In re Paul A. Margis

 
 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 84849 / December 18, 2018 
 
ACCOUNTING AND AUDITING ENFORCEMENT  
Release No. 4003 / December 18, 2018 
ADMINISTRATIVE PROCEEDING 
File No. 3-18938 
 
In the Matter of 
 
Paul A. Margis  
 
Respondent. 
 
 
 
ORDER INSTITUTING CEASE-AND-
DESIST PROCEEDINGS PURSUANT TO 
SECTION 21C OF THE SECURITIES 
EXCHANGE ACT OF 1934, MAKING 
FINDINGS, AND IMPOSING A CEASE-
AND-DESIST ORDER 
  
I. 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”), against Paul A. Margis (“Margis” or “Respondent”). 
II. 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”), which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-
and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 
Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.  
III. 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 
Summary 
1. Beginning in 2007, Paul A. Margis (“Margis”) participated in a plan whereby 
Panasonic Avionics Corporation (“PAC”), a wholly-owned, U.S. subsidiary of Panasonic 
                                                 
1
   The findings herein are made pursuant to Margis’s Offer of Settlement and are not binding on any 
other person or entity in this or any other proceeding. 

 2 
Corporation (“Panasonic”), offered a lucrative consulting position to a government official 
(“Government Official”) who assisted PAC in obtaining and retaining business from a state-owned 
airline (“Government Airline”).  While PAC was negotiating two agreements valued at over $700 
million with the Government Airline, Margis authorized PAC to offer the Government Official a 
$200,000 a year post-retirement consulting position.  Ultimately, PAC retained the Government 
Official and paid approximately $875,000 for his position, which required little to no work.  
Margis and others arranged for the Government Official to be paid through a third-party vendor 
that provided unrelated services to PAC.  Margis also authorized payments of more than $900,000 
through the third-party vendor for the retention of two other individuals as consultants, although 
they provided little to no services.  Through his conduct, Margis knowingly circumvented PAC’s 
system of internal accounting controls and knowingly falsified the company’s books and records.  
Margis also caused Panasonic to violate the books and records and internal accounting controls 
provisions of the federal securities laws.  Finally, Margis made false representations to PAC’s 
external auditors that PAC did not have any deficiencies concerning its internal financial controls 
and books and records, thereby misleading the company’s auditors.    
Respondent 
2. Paul A. Margis, age 64, was the President (2005-2007; 2012-2017) and Chief 
Executive Officer (2007-2017) of PAC.  Beginning around June 2012, Margis also held concurrent 
positions at Panasonic Corporation, including serving as an executive officer of a Panasonic 
business segment, AVC Networks Company (“AVC Networks”), from 2013-2017.   
Other Relevant Entities and Individuals 
3.  Panasonic Corporation is a multinational corporation, headquartered in Osaka, 
Japan.  During the relevant period, Panasonic’s global business was organized into eight business 
segments, including AVC Networks that included PAC.  Panasonic’s securities were registered with 
the Commission pursuant to Section 12(b) of the Exchange Act until April 22, 2013, and its 
American Depositary Shares traded on the New York Stock Exchange under the ticker “PC.”  From 
May 1, 2015 through June 20, 2016, Panasonic’s securities were registered with the Commission 
pursuant to Section 12(g) of the Exchange Act.  During the periods when Panasonic securities were 
registered with the Commission, Panasonic was required to file or furnish periodic reports with the 
Commission pursuant to Section 15 of the Exchange Act. 
4. Panasonic Avionics Corporation (f/k/a Matsushita Avionics Systems 
Corporation), a wholly-owned subsidiary of Panasonic’s North American subsidiary, is a 
Delaware corporation headquartered in Lake Forest, California.  PAC designs, engineers, 
manufactures, sells and installs in-flight entertainment systems (“IFE”) and global communication 
services (“GCS”) to airlines, aircraft leasing companies, and airplane manufacturers worldwide, 
including to state-owned airlines.  Panasonic managed PAC via AVC Networks, and certain PAC 
officers, including Margis, also held concurrent titles at Panasonic.  During the relevant period, 
PAC’s books and records and financial accounts were consolidated into Panasonic’s books and 
records and reported on Panasonic’s consolidated financial statements, which were filed or 
furnished with the Commission and reported to investors.    

