~g'

~sb~S-~'~~=;

,: t.u t~

::: r .~~.:;1th 'f CO~L?e t, it. i.ori o

i.~\t'"

ISC COjr.;me:1ce,j e.n .f;:"PJe~Ll.:;.a ~ Lon c;:: its. de t r·y i t Le s Or'll,! Qi i::~:' be·ing t-QIG t.~~t ::he' ...Com;tl i~sicn h . ad conc e r o s ':~r.jat"d Lnq C~ "c,.a l~ of ISC over se as 4ct;;i.v i ties. ISC h.a:.s. ~v~'r n maoe I::he :r.ate!::' i a; cl is·cln5cr'~s d i..scu·ssed f1,eie i,~ and has r e fU:S'ed: to .gL'3nt'. t.!'"'.e C.Ofdm.is.'? i.on un.:E e.t:t~'Eed .a cce s s ~o· ~hH. undec ly i:r.g ccc ume n z s
4

Se::"la."::~" ?.. p.o·~ '; ~ 1977, p , 4.

:~" .

of illegal and location
extensively laws facts

and questionable oE employees
discussing the

payments lnvolved
legislati,',e ~here

abt"oad, ~I in the foreign
of

Ot" ch~

i.dentitites
After securLties rna t ec i a I

?aymen 1:a ,",as rnate r i a.l Eor the stockholders 'Jb.o took

and to

e.ha t

nit.

w·as. 0 f of
!II

the

u tmos t

impo r t...anc e I, ~f th~
CQl:'~o"t'a,te

payments.
th-" ~ed_eral

big cogni.zant in

t!-:e. identiti.e.s so t~t

hLst;:dry be "full Court;

officia.ls

part

th!? s cheme ,

a. complete

untjer5car:.ai~Cj

and their
(452

comraandme n z that at 1321),

disclosur-e"

of

F. SUp?

tlfe ~

held

~:,o.t:
!n the

Ti:le ~ Schlitz,

decision d~nying

5.ounced t.he s ame tiv.e.m·eas did
to that d.I smu s s the Corrtr.:'!ission'
5

~. eom~lainr:., made in to

In c Lrcums t ance.s where acz foc.s by soma :r~embe\rs of corpor-al;.~ managelllen t "av-" b.een cha_-llenged as be ing que-s c i cn.ab.Le, if not ou trighi: illegal., <lnd such ac e Icns have Lnde ed been ~cknowledged by the cor pcca c.Ien itsslf, it is ;ertainly necessary that stocknolders have knowledge of the i~dividuals involved and the act~vi~ies whi h t~a'1spired ~'1 order that the? may have a full o_pport:unity to 3E>pria.se thQ~e activities and the participan~s. Such aC~i?~t1~s bede tbe closest ~elatlonshio to ~~e int~9~~~Y oi management. 454 !'.SLlE>P. at L323 (!!mphasi.s aaded).
The ~ court Clayton then in f~und t.his 'th~t were IIt.he cli$closuc-e-s ir,.adequat"
g

a :notion at"gurnent.s and

cour e -rej ected of f~derdl

p"yme'1~" Laws of

DE
to

s 3 mill induc-e

ion

violation 2urchase:

-stat:e
on net

liquor" sale~.

re t s Ll e r.s $1

Schlitz

p.r::-oduccs

I!!pproxi:nately

bi.i.l.ion

r.rade

by re-

not

rende~

Schlitz1

financial

stateme~tSt

~e~iodl~

r~ports,

~~gis-

t::-a.tlon Andersen sj?ect made sought: to .c.a~ou,flage the spe c i E i c ttdn·sact.io!1s· by th~ con c Lnue d use cot .euph.emi~m1s# ger.er:alizatior;s, and v aq ue , sel E-sac·,·ing language tha_t did no t; "-'11i-~hten t he sna>:·eto c a se wholly '''ith the ~h,!:! Eoreign payme:)ts ope r ac Ion , arid that filings

s t a t:erne'nts ·.and pro:<;t

so Lf.c i t at Lo n it"'.aterial

s f 1.2.1::0'.-Ii t h the

Com.1l1iSsion mater-ia11:t
I.n rejecting had stat~d Ac·t court ana a claim

false

and rni s Lead i nq , ·4"52 F. 'SUP? a c 827.
argW~ent5 e n d Eindin;;: Section :7(a) ::~s of tnat of t::e

