FINACT14F-2009.106-ACY.pdf

14F-2009.106-ACY · State Board of Accountancy · 2014-01-17

BEFORE THE ARIZONA STATE BOARD OF ACCOUNTANCY

In the Matter of Certified Public Accountant Certificate No. 2730-E ASBA File Nos.: Issued to: 2009.105 (Tom Hirsch) 2009.106 (Harish Shah) TOM HIRSCH, 2010.053 (Hirsch & Shah, LLC formerly Hirsch & Shah, CPA’s, LLC); and 2011.035 (Harish Shah) 2011.036 (Tom Hirsch); In the Matter of Certified Public Accountant 2011.039 (Tom Hirsch); Certificate No. 8181-E Issued to: 2011.040 (Harish Shah); 2011.041 (Tom Hirsch); and HARISH P. SHAH, 2011.042 (Harish Shah) In the Matter of Certified Public Accounting OAH Docket No. 14F-2009.106-ACY Firm Registration No. 2371-L Issued to: DECISION AND ORDER HIRSCH & SHAH, LLC

This matter came before Brian Brendan Tully, Administrative Law Judge (ALJ) for the Office of Administrative Hearings on November 8, 2013, for the purpose of determining whether good cause exists for the Arizona State Board of Accountancy (“Board”) to discipline Tom Hirsch (“Mr. Hirsch”), certified public accountant (“CPA”), Harish Shah (“Mr. Shah”), certified public accountant and/or Hirsch & Shah, LLC, formerly Hirsch & Shah, CPAs, LLC (“Firm”) certified public accounting firm, pursuant to Arizona Revised Statutes (“A.R.S.”) § 32-701 et seq. and Arizona Administrative Codes (“A.A.C.”) R4-1-101 et seq. Respondents, Tom Hirsch and Harish Shah appeared on their own behalf and Respondent, Hirsch & Shah, LLC appeared and was represented by Mr. Hirsh and Mr. Shah, the Firm’s sole owners. The Board appeared through its attorney, Seth T. Hargraves, Esq., Assistant Attorney General. On January 13, 2014, the Board reviewed the record in this matter including the hearing exhibits and the ALJ’s recommended Decision, dated November 26, 2013. Mr. Hirsch and Mr. Shah were both present at the board meeting. Mr. Hargraves, the Board’s attorney, was present and requested that the Board consider the ALJ’s Findings of Fact and the ALJ’s Conclusions of Law. Mr. Hargraves requested that the Board accept, reject or modify the ALJ’s Recommended Order. Mr. Shah thanked the Board for the opportunity to be present and stated that he will not rehash the past, but requested the Board members to read the letter he passed out. He also stated that the Board’s duty is to protect the public and the irony of revoking their certificates only takes away the right to be certified, but does not take away their right to practice accounting, and therefore, does not really protect the public by removing the regulatory oversight. Mr. Shah also requested that the Board review their history to find that they do not have any past discipline and if the Board is out any expenses in this matter that they would be happy to reimburse the Board of its costs. Mr. Hirsch stated that the Board’s primary duty is to protect the public, but he strongly believes that the Board has a responsibility to seek the truth. Mr. Hirsch believes that the final judgment in the District Court case was premature. Mr. Hirsch also discussed several individuals who have been sued surrounding their matter with the exception of the two of them. Mr. Hirsch closed by stating that the Board may revoke his certificate, but they will never be able to revoke his integrity, character or his dedication to his profession. Mr. Hargraves objected to any consideration of the letter that was passed out by Mr. Shah due to it not be part of the evidence submitted at the hearing and instructed the Board to seek legal advice on the objection and letter. Christopher Munns, Esq., Assistant Attorney General with the Solicitor General’s office was present and provided independent legal advice to the Board limiting the Board to the record submitted only at the hearing so that all parties have a chance to contest and review evidence being submitted before the ALJ makes a recommended decision. The Board voted to adopt the ALJ’s Findings of Fact and the ALJ’s Conclusions of Law and voted to accept the ALJ’s Recommended Order. Based on the ALJ’s Recommended Decision, the administrative record in this matter and the Board meeting, the Board issues the following Order: /// FINDINGS OF FACT 1. The Arizona State Board of Accountancy (“Board”) is the state agency authorized to regulate the practice of public accounting by certified public accountants in the State of Arizona. 2. Tom Hirsch (“Mr. Hirsch”) is the holder of Certified Public Accountant Certificate No. 2730-E issued by the Board. This certificate enables Mr. Hirsch to practice as a certified public accountant in the State of Arizona. 3. Harish P. Shah (“Mr. Shah”) is the holder of Certified Public Accountant Certificate No. 8181-E issued by the Board. This certificate enables Mr. Shah to practice as a certified public accountant in the State of Arizona. 4. The Board also issued Certified Public Accounting Firm Registration No. 2371- L to Mr. Hirsch and Mr. Shah for their business, Hirsch & Shah, L.L.C. (“Firm”). Mr. Hirsch and Mr. Shah are the Firm’s sole owners. 5. On or about July 14, 2009, the Board opened a complaint investigation into Mr. Hirsch, Mr. Shah, and the Firm after receiving information that Mr. Hirsch and Mr. Shah were under investigation by the Arizona Corporation Commission’s Securities Division (“ACCSD”). The ACCSD’s investigation involved allegations that Mr. Hirsch and Mr. Shah had engaged in acts, practices, and transactions that constituted violations of the Securities Act of Arizona. 6. On or about July 28, 2009, the U.S. Securities and Exchange Commission (“SEC”) filed a complaint against Mr. Hirsch, Mr. Shah, Berta Walder, Howard Walder, and Radical Bunny, L.L.C. in U.S. District Court for the District of Arizona in Case No. CV09-1560-PHX-SRB (“District Court Case”), charging that they had made false and misleading statements to hundreds of investors about the safety and performance of investment in a mortgage lending scheme, thereby committing securities fraud. 7. The Board subsequently received additional complaints from some of the individual investors. 8. The matters were assigned to the Board’s Accounting and Auditing Standards Committee (“Committee”) for investigation.