 3 
FACTS 
Offer of Consulting Position to Government Official 
5. In 1986, PAC retained a sales representative (“Sales Representative” or” Sales 
Rep”) to assist PAC in contract negotiations for the sale of IFE and GCS products to several 
airlines in its Middle East Region, despite the fact that he had no background or experience in 
avionics.  Thereafter, PAC periodically renewed its agreements with the Sales Rep until around 
May 2016 when it terminated its relationship with him.  The Sales Rep was engaged with the 
authorization of Panasonic executives, including Margis, who was also directly involved in 
authorizing the renewal of agreements between PAC and the Sales Rep.  
6. Between 2007 and 2016, PAC paid the Sales Representative more than $184 
million in sales commissions through his British Virgin Islands entity.  During this period, the 
Sales Representative directly reported to Margis, who authorized monthly commission payments 
of $1-3 million to the Sales Representative.  The Sales Representative gave Margis cash and luxury 
items valued at more than $60,000.  
7. Beginning in at least 2004, PAC maintained a separate, regional office in the 
Middle East.  The office, based in Dubai, was staffed by sales and marketing professionals and had 
a repair shop, field engineers, and its own finance staff.  Nevertheless, PAC continued to use the 
Sales Rep despite concerns raised by PAC employees that the Sales Rep lacked the qualifications 
to negotiate technical contracts related to IFE and GCS products and other red flags regarding his 
conduct, such as his possession of confidential and proprietary materials of PAC’s competitors and 
customers.  In addition, Margis was aware of allegations from its regional employees that the Sales 
Rep was paying bribes to win business on PAC’s behalf.     
8. While PAC engaged the Sales Rep as a sales agent through the entity that he 
owned, he operated as a PAC employee.  The Sales Representative had:  PAC business cards 
identifying him as PAC’s General Manager of Sales and Marketing in the Middle East, Africa and 
South Asia; his own office space in PAC’s Dubai office; a PAC phone number and email address; 
a PAC title; and numerous electronic devices.   
9. In 2004, PAC and the Government Airline signed a ten-year Master Product Supply 
Agreement (“MPSA”) that ultimately grossed well over a billion dollars for PAC to provide IFE 
products and services for planes within the Government Airline’s fleet.  Both Margis and the Sales 
Rep were involved in the negotiations of the MPSA, and Margis signed the MPSA on behalf of 
PAC.  Significantly, the MPSA prohibited PAC from providing any consideration to employees of 
the Government Airline.   
10. The Government Airline appointed its own executive, the Government Official, to 
serve as the primary point of contact for contract negotiations with PAC, including for the MPSA.  
During the relevant period, the Government Official reported directly to the Government Airline’s 
President.  The Government Official had influence over the Government Airline’s contracting 
decisions, including influence over the airline’s decisions to award business to PAC as well as 
interpretations of specific terms in the MPSA and amendments thereto.  Finally, the Government 
Official negotiated significant terms with PAC, including credits, concessions, and 
system/component price lists, and was involved in approving payments to PAC.     
 

 4 
11. In 2006, the Sales Rep and the Government Official began negotiating an 
amendment to the MPSA (“Amendment One”) for the purchase of additional IFE products by the 
Government Airline.  Negotiations for Amendment One, which was worth nearly $360 million in 
additional business to PAC, continued through at least July 2007. 
12. Over the course of 2007, PAC and the Government Airline also negotiated and 
entered into a second amendment to the MPSA (“Amendment Two”) for the purchase of additional 
IFE products.  Due to the delay in the receipt of new aircraft by the Government Airline, certain 
IFE products that PAC and the Government Airline had contemplated being included in 
Amendment One were instead included in Amendment Two.  Amendment Two was signed in 
November 2007, and was worth over $353 million in additional business to PAC. 
13. As with the MPSA, Margis and the Sales Representative were both involved in the 
negotiation of Amendment One and Amendment Two.  Also as with the MPSA, the Government 
Official led negotiations of those amendments and signed Amendment One on behalf of the 
Government Airline. 
14. During the course of negotiations for Amendments One and Amendment Two, the 
Government Official solicited PAC for personal benefits.  Beginning in at least April 2007, the 
Government Official sent numerous emails to the Sales Representative about obtaining a position 
with PAC, which the Sales Representative brought to Margis’s attention.  Subsequently on June 
17, 2007, the Government Official informed the Sales Representative that he was seeking a 
position with PAC, including an annual salary of £150,000 and other benefits.  The Sales 
Representative informed Margis of the specific request.   
15. In or around September 2007, PAC offered the Government Official a position as a 
consultant for $200,000 per year plus travel expenses, which would be effective after his retirement 
from the Government Airline.  Margis authorized the offer of a consulting position to the 
Government Official, despite numerous red flags. 
16. For example, PAC had no apparent need for the Government Official’s services.  
During the six years that he was paid as a consultant, the Government Official performed little to 
no work.   
17. Additionally, the Sales Representative informed Margis and other PAC executives 
that the Government Official did not want any one contacting him due to his current status with his 
employer, the Government Airline. 
18. In response, a senior PAC executive told Margis and others by email that, “We 
should be very sensitive to [Government Official’s] current position . . . . I will get in trouble if we 
act like a small company.  What we are doing for [the Government Official] is a large risk for a 
corporation like Panasonic.  I think we still should for good reasons, but we must get this done 
above the table with complete transparency.”   
19. Finally, based on his prior interactions with the Government Airline, Margis was 
aware that the Government Official played a key role in the business relationship between the 
Government Airline and PAC, including in connection with the negotiations of the MPSA, 
Amendment One, and Amendment Two. 
20. During the course of the negotiations for Amendment One and Amendment Two, 
and while seeking personal benefits from PAC, the Government Official was providing PAC 
commercial and proprietary information that helped PAC secure an improper advantage in 