Schlitz' for

Co::unissi.on

~elief 1) (Q}

under and of

the Securiti@s

Se_ct.i"Dns

1.0 ~b),
11

14. (a ~ of i:,.~.i;:!.gt"ity

EXO::::.hangeAc t ,. the. m.arJag·emer'.t :; i v a s

19..
See

hc Le s r .about tr nsacticns

-th,-=,trw'S nat.ure, scope, and ~ff9·Ct of. !the and 01 manQgementis in',.;ol'~e;ne·nt eb e r e i o , Falstaff is hel_d no-t that Brewing Coro., ~ at p, 94 468-69

.sr.~a.te-d t;"a;t to the

the y'u~sLiQn
e r s " of

materiality
".J.
j

t.b e ::lat

h'h.i.c:n the that

COffi."iI.issior.. 53 :Dillion

com91ai.;ed. in p:~yments

e.Lso , 'S * Z ~C ~

_E'urthermot"E!,

cou r r. obse!.·ved

,,,til.e

(buz i e d disclosur-e the ~
GOULt

adequ"'-te d i sc.l.osur . ?inal1y, e}
the lcc-a,tion and timing of th ..

r~pres-er.te"d

only
to

3~

of
~he

Sc n L i tz'
company as

sale-s,

the
O!;"

econom
to

Lc

i mp L Lea i c an

t: Lon s
t;

:l.f tk,e ~ayment of
i. t s bus art-aun.t the
i:'18SS

a ",yhole

a ~ igr.i::
I,ffo.€:-t

! Lrie

8.S5L!IDeS

rna ter; La i i sz 2art icu-larly
that of ~ay be deps;10e.,t gov-ern~e:-:.tal 3Ja. :../

measured by

ag..ai.ns t iz ,

HI

The c r re ec r , And e.r acn Claytonwith t~e Commission, just as

that,

& cc . , ha-d ELiI'd a form 8-[< ISC had doo~, stating in ?artl

t.ne

of

bu-siness POS$i.blit~ too.

on or

affect2c

f'inallYf to

rO[,2i'gl!

a c t Lo n '.vas

thought

were' ce r t a in tra.nsactions in ccnnee tion '/'I itl:i fo"t"e:i~n sales arvd Q-per;atio·ns which Lnvo l ve d payr..ents :0 agents under c Lrcums t ance s whe·t:e it is ce<!sonabli! to assum~ ~ha~ ~he agents used ?a~t o~ such f~nds to make payments to ro r eig-n g"qIl2t"nmen toE.:: ic LaLs altJ~o!dgh no em?loyee of t.he Co.:n9any has ac t u a L knowl.edge -=.~ at such !?a,yme.n t s we"t",E! in fac.t ;nade ~ n The IInderso" Clayton ~orm 8,-K also s t a.t e d t~at:

... 1 t.] here

be m.ater itll

452

F.