9. On April 12, 2011, in the District Court Case, U.S. District Judge Susan R. Bolton issued an Order (“April 12, 2012 Order”) finding that Mr. Hirsch and Mr. Shah committed fraud in the offer or sale of securities and fraud in connection with the purchase or sale of securities. According to the April 12, 2011 Order, Mr. Hirsch and Mr. Shah, acting with scienter, made material misrepresentations and omissions related to the securities they were offering to sell and actually selling to investors. 10. In the April 12, 2011 Order, Judge Bolton wrote the following: The individual Defendants continue to assert in their briefs . . . that they were not selling securities, so the Court is not persuaded that they have recognized the wrongful nature of their conduct or made any sincere assurances against future violations. Finally, two of the individual Defendants are CPAs, which increases the likelihood of future violations occurring. 1 11. On April 27, 2011, Judge Bolton issued a Final Judgment of Permanent Injunction and Monetary Relief against Defendants Tom Hirsch, Berta Walder, Howard Walder, and Harish Shah in the District Court Case (“April 27, 2011 Final Judgment”). The Final Judgment permanently restrained and enjoined the Defendants from violating Section 5 of the Securities Act of 1933 [15 U.S.C. § 77e]; Section 17(a) of the Securities Act of 1933 [15 U.S.C. § 77q(a)]; Section 10(b) of the Securities Exchange Act of 1934 [15 U.S.C. 78j(b)]; and Section 15(a) of the Securities Exchange

Act of 1934 [15 U.S.C. § 78o(a)].

12. On or about May 20, 2011, the Defendants in the District Court Case filed a

Notice of Appeal to the United States Court of Appeal for the Ninth Circuit to appeal the

April 27, 2011 Final Judgment (“Appellate Case”). The Board received a copy of the

Notice of Appeal on May 25, 2011.