 5 
obtaining and retaining business from the Government Airline.  This included confidential 
information of the Government Airline and PAC’s competitors, tips on negotiating with the 
Government Airline, and advice on how to secure additional business from the Government 
Airline.   
21. Rather than following PAC’s standard procedures for retaining consultants, Margis 
arranged for PAC to retain the Government Official and pay him through an unrelated third-party 
vendor that otherwise prepared product manuals for PAC (“Vendor”).   
22. Ultimately, between April 2008 and January 2014, the Government Official 
provided little to no services, and PAC paid over $875,000 to the Vendor for the Government 
Official’s position.  Margis was aware that the Government Official was providing few, if any, 
services.  For instance, in May 2009, PAC employees requested to terminate the agreement with 
the Government Official because his services were not required.  Nevertheless, Margis authorized 
the renewal of the agreement with the Government Official, and continued to authorize monthly 
payments to the Vendor for the Government Official through January of 2014. 
Retention of Consultants through the Office of the President Budget  
23. From at least 2007 through at least January 2014, Margis and others authorized the 
engagement of various individuals as consultants in circumstances in which the consultants 
provided few, if any, services.  Rather than following PAC’s standard procedures for engaging 
consultants, these individuals were retained through the Vendor and paid through the Vendor from 
an Office of the President budget that Margis controlled.   
24. The Office of the President budget was set annually by a senior PAC finance 
executive in consultation with Margis, based on the prior year’s costs and anticipated changes to 
expenses.  Expenditures from this budget were never meaningfully reviewed or approved by any 
Panasonic or PAC personnel, and there were no reasonable internal accounting controls in place 
surrounding its use.  In October 2007, Margis used the Vendor as a conduit to pay a former PAC 
employee (“Consultant One”), who was also working as a consultant for one of PAC’s largest 
domestic airline customers.  Between October 2007 and December 2013, Margis authorized 
payments totaling approximately $825,000 for Consultant One from the Office of the President 
budget via the Vendor.  During this period, Consultant One was not supervised by anyone at PAC 
or Panasonic, and provided few, if any, services to PAC or Panasonic.  Instead, Consultant One 
provided Margis and others at PAC with non-public information regarding the domestic airline 
customer, other airlines, and PAC’s competitors, frequently passing information through emails 
that were marked “CONFIDENTIAL” or “DO NOT FORWARD.”   
25. In yet another instance, between January and December 2009, Margis used the 
Office of the President budget and the Vendor to pay $60,000 for a consulting position for another 
former PAC employee (“Consultant Two”).  In this instance, Consultant Two performed no work 
for PAC or Panasonic, and was paid solely to prevent him from working for any of PAC’s 
competitors.   
26. Margis authorized nearly all payments made out of the Office of the President 
Budget, including payments totaling more than $1.76 million to the Government Official, 
Consultant One, and Consultant Two, who provided few, if any, services to PAC.  These payments 
were falsely recorded in PAC’s general ledger as consulting payments to the Vendor and the 