SLlE>9. <it

~I

brea,:th

Subsequent::o supr~me Court fed:r-al
and

the

~~c:ur':_ti~s

~u~~ose

tho:! Berman and Schlitz de c i s i.cn s , ~:-'e. had ~ccaSlon to address t~e q~estian Q~
of

~~~

~ce~tdin dir~etcrs and ~ffi~e~5 wer~ J~neral11 a~ar~ t h e ;a"'act.-ice [o~ makLng t~,esel ~ensit.~'J= ?d:!:7:er.ts (and t~.J..tl ~.ntci'=s in t~'? ~~::l~ai1:!I~ :-.DCC·r-::j-=: •..,'::::,...2 :10':. fully descri?~lve Qf ~~~ tran~aciiQAS~11 45~ ~:Supp~ at i315.
of

17 Ca) q':: I::h.e Secut'i t.ies Naft.ali.n, ..+7 U.~S.~.W. C~u:-t ~uote.d appiov fog 0:; ~~~ S.~c'Jritie~ Ac c , "The ?L1~pcse oE ?tJDl ic and honest. E'oo tno t e con t inue;d

~~7-i

I:.he -d Ls c Lo s ur e. t"equ·i:-;e~enl:.s. of Laws arid , i.n ~~!'t·:.:'.J13r, Sec:tlon Ac t , In Ur.~ i:.~d St~ t>2S v , C"iay 21~' ':9-~i, ~:-t~ SULJt'eme ~y from :hc l~g Ls i a e ,:"I/~ !""'..:'-s ~{j~: IQ .. at. f~~76; l~ to ~rc~ect .~~e 30. l~vesting

t~is btll bus i ne s s . ""On P .. E! ~:g

T~e ai~ is to pcevent

,:ornm!ssi!:ln ""le l~ (al D),

~e.gula

t:.

ia,~z

conce

t:'nin.g the

the

sol it; i t a I:. inn r"qu.i~es

.0 t

;;rox ies.

!?~omulg"t"dby

!;ommi,.sion

:hat com[)""ies

""

s·e t; forth

i.n Sch"d"i~

~4A (17

C. f.

a.

§24C .14"-.'0].

Rule 1'1·"-9.

mat:.2.!".i,a.l

fa,c;;ts.

~I

An, .om i t 'I:.~d i: act is rnat,e r i.al i.f che re i:;; ..a subs tan t.ia L 1 i~~l lh,cod t~a!:. a 1-."'S!.530n.abl:e shareholder ;..tould con» S id,e r- it impo:r..-t"ar. t Ln rle-c id .i!1:g hc,w :"0 votia , Th.-e SUP~enH~. ccurt
~ ,: r-

,

t"'ecog.rli;r;·ing

thet

thl:

concept
t; r

of

m,at,.-e'r1al1,':y
$

.i.~ an

~l

ve

::lne,

E ur che.r cb~e't"V~d th,.at

:the

i er ci f f ac t

hou Ld con:"'"

$ince
ISC ~ S t'A·r.S€ A...'lD· ~'l':::SL.EA.D:::::H':; 5T~~r;:r.:·\E:'!TS, VIOLAT~ THE ~ B.GXY ~ HOVr S:-IONS OF 'l_1H EXCHANGE E .Me':' - 8,ECr:IQ~ 14' o ~ T.!::J1:: ~XCH.;NGE ACT ;~~lD RU-LE'S ~rHEREU~~n::=R iii)

t.ne .~1orthwav d~oi~ ..i,onr

~

number o·t 'lL:l~rer COu~,t.5have

.. e~d n

only

a I i. eg ~ a ma te

t"

i.';:, 1

'r

i.o.La t.Lon

~f

t.he

proxy

r 1_11~s

to

S ta ~e
SUI:Jt:'~ •

a c La I rn rot'

r:ells£.

Ses ~ S ~E. C:.. v , Jos.

Schl.i_hz

SLewing

_Co.• ,

.

~/
fUr't.h~·r

~ ~ not

d i sc.Lo s e d , which

OJ:'

if. disclosed· 'q is~ussion
of

in

Q

a;l~,leacii.ng

rtla.nr.ter , consi

or

in

i nva s t.:o:;; r.o ?,:r;oteet bone s t ~n t.e rp ~ i.sc I S E~king Cnp ita 1· bj hones t. _?t'es-ent,.a~ion, a.;:a.ins;: ::.hS!, ccmpe t,t E lGn ;jtEorded' j.y d i"$h.o;:e;Lt secu.r it. i e-s o~te~ep ~o -:h'e pub I i c '==;"~qlji.1r. t::'t:"qok~::: p r crao t iqn r r.c res t:.C'r~ ';.,~~ 'C'O:1 ,f id enc e o"E LJ"';o;!, ?t'"o_Si!-~~: 1V~ i.nves aor i n hi s abil i.t·~ LO s~.l,ect. s ourrd' 5:~:::U,r. i t·i~s; to b(:,:-u:l ~."1~Cl :?t"pdUC.:;l~(~ cnanrie Ls c~ l.n.d'u-s=.r.y. ~.nd d~\(:2:!.;:l~'-,. merit: ~.apit~l ·~hich :1..3:5 ~t"~~ .. -: tLTiid t~ ~:ie';:·cir.t. ot r.oCl·~ji~qj ~nc c o ~,i.j ··i n ~t:'QV idt!":;~ ~~;~o:t;-:..::-';t a:1:d:;:;:$ to::-i:--q buy iri~. end ;:ons·l!.J't!.~"'!;g Fow~.r ~ S. 8.1;~. ~o ~ .t J, -;3d i:on9., 1 s t .3!i1~"5 1 (19J}:.·'
4

