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Case 2:09-cv-01510-GMS Document 79 Filed 11/12/10 Page 1 of 8


DONALD W. SEARLES, California Bar No. 135705
E-mail: [email protected]
C. DABNEY O’RIORDAN, California Bar No. 205158
E-mail: [email protected]

Attorneys for Plaintiff
Securities and Exchange Commission
Rosalind R. Tyson, Regional Director
Michele Wein Layne, Associate Regional Director
John M. McCoy III, Associate Regional Director
5670 Wilshire Boulevard, 11th Floor
Los Angeles, California 90036-3648
Telephone:
Facsimile:



(323) 965-3998
(323) 965-3908

UNITED STATES DISTRICT COURT

DISTRICT OF ARIZONA

Plaintiff,

SECURITIES AND EXCHANGE
COMMISSION,




MAYNARD L. JENKINS,




Defendant.


vs.



Case No. CV-09-01510-PHX-GMS

PLAINTIFF SECURITIES AND
EXCHANGE COMMISSION’S
OBJECTIONS TO DEFENDANT
MAYNARD L. JENKINS’S RESPONDING
SEPARATE STATEMENT OF
MATERIAL FACTS

Date:
Time:
Place:



December 10, 2010
9:00 a.m.
Courtroom 602
(Hon. G. Murray Snow)

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Case 2:09-cv-01510-GMS Document 79 Filed 11/12/10 Page 2 of 8


I.

COMMISSION’S OBJECTIONS TO DEFENDANT’S SEPARATE
STATEMENT OF MATERIAL FACTS.
a. Paragraphs 54 - 74.
Jenkins’s additional “facts” set forth in paragraphs 54 to 74 do not create any

material facts sufficient to defeat the Commission’s motion for partial summary
judgment. First of all, the lay opinion testimony by CSK’s independent auditors (e.g.,
Mssrs. Augenstein, Vallen, Swincicki, Leibowitz) or by members of CSK’s Board of
Directors (e.g., Mr. Philipin, Ms. Henderson) that CSK’s vendor allowance contracts
were “complex” and the accounting for them was “cumbersome” is not admissible
testimony under Fed. R. Evid. 701 as their opinions: (a) are not rationally based on the
perception of the witnesses, as they were not responsible for CSK’s drafting or
accounting for its vendor allowance contracts; and (b) are not helpful to a clear
understanding of the witnesses’ testimony or the determination of a fact in issue.

Indeed, as set forth in the Commission’s Supplemental Statement of Material

Facts, each of the witnesses identified by Jenkins in his Separate Statement of Material
Facts who were questioned about their reaction to CSK’s Audit Committee-led
investigation stated that they were “shocked” and “appalled,” or words to that effect, and
concluded -- as Jenkins himself concluded (PSSF ¶¶ 28-46) -- that members of CSK’s
finance department, including but not limited to Don Watson, Martin Fraser, Ed O’Brien
and Gary Opper had lied to them, had concealed relevant and material information from
them, had manufactured documents for presentation to PwC and CSK’s Board of
Directors, and were terminated as result. See Plaintiff Securities and Exchange
Commission’s Supplemental Separate Statement of Material Facts in Support of Motion
for Partial Summary Judgment Against Defendant Maynard L. Jenkins, ¶¶ 1-6;
Supplement Declaration of Donald W. Searles ISO Plaintiff Securities and Exchange
Commission’s Motion for Partial Summary Judgment, Exs. 20-26.

Furthermore, the fact that those witnesses once held the opinion that CSK’s first

restatement was a result of errors in estimation, or otherwise attributable to the

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Case 2:09-cv-01510-GMS Document 79 Filed 11/12/10 Page 3 of 8



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complexity of CSK’s LWT program or to the lack of sophistication among CSK’s
accounting personnel, is irrelevant in light of the facts developed by CSK’s year-long $26
million Audit Committee-led investigation, which led to CSK’s second restatement.
Notably, Jenkins does not cite to any portion of the witnesses’ testimonies as to why CSK
was required to make a second restatement. The Commission has, and those portions of
their testimony reveal a single and conclusive fact: CSK’s employees were not inept;
rather, they engaged in intentional accounting fraud and lied to PwC and CSK’s Board of
Directors in an effort to conceal their misconduct.