 6 
consultants and incorporated into Panasonic’s books, records, and accounts as “selling and general 
administrative expenses.” 
27. During the period that Margis used the Office of the President budget to pay the 
aforementioned consultants, PAC had established policies and procedures concerning the 
engagement of consultants.  These policies and procedures set out a number of requirements, 
including defining the scope of work, engaging PAC Human Resources in the retention process, 
and limiting a contract’s duration to six months.  In fact, during this period, Margis authorized the 
engagement of several other consultants pursuant to PAC’s consultant retention policies and 
procedures.  Conversely, Margis circumvented those very same policies and procedures when 
authorizing the engagement of the Government Official, Consultant One, and Consultant Two.   
28. Panasonic failed to maintain internal accounting controls reasonably designed to 
ensure that payments to the consultants only were made in exchange for the described consulting 
services, that services actually had been rendered, and that its books and records fairly reflected the 
transactions and disposition of Panasonic’s assets.  Panasonic also lacked sufficient internal 
accounting controls to effectuate its policies and procedures concerning the selection and 
engagement of these consultants. 
29. Margis caused Panasonic to violate the books and records and internal accounting 
controls provisions of the federal securities laws by authorizing the engagement of the consultants 
through the Vendor and using the Vendor as a conduit for payments to the consultants, which were 
made from the Office of the President Budget that he controlled.  
Margis Misled PAC’s External Auditors 
30. As a wholly-owned subsidiary of Panasonic, PAC senior executives provided 
annual certifications of its financial statements, known as “subcertifications,” to PAC’s external 
auditors (“Auditors”) each quarter.  Similarly, PAC senior executives also provided the Auditors 
with quarterly management representations letters confirming, among other things, that the 
company did not have any deficiencies concerning its books and records and its internal financial 
controls.     
31. The subcertifications and management representation letters were presented to the 
Auditors in connection with the company's annual and quarterly reviews.  The Auditors relied on 
these subcertifications and management representation letters as part of the normal course of their 
audits of the company and for the preparation of PAC’s financial statements, which were 
incorporated into Panasonic’s financial statements and included by Panasonic in its periodic 
Commission filings.    
32. From at least 2007 through 2015, Margis provided annual subcertifications as well 
as management representation letters each quarter to the Auditors.  At no time during this period 
did Margis disclose to the Auditors, or direct anyone else to disclose, the foregoing issues 
concerning the payments to the Government Official and other consultants, PAC’s and Panasonic’s 
lack of sufficient internal accounting controls, or the resulting falsification of PAC’s and 
Panasonic’s books and records.  
 
 
 

 7 
33. Instead, Margis provided false subcertifications and management representation 
letters to the Auditors.  For example, in the subcertifications Margis falsely stated, “no deficiencies 
have been identified and the internal control [sic] over financial reporting have effectively 
functioned....”  Similarly, in the management representation letters, Margis falsely stated, “there 
are no material transactions that have not been properly recorded in the accounting records,” and 
“[t]here are no significant deficiencies or material weaknesses in the design or operation of internal 
controls over financial reporting....”  Both of these certifications were false.  
34. As a result of this conduct, Margis made materially false or misleading statements 
to the Auditors in connection with their audits of the company’s financial statements and internal 
financial controls.   
LEGAL STANDARDS AND VIOLATIONS 
35. Under Section 21(C) of the Exchange Act, the Commission may impose a cease-
and-desist order upon any person who is violating, has violated, or is about to violate any provision 
of the Exchange Act or any rule or regulation thereunder, and upon any other person that is, was, 
or would be a cause of the violation, due to an act of omission the person knew or should have 
known would contribute to such violation.   
36. As a result of the conduct described above, Margis violated Section 13(b)(5) of 
the Exchange Act, which states that no person shall knowingly circumvent or knowingly fail to 
implement a system of internal accounting controls or knowingly falsify any book, record or 
account.   
37. Also as a result of the conduct described above, Margis caused Panasonic to 
violate Section 13(b)(2)(A) of the Exchange Act, which requires issuers that have a class of 
securities registered pursuant to Section 12 of the Exchange Act and issuers with reporting 
obligations pursuant to Section 15(d) of the Exchange Act to make and keep books, records, and 
accounts which, in reasonable detail, accurately and fairly reflect their transactions and 
disposition of their assets. 
38. As a result of the conduct described above, Margis also caused Panasonic to 
violate Section 13(b)(2)(B) of the Exchange Act, which requires issuers that have a class of 
securities registered pursuant to Section 12 of the Exchange Act and issuers with reporting 
obligations pursuant to Section 15(d) of the Exchange Act to devise and maintain a system of 
internal accounting controls sufficient to provide reasonable assurances that (i) transactions are 
executed in accordance with management’s general or specific authorization; (ii) transactions are 
recorded as necessary (I) to permit preparation of financial statements in conformity with 
generally accepted accounting principles or any other criteria applicable to such statements, and 
(II) to maintain accountability for assets; (iii) access to assets is permitted only in accordance 
with management’s general or specific authorization; and (iv) the recorded accountability for 
assets is compared with the existing assets at reasonable intervals and appropriate action is taken 
with respect to any differences. 
39. Finally, as a result of the conduct describe above, Margis violated Exchange Act 
Rule 13b2-1, which states that no person shall, directly or indirectly, falsify or cause to be 
falsified, any book, record, or account subject to section 13(b)(2)(A) and Rule 13b2-2, which 
states, in relevant part, that no director or office of an issuer shall, directly or indirectly:  (1) 
make or cause to be made a materially false or misleading statement to an accountant in connection 