~~~~;~~;n ~~:~~~$~ ~1a~~~ ~~ !

f.n:.tl1oi t~t·:'cr;

o.E L,,~.,~ublic p r.~ ~~.~~_;t

t~~.o~~·~.~_~~;. ~~.,~ ~,!~~l~~~:n ~.~

by

the

s a l e of

·U ... 'l~QlH·ld,

a manrrer

·')mits

~at".t icu·lA['" i·act.s,

ti. t.ue

~) to

the

tDtal

rem<lnet'.ation

of~h:05e

seeking

e le-c:tiOTI; III

to th", to

se~t~W$ flnancial· cqnd:ition of ~hg entBr~rise; .~) to the tisks

,:,'hG a.ad

Cou:;-I:: ~~,t" t!:r~:~ r,o·:,'~c:'::~.at. t:.hB 3.aCl.J 1.'" 1 t iss Ac b.. !.3 ~.:l. te:lde':J ~q ?ro~ots Ir~~hlcal ~c~nda~ds. ~f han~Sk and Ea±; d~d!i~g'~t '..'a·s de.s i. ~n·~·j'c ~~ 9-::'': L;.~.::: ;1~'.t. c:~.ly L"j~,{'es :::::;a·~ t;;ut t:..1'"".·~':-3!.. DU.S i:-!.·==5 5:ne·1"'.; dE W~ ~.!. and 0 acn ~e\""'-e a L');i.gh ;5 !:a=ndc:t;:f 6::t: ;l1!~;:i:-te·g-a· :=!t~-i~s 1:1 ii e:'r:l _:·acEt:. of ;.:fo;e a eccr i t i e s indu s t.t':_J ~ Id ~
II ~ 11 II ,i

:J

P.u1·e 14 9 "'''Y b", f ou nd h :·!emor.·~"du", ..

on

'1"-

b

.t;'e S ts·t ~ to ~y ", ",pe ,,-;; ;, i

e.c

'!O)

to> which and in

~he which

iSsci.e.~he

or

any

c fits oE:io~rs the

subs id ia( bad or is of 5uor" 4.52 at

ies to t~~

"".5

or

i s a [,ar·ty a direct or

and dispos~tion of its a~sets.
6. so on The books and recorEls oE
q'

issuers'

have

major "",t

subsidia'ry ,;xpr"ss

w"~e an opinion to t_hat

indirect See ~

intEu~'25t; and , >e}

int.egrity Co=.,

Lncumbe n t m,·ana:gement. 94,468-701 831; S. E.C. ~ v.

incomplete the

~ha{: the condition

aud Lt or s coule 0'0 that Ei;'!.a_.ncial th" ~"gl'ish

v , "als·tar::
Schlitz Inc., ~, "5r,,'~ins

a,,.,,,in,,, Cp.,

at pp. at

fL"l",,,::ia,l its

suosidiary viability Companies and

except to

v , Jos.
i<all7ex,

5"pra,

r.sup-p.

-que sc i.on it was in

,continued
t

~o·te

425

r , Supp. -

114-)15. th·e

:"'1
true owne r s of the
COI:"-

v i o.la

Lcn o f

Ac~.