13. At the Committee’s June 16, 2011 meeting, the Committee voted “to

recommend that the Board offer a Decision and Order (By Consent) for relinquishment

in lieu of disciplinary proceedings.” 2

Exhibit 3 at 12. Exhibit 6 at 4 A. 14. At the Board’s July 11, 2011 meeting, the Board voted to accept the Committee’s recommendation. 15. At the Board’s September 12, 2011 meeting, the Board voted “to modify the Decision and Order (By Consent) to include a suspension pending” the Appellate Case. 3 16. At the Board’s October 17, 2011 meeting, the Board voted to offer Mr. Hirsch and Mr. Shah a “Decision and Order (By Consent) as amended.” 4 17. At the Board’s November 14, 2011 meeting, the Board voted “to re-offer the Decision and Order (By Consent) with the exception to the start date of the suspension – the suspension shall remain as previously offered.” 5 18. On or about November 21, 2011, Mr. Hirsch, Mr. Shah, and the Firm entered into an Interim Consent Agreement (“Agreement”) with the Board. Pursuant to the terms of the Agreement, Mr. Hirsch’s Certified Public Accountant Certificate, Mr. Shah’s Certified Public Accountant Certificate, and Firm’s Certified Public Accounting Firm Registration were suspended for a period of up to two years pending the appeal in the Appellate Case. The Agreement provided that if the outcome of Appellate Case resulted in the April 12, 2011 Order and April 27, 2011 Final Judgment being upheld, the suspensions would continue until the Board would complete the disciplinary proceedings against Mr. Hirsch, Mr. Shah, and the Firm’s certificates. 19. On July 10, 2013, the U.S. Court of Appeals for the Ninth Circuit affirmed the April 12, 2011 Order and April 27, 2011 Final Judgment. Mr. Hirsch and Mr. Shah did not appeal the Ninth Circuit’s determination in the Appellate Case. Therefore, the U.S. Court of Appeals for the Ninth Circuit’s decision is a final judgment in this matter. 20. At the Board’s September 16, 2013 meeting, the Board voted “to file a Complaint and a Notice of Hearing for revocation of the registrants’ individual and firm CPA certificates.”

Exhibit 8 at 7. 4 Exhibit 9 at 9. Exhibit 10 at 8. 21. The evidence of record established that Mr. Hirsch and Mr. Shah committed fraud, misrepresentation, dishonesty, and violated federal securities law as determined by the federal courts. 22. At the hearing, Mr. Hirsch and Mr. Shah did not acknowledge their wrongful conduct that had been fully litigated in the federal courts. They attempted to collaterally attack the April 12, 2011 Order, the April 27, 2011 Final Judgment, and the Ninth Circuit’s final decision in the Appellate Case. However, they were instructed by the Tribunal that they could not collaterally attack the final judgment in the Appellate Case in these administrative proceedings. 23. Mr. Hirsch and Mr. Shah presented the testimony of two clients who continue to believe in them and continue to use their accounting services. CONCLUSIONS OF LAW 1. The Board has jurisdiction over Mr. Hirsch, Mr. Shah, and Firm and the subject matter in this case. 2. Pursuant to A.R.S. § 41-1092.07(G)(2), the Board has the burden of proof in this matter. The standard of proof is by a preponderance of the evidence. See A.A.C. R2-19-119(A). 3. The doctrine of collateral estoppel bar Mr. Hirsch and Mr. Shah from collaterally attacking the final judgment in the Appellate Case in this administrative proceeding. 6 4. The April 12, 2011 Order, the April 27, 2011 Final Judgment, and the final judgment in the Appellate Case constitute grounds to impose disciplinary action against Mr. Hirsch and Mr. Shah pursuant to A.R.S. § 32-741(A)(7). 7