 8 
with; or (2) omit to state, or cause another person to omit to state, any material fact necessary in 
order to make statements made, in light of the circumstances under which such statements were 
made, not misleading, to an accountant in connection with:  (i) any audit, review or examination of 
the financial statements of the issuer required to be made pursuant to this subpart; or (ii) the 
preparation or filing of any document or report required to be filed with the Commission pursuant 
to this subpart or otherwise.  
IV. 
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent’s Offer. 
 Accordingly, it is hereby ORDERED that: 
 A. Pursuant to Section 21C of the Exchange Act, Margis cease-and-desist from 
committing or causing any violations and any future violations of Exchange Act Sections 
13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) [15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(2)(B) and 78m(b)(5)] 
and Rules 13b2-1 and 13b2-2 thereunder [17 C.F.R. §§ 240.13b2-1 and 240.13b2-2].   
 B. Margis shall, within ten (10) days of the entry of this Order, pay a civil money 
penalty in the amount of  $75,000 to the Securities and Exchange Commission for remission to the 
United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not 
made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.  Payment must be made in one 
of the following ways:   
(1)  Respondent may transmit payment electronically to the Commission, which will 
provide detailed ACH transfer/Fedwire instructions upon request;  
(2)  Respondent may make direct payment from a bank account via Pay.gov through the 
SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
(3)  Respondent may pay by certified check, bank cashier’s check, or United States 
postal money order, made payable to the Securities and Exchange Commission and 
hand-delivered or mailed to:  
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169. 
Payments by check or money order must be accompanied by a cover letter identifying 
Panasonic as Respondent in these proceedings, and the file number of these proceedings.  A copy 
of the cover letter and check or money order must be sent to Charles Cain, Chief, FCPA Unit, 
Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, 
DC 20549.   
 
 
 
 

 9 
V. 
It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and admitted by 
Respondent, and further, any debt for civil penalty or other amounts due by Respondent under this 
Order or any other judgment, order, consent order, decree or settlement agreement entered in 
connection with this proceeding, is a debt for the violation by Respondent of the federal securities 
laws or any regulation or order issued under such laws, as set forth in Section 523(a)(19) of the 
Bankruptcy Code, 11 U.S.C. § 523(a)(19). 
 By the Commission. 
 
       Brent J. Fields 
       Secretary 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 
 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 84849 / December 18, 2018 

 

ACCOUNTING AND AUDITING ENFORCEMENT  

Release No. 4003 / December 18, 2018 

ADMINISTRATIVE PROCEEDING 

File No. 3-18938 

 

In the Matter of 

 

Paul A. Margis  

 

Respondent. 

 

 

 

ORDER INSTITUTING CEASE-AND-

DESIST PROCEEDINGS PURSUANT TO 

SECTION 21C OF THE SECURITIES 

EXCHANGE ACT OF 1934, MAKING 

FINDINGS, AND IMPOSING A CEASE-

AND-DESIST ORDER 

  

I. 

 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-

and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 

Exchange Act of 1934 (“Exchange Act”), against Paul A. Margis (“Margis” or “Respondent”). 

II. 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”), which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over him and the subject matter of these 

proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-

and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making 

Findings, and Imposing a Cease-and-Desist Order (“Order”), as set forth below.  

III. 

 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that: 

Summary 

1. Beginning in 2007, Paul A. Margis (“Margis”) participated in a plan whereby 

Panasonic Avionics Corporation (“PAC”), a wholly-owned, U.S. subsidiary of Panasonic 

                                                 
1
   The findings herein are made pursuant to Margis’s Offer of Settlement and are not binding on any 

other person or entity in this or any other proceeding. 



 2 

Corporation (“Panasonic”), offered a lucrative consulting position to a government official 

(“Government Official”) who assisted PAC in obtaining and retaining business from a state-owned 

airline (“Government Airline”).  While PAC was negotiating two agreements valued at over $700 

million with the Government Airline, Margis authorized PAC to offer the Government Official a 

$200,000 a year post-retirement consulting position.  Ultimately, PAC retained the Government 

Official and paid approximately $875,000 for his position, which required little to no work.  

Margis and others arranged for the Government Official to be paid through a third-party vendor 

that provided unrelated services to PAC.  Margis also authorized payments of more than $900,000 

through the third-party vendor for the retention of two other individuals as consultants, although 

they provided little to no services.  Through his conduct, Margis knowingly circumvented PAC’s 

system of internal accounting controls and knowingly falsified the company’s books and records.  

Margis also caused Panasonic to violate the books and records and internal accounting controls 

provisions of the federal securities laws.  Finally, Margis made false representations to PAC’s 

external auditors that PAC did not have any deficiencies concerning its internal financial controls 

and books and records, thereby misleading the company’s auditors.    