~ormally, po r a c i cn boY the" an and

sha.r.,ho1ders tbe ilidividuals
1 ~-

who are

whc'se _property =h ave b1Jt one to of

is- being o~po"rtL.lnity have the

acrninister-ed to expr ess
I

furnish Kenne.ally.

and

maintain

a summe r ho:ne

i.ll !reland

fo-t'

Defsr.oant

en teritt'"iss
0
[1

management by the

op i ni

0A

ho.W' and

r,·,_hom th ~y w is h

i!;"' cot:'!?o.r:at ion
~ ~ is

s

s.
9.

Fo~eig.[!: 'oreig.n

scbsid

bar iss

maL"l_ta itJ-ed 0: f'-book ·.;er., sold to) persons

lja.n!:. accounts. associ"ted

affairs

administered:

annual
meeting'S

meeting

snarebolders.

subsidia·ries

in an e i c Lpat Lon qi those uaua LLy are se
nt, ,
I

that

pt.oxy sol icit_ing

ma..t-=rlals

with

rsc. to.
Three per-sons , Kenneally of
I

Ro"Ss and

Let:"ner, (DeC) of its

w.ere che g,ui?Posei.lly

The

que s e Ion have

Eheref'ore been

I

'is

whe ther

the

vote

0

E ,any

ISC sharethe Eacl::

?~~n"ip"l 'est:ablished Impo.r t ann

he...,,,,f,iciaries ant! 'and Aft.er funded

a. ~o!T\",e.nsat~.on Eo:!:" the

,,-.lan

ho Ld e r' '.;oul,;l thaI::, 1.

ir.£luenced

by full

d i ac Lca u r.a of

by ISC

benefit

ill,,"t

"key"

of f i ce r s and

d i ce c'co r a ... ;he dil:e'cto·t"s the .sh,u:ehold .. r s

ISC

p-aid

apprqximately

$ 23 mill

ion

Ln illici

t

.artd of !SC to the into

11.

e Lrnos c 13 months,
t

quest 10 nabl e fO.t'"eig"n :?ay~.e!L 5 to t 2. risk loss and the of Thes.e loss ql,lestio'nab.le Of almost

sS'cu r 2 bu-s i rl,e s s ~ [i'ayrrients in in the subj'ected

ISC have

no

finalized -rl!port

and by

p r ee en t.e d .eo Ol+tside

f..ore igr. S31 ·mililon

ihvestigat:i'le IS-C' s illegal 12. The' firm

special

counsel

Look Lnq

"unbilled affected

rec"iv.ables·, nations.

and questionable of
I

activities. new' Chairman of !SC's

contracting

opportunities

R.F. received

M,=dina,

possibl,,·

prose.cution,

~ioard

o.f D·i<eect:ors

$604,000 rHas in charge

. ~n manage~ent "consulting o£ the s>pe'ci a I

fees ~ whlle were of 4. and dUbious "oreign v a.Li di cy , <:)overrunent 'afte" they entities made and had inquiry payments arid been with to its r"cord misled respect government about,
.t o

he supposedly
by' spec La I is

reV'iew

being

cona.ucted these indi 9ain,
ten

outside .t'O answer us i nq

couns e L, ~/ t.hern: the One does a t ion F.S.u(,p.
l s s , as

'1'0 ask
i:l\d'S

.questions v id'uals ~
t, 0.

[lot they at

elect :t:"e9t:'esen~

pa.rti·c\.llarly use S. 'of

,

.d-i t::e-c tors pe r son a l
ar e

·,.,rho are.

coxpor 42~
az rup

proper

i. termedia:!:'ies ... bocks .e nd and r ecc rds d i.d not

offlcjals~

for
who

v , ~,
devoid 'of

supra
mOt"al

315',

or
e

The

Of 'ISC accurately

subs id La.r i e s the use

50

Lncompe

eo

c

aus

...er.e

not

accurate

.~ d i t·ec{.o~-no;niflee (l i)(e' De;o,=,,,dan,- !("'.~n" ally) has a au ty to det.e rra i ne the val.i.dity 0.£ ?t":J'xy ma t.er i a l s s uom Lte ed e n d co correct st .. c emen t s 'and fa·cta wh ith he kn.e w or should ·have known w~t""e· e r r oneous Or m i s Le ad i nq , S~ So. C. IJ. ~alstaff Br~wino Coro~,

supra.