b. Paragraphs 75 - 101
Paragraphs 71 to 101 of Jenkins’ Statement of Additional Facts all rest on the

declaration of Peter Solomon. Mr. Solomon, a specialist in forensic accounting,
conducted a cursory review of only a portion of the available evidence in this matter. By
his own admission, he reviewed only “portions” of selected witnesses’ testimony before
the Commission, provided to him by Jenkins’ counsel. It is unclear from his declaration
whether he, or Jenkins’ counsel, selected what “portions” to review. What is clear,
however, is that Mr. Solomon did not conduct a complete review of the available
evidence and it appears that he was carefully insulated from the some of the most
damning evidence in this case, such as Mr. Jenkins’ own testimony (see PSSF ¶ 28-46),
the lengthy FBI-302 report summarizing the Company’s disclosures of the results of its
internal investigation to the Department of Justice, the F.B.I, the I.R.S. and the U.S.
Postal Service (Supp. Searles Decl., Ex. 29); the thousands of business records, e-mail
communications and other documents specifically identified by CSK’s Audit Committee-
led investigation in support of its findings; CSK’s Wells submission (Searles Decl., Ex.
11); and Opper’s and O’Brien guilty pleas in the parallel criminal case (Searles Decl., Ex.
12-15). Furthermore, it appears that the portions of the testimonies that Mr. Solomon did
review were carefully excised to remove the portions of the witnesses’ testimony where
they were apprised of the results of CSK’s internal investigation, and the fact that they
believed, as Jenkins believed (see PSSF ¶ 45), that Mr. Watson and other members of

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senior management had lied to them and had deceived the CSK’s Audit Committee and
independent auditors about the nature and extent of their multi-year accounting fraud.
See Supp. Searles Decl., ¶¶ 2-8, Exs. 20-26. In short, Mr. Solomon’s highly selective and
incomplete review of the evidence in this case is a meaningless exercise that does not
create any triable issue of fact. See, e.g, DeJager Construction, Inc., v. Schleninger, 938
F. Supp. 446, 449 (W.D. Mich. 1996) (an expert may not simply assemble favorable facts
from the record and conclude that liability does or does not exist); Benhabib v. Hughes
Electronics Corp., 2006 U.S. Dist. LEXIS 97109, *5 (C.D. Cal. Sept. 6, 2006)
(precluding expert testimony that are merely the witness’ own assessment of the facts).

More fundamentally, Mr. Solomon is attempting to supplant his so-called expert
opinion for that of CSK’s management in answering the question of why CSK decided to
issue its second restatement. That Mr. Solomon is unable to conclude, based on his
abbreviated review of the evidence, that CSK’s second restatement was the result of
fraud, recklessness or even negligence is simply irrelevant and not helpful to the Court.
See United States v. Scop, 846 F.2d 135, 139-142, modified, 856 F.2d 5 (2d Cir. 1988)
(trial court erred in permitting a Commission investigator with no personal knowledge of
the facts to characterize the defendant’s conduct as fraudulent; finding the witness’
assessment of the testimony and credibility of other witnesses encroached upon the
exclusive province of the jury in weighing witness credibility); Hygh v. Jacobs, 961 F.2d
359 (2d Cir. 1992) (expert’s opinion that arresting officer’s conduct was not “justified
under the circumstances” required exclusion as an improper legal conclusion); Conde v.
Velsicol Chemical Corp., 804 F. Supp. 972, 984 (S.D. Ohio) (“where an expert becomes
an advocate for a cause, he therefore departs from the ranks of an objective witness, and
any resulting testimony would be unfairly prejudicial and misleading.”) (quotations
omitted); Dubria v. Smith, 197 F.3d 390, 400 (9th Cir. 1999) (a witness may not give
direct opinion as to guilt or innocence); United States v. Lockett, 919 F.2d 585, 590 (9th
Cir. 1990) (same). See also Kidder, Peabody & Co., Inc., v. IAG Internationals
Acceptance Group, N.V., 14 F. Supp. 2d 391, 399 (S.D.N.Y. 1998) (“[w]hen an expert

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undertakes to tell the jury what result to reach, this does not aid the jury in making a
decision, but rather attempts to substitute the expert’s judgment for the jury”) (quoting
United States v. Duncan, 42 F.3d 97, 101 (2d Cir. 1994)).

Jenkins’ Separate Statement of Materials Facts which regurgitate Mr. Solomon’s
declaration should be ruled inadmissible.

Accordingly, Mr. Solomon’s declaration should be ignored, and those portions of

c. Paragraphs 102 – 114.
The Commission has no objection to Professor Holder’s recitation of what AU §

316, SAS Nos. 53, 82, or 99 provide. His deconstruction of the relevant accounting
literature, however, begs the question of what CSK and Jenkins intended to convey when
they used the phrase “errors and irregularities” in CSK’s 2005 Form 10-K to refer to the
findings of the company’s internal investigation. As Professor Holder concedes, the
phrase “irregularities” is only used in AU 316 and SAS 53, which, under those
pronouncements, refers to intentional misstatements, i.e., management fraud. The fact
that the term “irregularities” has been replaced in the AICPA Professional Standards
(“AU”) and the Auditing Standard Boards Statement on Auditing Standards (“SAS”) by
the word “fraud” hardly means that the CSK’s choice of the word “irregularities” is
devoid of meaning. See Communications Workers of America v. CSK Auto Corp., 525 F.
Supp. 2d 1116, 1122, 1124 (D. Ariz. 2007) (“more than financial bungling occurred at
CSK. The 10-K and press releases make clear that “irregularities” – intentional
misstatements – occurred.”).1