Respondent 

2. Paul A. Margis, age 64, was the President (2005-2007; 2012-2017) and Chief 

Executive Officer (2007-2017) of PAC.  Beginning around June 2012, Margis also held concurrent 

positions at Panasonic Corporation, including serving as an executive officer of a Panasonic 

business segment, AVC Networks Company (“AVC Networks”), from 2013-2017.   

Other Relevant Entities and Individuals 

3.  Panasonic Corporation is a multinational corporation, headquartered in Osaka, 

Japan.  During the relevant period, Panasonic’s global business was organized into eight business 

segments, including AVC Networks that included PAC.  Panasonic’s securities were registered with 

the Commission pursuant to Section 12(b) of the Exchange Act until April 22, 2013, and its 

American Depositary Shares traded on the New York Stock Exchange under the ticker “PC.”  From 

May 1, 2015 through June 20, 2016, Panasonic’s securities were registered with the Commission 

pursuant to Section 12(g) of the Exchange Act.  During the periods when Panasonic securities were 

registered with the Commission, Panasonic was required to file or furnish periodic reports with the 

Commission pursuant to Section 15 of the Exchange Act. 

4. Panasonic Avionics Corporation (f/k/a Matsushita Avionics Systems 

Corporation), a wholly-owned subsidiary of Panasonic’s North American subsidiary, is a 

Delaware corporation headquartered in Lake Forest, California.  PAC designs, engineers, 

manufactures, sells and installs in-flight entertainment systems (“IFE”) and global communication 

services (“GCS”) to airlines, aircraft leasing companies, and airplane manufacturers worldwide, 

including to state-owned airlines.  Panasonic managed PAC via AVC Networks, and certain PAC 

officers, including Margis, also held concurrent titles at Panasonic.  During the relevant period, 

PAC’s books and records and financial accounts were consolidated into Panasonic’s books and 

records and reported on Panasonic’s consolidated financial statements, which were filed or 

furnished with the Commission and reported to investors.    



 3 

FACTS 

Offer of Consulting Position to Government Official 

5. In 1986, PAC retained a sales representative (“Sales Representative” or” Sales 

Rep”) to assist PAC in contract negotiations for the sale of IFE and GCS products to several 

airlines in its Middle East Region, despite the fact that he had no background or experience in 

avionics.  Thereafter, PAC periodically renewed its agreements with the Sales Rep until around 

May 2016 when it terminated its relationship with him.  The Sales Rep was engaged with the 

authorization of Panasonic executives, including Margis, who was also directly involved in 

authorizing the renewal of agreements between PAC and the Sales Rep.  

6. Between 2007 and 2016, PAC paid the Sales Representative more than $184 

million in sales commissions through his British Virgin Islands entity.  During this period, the 

Sales Representative directly reported to Margis, who authorized monthly commission payments 

of $1-3 million to the Sales Representative.  The Sales Representative gave Margis cash and luxury 

items valued at more than $60,000.  

7. Beginning in at least 2004, PAC maintained a separate, regional office in the 

Middle East.  The office, based in Dubai, was staffed by sales and marketing professionals and had 

a repair shop, field engineers, and its own finance staff.  Nevertheless, PAC continued to use the 

Sales Rep despite concerns raised by PAC employees that the Sales Rep lacked the qualifications 

to negotiate technical contracts related to IFE and GCS products and other red flags regarding his 

conduct, such as his possession of confidential and proprietary materials of PAC’s competitors and 

customers.  In addition, Margis was aware of allegations from its regional employees that the Sales 

Rep was paying bribes to win business on PAC’s behalf.     

8. While PAC engaged the Sales Rep as a sales agent through the entity that he 

owned, he operated as a PAC employee.  The Sales Representative had:  PAC business cards 

identifying him as PAC’s General Manager of Sales and Marketing in the Middle East, Africa and 

South Asia; his own office space in PAC’s Dubai office; a PAC phone number and email address; 

a PAC title; and numerous electronic devices.   

9. In 2004, PAC and the Government Airline signed a ten-year Master Product Supply 

Agreement (“MPSA”) that ultimately grossed well over a billion dollars for PAC to provide IFE 

products and services for planes within the Government Airline’s fleet.  Both Margis and the Sales 

Rep were involved in the negotiations of the MPSA, and Margis signed the MPSA on behalf of 

PAC.  Significantly, the MPSA prohibited PAC from providing any consideration to employees of 

the Government Airline.   

10. The Government Airline appointed its own executive, the Government Official, to 

serve as the primary point of contact for contract negotiations with PAC, including for the MPSA.  