l:J.}

the

ent:er-prise from

to.
rscrs

b~ p Lac e-d i:1tc t?coxy solicitation

fa:ta_l

jeo~drd1' matl!!t"ials

Cl~ariy, ·.,jJ.as, by

wha.t: was any standard,

issued

Q

~empor~"Cy
I

testcaiai·ng

ol;'dec-- efljoinit\~ or dtSf!03io9

the o.f

defendants

fr.-om

tnissi.ng

IItdest.roying

mutila.t.ing,

c·oncealin'9
l

Ln c;iny manne r "

cor:porate
·and need, to make a" tnioc::I",d judgment. pro A SPSC!Ai; :"GENT and

ccoks

and r"ecot"ds
de·~i2ndanL..s·,

Eree-z'ing
e s.z ab], ish ing

the

7.3SSt!!t~

..oE t.be cot'porate
r s cve r th.J2
COLl

i nd i.v idlJ~.l ts ~ stock
tl

voti.~g

tt'us

de-

PODIT THE COURT SHOUL:;'

fendan

a no appo 1~ te d a. "temp.or.a ry
n

:-ece i v~ r" ~ ?he

rot:

A??OI~T

ord.ered· th e
oEal! ass~ts·

tempo r;a.ry r-ece i ve r
and flc09.",·ty,

to

take

cus tad y con t ~a 1 and pos s e ss ion
arid r-ecnr ds , bank nin and

l nc I ud :ng pr ope r

books and

litigant, t.he public

"but

as

a statutory in

guardian ch e

c~aI"g~ed secur

'J:.:::.h sa£:agu.a_cdJ.ng laws.
U

:.-rust v. 1:13p'r:event the

ac ccun cs , securities, irt-eparaole

ty

premises,

Or:je:~ t:o to the

intet:'est Ovr.tamic5!
t::t2

e nf or-c i nq
~J

Lt Le s at

.s~E.C. h-ave

toss , damag'e and
cs from control all

injuryJi
.and asse

~o investors, rn-ar.agemsh toE and

r~;nO\F~
~n t e r -

~an.agem.enr.

I·nG.,

515 F2rl.

503. seek ,

Court~ and

indi v iC=~H~.lcielenda.n co ",1Ike an paid to or

pea t.ad Ly uph'eld

cor..>n.iss ion IS
1::;0

eu t.ho r i ~y to

~!"Le C is tri..;:~

?rise,
funds

accoun ting c f ,';'cel.'1·"t1 by
rit

ts

1. Lab il it i"s
arid , t.ad

a C a:\ci Etnally,

cour
relief

e s ' e qu i.Eab.l
the

e power-

grant,

reli_ef

anci'l+a~y
aut:h:pr.i.z·e.c to

to.

the

l nj unc
The

e Lve

the

c:orppr.ate

d"f"ntlant

commLssLorr

i.s ·;speci..fically I:.h·e
Ccmm i.s s ion

rnbt3ir..,

to Lnqu ire
t

in to and accou

fot:' wls,apr;:rc!? r'" La ted
Cor::J'Oration, (l97~ I n, D. c.

cOt"po!"a

assa ts ~
CCR

=q ; t ab Le
and · ·it:b ... books the the and

remedi~s

which
of

s-e~ks
Cour-t

.... a p r e L imin_a:r:y
to

l.nj u nc

Lo n

~
,,,d.

v , AAii.n",,, Re·sou,c·"s
Sec. The

Tr~ns£"r. 197 a.) .