In any event, any doubt concerning CSK’s use of the phrase “irregularities” is put



1 As noted in the Commission’s memorandum of points and authorities in support of its
motion for partial summary judgment, other courts have continued to find that the term
“errors and irregularities” refers to management fraud, notwithstanding the fact that AU
316 and SAS 53 have been superseded. See Plaintiff’s MPA, p. 9. See also The Financial
Numbers Game – Detecting Creative Accounting Practices, p. 49 (Mumford, Charles W.
and Comisky, Eugene, John Wiley & Sons, Inc, New York, N.Y. (2002) (“[today the two
terms accounting irregularities and fraudulent financial reporting tend to be used
interchangeably”). That book can be viewed online at Google Books.

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Case 2:09-cv-01510-GMS Document 79 Filed 11/12/10 Page 6 of 8



to rest by CSK’s robust disclosures in its 2005 Form 10-K, and by Jenkins’ testimony
before the Commission, where each of them admitted that CSK’s internal investigation
had revealed intentional accounting misconduct by management. PSSF ¶ 10, Searles
Decl., Ex. 6.



Dated: November 12, 2010



































Respectfully submitted,

/s/ Donald W. Searles




Donald W. Searles
Attorney for Plaintiff
Securities and Exchange Commission







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Case 2:09-cv-01510-GMS Document 79 Filed 11/12/10 Page 7 of 8



PROOF OF SERVICE

Boulevard, 11th Floor, Los Angeles, California 90036-3648
Telephone No. (323) 965-3998; Facsimile No. (323) 965-3908.


I am over the age of 18 years and not a party to this action. My business address is:

[X] U.S. SECURITIES AND EXCHANGE COMMISSION, 5670 Wilshire



On November 12, 2010, I caused to be served the document entitled PLAINTIFF
SECURITIES AND EXCHANGE COMMISSION’S OBJECTIONS TO DEFENDANT
MAYNARD L. JENKINS’S RESPONDING SEPARATE STATEMENT OF MATERIAL
FACTS on all the parties to this action addressed as stated on the attached service list:

[ ] OFFICE MAIL: By placing in sealed envelope(s), which I placed for collection

and mailing today following ordinary business practices. I am readily familiar
with this agency’s practice for collection and processing of correspondence for
mailing; such correspondence would be deposited with the U.S. Postal Service on
the same day in the ordinary course of business.
[ ]

PERSONAL DEPOSIT IN MAIL: By placing in sealed envelope(s),
which I personally deposited with the U.S. Postal Service. Each such
envelope was deposited with the U.S. Postal Service at Los Angeles,
California, with first class postage thereon fully prepaid.







[ ] EXPRESS U.S. MAIL: Each such envelope was deposited in a facility

regularly maintained at the U.S. Postal Service for receipt of Express Mail
at Los Angeles, California, with Express Mail postage paid.

office of the addressee as stated on the attached service list.


[ ] HAND DELIVERY: I caused to be hand delivered each such envelope to the

[ ] UNITED PARCEL SERVICE: By placing in sealed envelope(s) designated by
United Parcel Service (“UPS”) with delivery fees paid or provided for, which I
deposited in a facility regularly maintained by UPS or delivered to a UPS courier,
at Los Angeles, California.

electronic mail address as stated on the attached service list.


[ ] ELECTRONIC MAIL: By transmitting the document by electronic mail to the

[X] E-FILING: By causing the document to be electronically filed via the Court’s
CM/ECF system, which effects electronic service on counsel who are registered
with the CM/ECF system.
FAX: By transmitting the document by facsimile transmission. The transmission
was reported as complete and without error.
I declare under penalty of perjury that the foregoing is true and correct.


[ ]




Date: November 12, 2010









/s/ Donald W. Searles


Donald W. Searles





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Case 2:09-cv-01510-GMS Document 79 Filed 11/12/10 Page 8 of 8

United States District Court - District of Arizona

SEC v. Maynard L. Jenkins
Case No. 2:09-cv-01510-JWS

(LA-3305)

SERVICE LIST

John W. Spiegel, Esq. (served via CM/ECF only)
Jenny M. Jiang, Esq. (served via CM/ECF only)
Munger, Tolles & Olson LLP
355 South Grand Avenue, 35th Floor
Los Angeles, CA 90071-1560
Email: [email protected]
Email: [email protected]
Attorneys to Defendant Maynard L. Jenkins


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