See Arizona Downs v. Superior Court of Arizona, 128 Ariz. 73, 76, 623 P.2d 1229, 1232 (1981). A.R.S. § 32-741(A)(7) provides as follows: After notice and an opportunity for a hearing, the board may revoke or suspend any certificate granted under this chapter and may take disciplinary action concerning the holder of any certificate for any of the following causes: .... 7. Final Judgment in a civil action if the court makes findings of accounting violations, dishonesty, fraud, misrepresentation or breach of fiduciary duty. 5. The April 12, 2011 Order, the April 27, 2011 Final Judgment, and the final judgment in the Appellate Case constitute grounds to impose disciplinary action against Mr. Hirsch and Mr. Shah pursuant to A.R.S. § 32-741(A)(8). 8 6. The evidence of record supports the revocation of Mr. Hirsch’s Certified Public Accountant Certificate No. 2730-E and Mr. Shah’s Certified Public Accountant Certificate No. 8181-E, pursuant to A.R.S. §§ 32-741 and 32-742. Mr. Hirsch and Mr. Shah continue to fail to acknowledge their wrongful conduct as noted by Judge Bolton, who expressed concern that they were certified public accountants at the time of their misdeeds. 7. The revocation of Mr. Hirsch’s Certified Public Accountant Certificate No. 2730-E and Mr. Shah’s Certified Public Accountant Certificate No. 8181-E warrants the revocation of Firm’s Certified Public Accounting Firm Registration No. 2371-L, pursuant to A.R.S. § 32-742(A) and (B)(1) and A.A.C. R4-1-455.03(D)(2). ORDER Based on the foregoing, it is ordered that Mr. Hirsch’s Certified Public Accountant Certificate No. 2730-E be revoked on the effective date of the Order entered in this matter. It is further ordered that Mr. Shah’s Certified Public Accountant Certificate No. 8181-E be revoked on the effective date of the Order entered in this matter. It is further ordered that Mr. Hirsch and Mr. Shah shall be jointly and severally liable for reimbursing the Board’s costs, payable upon receipt of a Board invoice, for investigating and proceeding to hearing in this matter, pursuant to A.R.S. § 32- 701(10)(g).

A.R.S. § 32-741(A)(8) provides as follows: After notice and an opportunity for a hearing, the board may revoke or suspend any certificate granted under this chapter and may take disciplinary action concerning the holder of any certificate for any of the following causes: .... 8. Final judgment or order in a civil action or administrative proceeding if the court or agency makes findings of violations of any fraud provisions of the laws of this state or federal securities laws. It is further recommended that Firm’s Certified Public Accounting Firm Registration No. 2371-L be revoked on the effective date of the Order entered in this matter. NOTICE OF APPEAL RIGHTS Respondents are hereby notified that they have the right to petition for a rehearing or review by filing a petition with the Board’s Executive Director within thirty (30) days after service of this Order. A.R.S. §41-1092.09. The petition must set forth legally sufficient reasons for granting a rehearing. A.A.C. R4-1-114(C). Service of this Order is effective on the date of personal delivery or five days after the date of mailing. If a motion for rehearing is not filed, the Board’s Order becomes effective thirty (30) days after it is mailed to Respondent.

Respondents are further notified that the filing of a motion for rehearing is required to preserve any rights of appeal to the Superior Court.

DATED this 16th day of January, 2014.

ARIZONA STATE BOARD OF ACCOUNTANCY

By:___________________________________ Karen K. McCloskey, CPA, Board President Original of the foregoing filed this 16th day of January, 2014, with: Monica L. Petersen Executive Director Arizona State Board of Accountancy 100 N. 15th Avenue, Suite 165 Phoenix, AZ 85007 Copy of the foregoing filed this 16th day of January, 2014, with: Office of Administrative Hearings 1400 W. Washington, Suite 101 Phoenix, Arizona 85007 Via: https://portal.azoah.com/aljdec/documents/acy/

Copy of the foregoing mailed via regular USPS and certified mail return receipt no. [account number redacted] 8081 this 17th day of January, 2014, to: Tom Hirsch 2633 E. Indian School Rd., Ste. 120 Phoenix, AZ 85016

Copy of the foregoing mailed via regular USPS and certified mail return receipt no. [account number redacted] 8098 this 17th day of January, 2014, to: Harish Shah 2633 E. Indian School Rd., Ste. 120 Phoenix, AZ 85016 Copy of the foregoing mailed via regular USPS and certified mail return receipt no. [account number redacted] 8104 this 17th day of January, 2014, to:

Harish Shah Hirsch & Shah, LLC 2633 E. Indian School Rd., Ste. 120 Phoenix, AZ 85016 Copy of the foregoing mailed this 17th day of January, 2014, to: Seth T. Hargraves Assistant Attorney General 1275 W. Washington, CIV-LES Phoenix, Arizona 85007

By:____________________________________