Sinderl

.a.ppoi·nt!Uent feoe-t""al

an :agen.t

0:

the

aaau r s c crnp l, i.arice t he as se t s and

r.. 2e".
f.acts

~ 96, 3Sl of this

'" t p ,

96,4 S8

sE:cut".ities of !S~ -

1.:HoIS and

to 9:r-esel;ve·

case

c l a ar I y wat"t"nt -th~ of

the

im",ed':'ata df a spe-cial its

r"l~ef agent

t:~cor'ds

a r e e s s e n t.La.I

to

corr~f::t

t:::e Def-:.:=nd<!_nts r

prayed to

for

by !::'ne Commies ion adequate superv

ap90in~m.en::

assure

i s Ion

defendant

!SC and

assets

~4here cCH'?oratians, tnismal1ugem-ent, gro.ss
abuses

as

he r s , have of

been

the

ta~get
Lc Le

of

frauo,
t_1-.... e

and property. T.he tals,,· t.ne to rn,ateria .its past and mLs I e adi nq which it has statements omi tted it;:;

crus t, ana

us e d

as veh g"am-ted

s for

·,otri.ct'!

rsc
fer

bas

;nade

in,

arrd

pc Lva ee pur pos es of

indivi-duals·,

ccur cs h.av~

t_he C.::Jl"!'lm.:!.ssior.! ~

1 fact.:?

ft"Ol1l i ~s ei a nns

d:iscl~·$:;.Jr·e~ l:"elaJ:i~g
"u;lbill.t!o and

·and p.resent.
rt

activ·iti-es, ~ayme'nt$, the the

r-e'-

':21

r.2-d 1972)

190 ..

(4th

tiro

.1970); as noted

S.<:.C. by the

v , Koenig,
Cou·t."t. in

469

F.2d

196

(2d

ce Lvab Les ~ 'ana

escal~·tionll

the of

ki-ck~bd~k;s thc;s"

~eba t e s or, arid cffic~L

Cir.
MiRing

'!oredvet.", ]27 f.SUpp.

S.E".C.

v . Golconda

f:: rece Ived
its and business,

f z'om 5u·ppli"ts, as tJ~ll -as

ef~ect

3.ceiviti.es

Co.,

297

at 259 of

(S.D.N.Y. some

1971)

an "injunction

_c~lated-patty

transa<:ltions !ia'le ~i$led and

aga.inst:.

r:uture

vic!..at·ions.

while

deterrent
Ii

fot"ce does

ti.ct

d i re c t o r compe~sat.i~.'l

and benef:ts,

continue

.cor rec t the cousequence s of pas t, conduct. ~ecentli, in ~ case involving

td mislead investo~s in Ju~t tnose areas of requi~ed d!~c!~sure
cE the d~ti~~~ud
mO'st v i t a.I i:.o informed _..r.v~s·t;nenr:. decision
11~•. S
<J .... I "",,.jo;::