During the relevant period, the Government Official reported directly to the Government Airline’s 

President.  The Government Official had influence over the Government Airline’s contracting 

decisions, including influence over the airline’s decisions to award business to PAC as well as 

interpretations of specific terms in the MPSA and amendments thereto.  Finally, the Government 

Official negotiated significant terms with PAC, including credits, concessions, and 

system/component price lists, and was involved in approving payments to PAC.     

 



 4 

11. In 2006, the Sales Rep and the Government Official began negotiating an 

amendment to the MPSA (“Amendment One”) for the purchase of additional IFE products by the 

Government Airline.  Negotiations for Amendment One, which was worth nearly $360 million in 

additional business to PAC, continued through at least July 2007. 

12. Over the course of 2007, PAC and the Government Airline also negotiated and 

entered into a second amendment to the MPSA (“Amendment Two”) for the purchase of additional 

IFE products.  Due to the delay in the receipt of new aircraft by the Government Airline, certain 

IFE products that PAC and the Government Airline had contemplated being included in 

Amendment One were instead included in Amendment Two.  Amendment Two was signed in 

November 2007, and was worth over $353 million in additional business to PAC. 

13. As with the MPSA, Margis and the Sales Representative were both involved in the 

negotiation of Amendment One and Amendment Two.  Also as with the MPSA, the Government 

Official led negotiations of those amendments and signed Amendment One on behalf of the 

Government Airline. 

14. During the course of negotiations for Amendments One and Amendment Two, the 

Government Official solicited PAC for personal benefits.  Beginning in at least April 2007, the 

Government Official sent numerous emails to the Sales Representative about obtaining a position 

with PAC, which the Sales Representative brought to Margis’s attention.  Subsequently on June 

17, 2007, the Government Official informed the Sales Representative that he was seeking a 

position with PAC, including an annual salary of £150,000 and other benefits.  The Sales 

Representative informed Margis of the specific request.   

15. In or around September 2007, PAC offered the Government Official a position as a 

consultant for $200,000 per year plus travel expenses, which would be effective after his retirement 

from the Government Airline.  Margis authorized the offer of a consulting position to the 

Government Official, despite numerous red flags. 

16. For example, PAC had no apparent need for the Government Official’s services.  

During the six years that he was paid as a consultant, the Government Official performed little to 

no work.   

17. Additionally, the Sales Representative informed Margis and other PAC executives 

that the Government Official did not want any one contacting him due to his current status with his 

employer, the Government Airline. 

18. In response, a senior PAC executive told Margis and others by email that, “We 

should be very sensitive to [Government Official’s] current position . . . . I will get in trouble if we 

act like a small company.  What we are doing for [the Government Official] is a large risk for a 

corporation like Panasonic.  I think we still should for good reasons, but we must get this done 

above the table with complete transparency.”   

19. Finally, based on his prior interactions with the Government Airline, Margis was 

aware that the Government Official played a key role in the business relationship between the 

Government Airline and PAC, including in connection with the negotiations of the MPSA, 

Amendment One, and Amendment Two. 

20. During the course of the negotiations for Amendment One and Amendment Two, 

and while seeking personal benefits from PAC, the Government Official was providing PAC 

commercial and proprietary information that helped PAC secure an improper advantage in 



 5 

obtaining and retaining business from the Government Airline.  This included confidential 

information of the Government Airline and PAC’s competitors, tips on negotiating with the 

Government Airline, and advice on how to secure additional business from the Government 

Airline.   

21. Rather than following PAC’s standard procedures for retaining consultants, Margis 

arranged for PAC to retain the Government Official and pay him through an unrelated third-party 

vendor that otherwise prepared product manuals for PAC (“Vendor”).   

22. Ultimately, between April 2008 and January 2014, the Government Official 

provided little to no services, and PAC paid over $875,000 to the Vendor for the Government 

Official’s position.  Margis was aware that the Government Official was providing few, if any, 

services.  For instance, in May 2009, PAC employees requested to terminate the agreement with 

the Government Official because his services were not required.  Nevertheless, Margis authorized 

the renewal of the agreement with the Government Official, and continued to authorize monthly 

payments to the Vendor for the Government Official through January of 2014. 

Retention of Consultants through the Office of the President Budget  

23. From at least 2007 through at least January 2014, Margis and others authorized the 

engagement of various individuals as consultants in circumstances in which the consultants 

provided few, if any, services.  Rather than following PAC’s standard procedures for engaging 

consultants, these individuals were retained through the Vendor and paid through the Vendor from 

an Office of the President budget that Margis controlled.   