yi~la~ions

-and the
l LS-t.S 3rt

fedEral
l:ll:r;ed i

securiti,es

l~ws disclasc.~~ ~cO~isione.. ~
ne;;:d tc the O·istl""ict. ceur e , on an ex parte a?f.:1;c'at!.cn by t."he Ccrr.mission, the Le kue r arid sp
i

~~~

=.-e ex

e te

?toeS-5 f.Mq

r i t of is

t ha

fede::- a L

S~·t;UL

i t i e s !...:l ..... and ~ by an i.:1focmed

tha

I:.

ISC "s

c'orpora::e

c·~ci:5.i~n

mak,ir::S

mo e i 'fated

Sbl'aly

ev e I na t ion

of

its

f inancia.l

c,on~dij.:ion

and

i;. :'·he best

int-erests

of

t.h-e sh a r e+

u~n/n';D S·:~N:'~:; I 'sT;.:! err co L~n~\ u
S-OiJ~'HEr~U nlS:p.lCT 0_:'· IJE"'jl YQ1\~

T)(~C."N[ U
7(1

A

relief

t.ha:

the

Commission the

has Ccart

r-equested t.o ~ertar;.n

inclua.tnq

the a?po'i:l~m~.nt
,';J,CUJu'r~,;s AIm EXCH!I!!GE coxsrssro» !?nLHn-e.rat:..edin

c..

11;-'i

of" a :speciaJ. the iost·ant

a'g'·ent. of mQ.tion.

!:.h,e ':as!-ts

79 01 vd.L Action
PUc No.

Plaint;!.ff, - a1;a1nst
IX. CONCLUSION' t.ee Coflllt'l_issio_n tn junce in ron ~eSgeCl:fully, and appoint a req.uests S·"eci.al 1·:IIf!LE~E lliDUSTiUES CHARLES. t':EL~i'Z.E,rt SA)·.!Ut:L ,;SLTZER

CCRP. CO~~PLI~lHT

c...~('""~
C> ~ cs L-'
0 ~!

FO,L- the that Agent the o'f Court t~e

foregoing i s sue a

r-eaSOn:5, "relimL"lary ?cayed for

De-rendanl;s.

:

W
~.'

2
Co:~tJI1s~

ccur t , as and should relief

t..~e ~icticn

fo~ ?t~lirr,ina:r~'
and -gta-nt. such further Plalnt!.tf
J

<

~~
.(;1.

rl ~'r
l

v

rnjt.rnct.i.on, and additional

'lS5u,e such
as

"ot..h~[' ot'cier:s just

S.ccuf'i tie~ :tts

i!.nO "ExchUtJ8C heru

ior'l upon

-

~'I

t.h-e C~.urt. deems

and

p~ot?er.

{.II·Cou~.m1;J31onll) tOl"

CO[JrPla~l1.~

Ln allc[;e~

lnfornat!on
Dated: July 9. 1979

and b~l~er that:

1.
Cji~!'lC"s Ma!:'lin Will.la.m ~~eJ~ tZ2P .ano -S..t:::.~ILl:el.~'lcl ~ze r- he ve
ar.:j ",'111

~.een 1';;!i1Gaglnb in v102.ations anv

::~:d .
Arthur M. Schwarczstein ilt·to:?':evs ~'ff securities ~ o:xchil.nge

G. Pi.ck!'!ol.: G, ~.uen,h.l~

acts

\ihien

constitute

constitute

aidinG ancl abettinl viola~iQ~B or Sections
13.(b){2) and
11t(;:'.-)

lOlb),
~\{:t.
J

1](.).
of
1~::L1j

or

tric
Act")

SO~ul'lt1o~
I

r:i:f,!hani;f,' 7Bj{b)

a[~ ·f.t_::wnclt"cl,

(!'Ex't~~Ii1liC-C-

15

lL5.C.
J

7'h:l{i .. i.)~ 12-:tl.-l
J

"l[b(b) and

(2") U:1Q

78n(a).,

tLnd JtuLc c lOu'-S

12u-2G,

IJ~~ -3 ....

500 N'O"tll capi~ol Wasbington. o.C. (202) 755-15·74 755-5015 .The Commission ·",tahes as-sistance Lt received

or

Comnn-., __ on , Stt"e·e I:, N.W. 20549

1~a-9 L~urDlu,dc~'1

11 C,~,li. 2~O.lbL-5, 2liO.12~-20j

2~6. ),-l, 240.14a-J and 2_D.l~a-9.

to e xp r es s its Bppt"',ec"iation feem Fred-et'icl<: N. smc l en ,

for C,?.~.

the

SCCt10.n5 15 U.S.C. PI'o",ulGat~d

lO(iJ),

13(11),

l~(a).

anc 'lUn(a),

23{a)

of

th~

EXCr~a:l[';"

Ac t.,

16j(b),
Rules'

'(Bel(a), 1()~-5,

and '(!hd"J ha s

13a-l,

·1Iia-3.,

111,,_9 aml 12.b-~O
2'10.1"11-], n1l1~~!i
I

th~ ,,'cundel", ?}iO.l'ul-'9 Cf!"·c-cL nL and ~ll

17 C. F.

n.

2~O,l(}~-5.

21JO.13!~-:, 5aid

2/l0 ..~2l)-20
tiL:W:;

l"'c--t;l.,octlvelj',
ll(ap~l11

'.rt."lil~e

:":'1

i::cntlt,.\:H::d

:~nd a r u 1101·) .!.J~ ~r'::t~C~~.

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