24. The Office of the President budget was set annually by a senior PAC finance 

executive in consultation with Margis, based on the prior year’s costs and anticipated changes to 

expenses.  Expenditures from this budget were never meaningfully reviewed or approved by any 

Panasonic or PAC personnel, and there were no reasonable internal accounting controls in place 

surrounding its use.  In October 2007, Margis used the Vendor as a conduit to pay a former PAC 

employee (“Consultant One”), who was also working as a consultant for one of PAC’s largest 

domestic airline customers.  Between October 2007 and December 2013, Margis authorized 

payments totaling approximately $825,000 for Consultant One from the Office of the President 

budget via the Vendor.  During this period, Consultant One was not supervised by anyone at PAC 

or Panasonic, and provided few, if any, services to PAC or Panasonic.  Instead, Consultant One 

provided Margis and others at PAC with non-public information regarding the domestic airline 

customer, other airlines, and PAC’s competitors, frequently passing information through emails 

that were marked “CONFIDENTIAL” or “DO NOT FORWARD.”   

25. In yet another instance, between January and December 2009, Margis used the 

Office of the President budget and the Vendor to pay $60,000 for a consulting position for another 

former PAC employee (“Consultant Two”).  In this instance, Consultant Two performed no work 

for PAC or Panasonic, and was paid solely to prevent him from working for any of PAC’s 

competitors.   

26. Margis authorized nearly all payments made out of the Office of the President 

Budget, including payments totaling more than $1.76 million to the Government Official, 

Consultant One, and Consultant Two, who provided few, if any, services to PAC.  These payments 

were falsely recorded in PAC’s general ledger as consulting payments to the Vendor and the 



 6 

consultants and incorporated into Panasonic’s books, records, and accounts as “selling and general 

administrative expenses.” 

27. During the period that Margis used the Office of the President budget to pay the 

aforementioned consultants, PAC had established policies and procedures concerning the 

engagement of consultants.  These policies and procedures set out a number of requirements, 

including defining the scope of work, engaging PAC Human Resources in the retention process, 

and limiting a contract’s duration to six months.  In fact, during this period, Margis authorized the 

engagement of several other consultants pursuant to PAC’s consultant retention policies and 

procedures.  Conversely, Margis circumvented those very same policies and procedures when 

authorizing the engagement of the Government Official, Consultant One, and Consultant Two.   

28. Panasonic failed to maintain internal accounting controls reasonably designed to 

ensure that payments to the consultants only were made in exchange for the described consulting 

services, that services actually had been rendered, and that its books and records fairly reflected the 

transactions and disposition of Panasonic’s assets.  Panasonic also lacked sufficient internal 

accounting controls to effectuate its policies and procedures concerning the selection and 

engagement of these consultants. 

29. Margis caused Panasonic to violate the books and records and internal accounting 

controls provisions of the federal securities laws by authorizing the engagement of the consultants 

through the Vendor and using the Vendor as a conduit for payments to the consultants, which were 

made from the Office of the President Budget that he controlled.  

Margis Misled PAC’s External Auditors 

30. As a wholly-owned subsidiary of Panasonic, PAC senior executives provided 

annual certifications of its financial statements, known as “subcertifications,” to PAC’s external 

auditors (“Auditors”) each quarter.  Similarly, PAC senior executives also provided the Auditors 

with quarterly management representations letters confirming, among other things, that the 

company did not have any deficiencies concerning its books and records and its internal financial 

controls.     

31. The subcertifications and management representation letters were presented to the 

Auditors in connection with the company's annual and quarterly reviews.  The Auditors relied on 

these subcertifications and management representation letters as part of the normal course of their 

audits of the company and for the preparation of PAC’s financial statements, which were 

incorporated into Panasonic’s financial statements and included by Panasonic in its periodic 

Commission filings.    

32. From at least 2007 through 2015, Margis provided annual subcertifications as well 

as management representation letters each quarter to the Auditors.  At no time during this period 

did Margis disclose to the Auditors, or direct anyone else to disclose, the foregoing issues 

concerning the payments to the Government Official and other consultants, PAC’s and Panasonic’s 

lack of sufficient internal accounting controls, or the resulting falsification of PAC’s and 

Panasonic’s books and records.  

 

 

 



 7 

33. Instead, Margis provided false subcertifications and management representation 

letters to the Auditors.  For example, in the subcertifications Margis falsely stated, “no deficiencies 

have been identified and the internal control [sic] over financial reporting have effectively 

functioned….”  Similarly, in the management representation letters, Margis falsely stated, “there 

are no material transactions that have not been properly recorded in the accounting records,” and 

“[t]here are no significant deficiencies or material weaknesses in the design or operation of internal 

controls over financial reporting….”  Both of these certifications were false.  

34. As a result of this conduct, Margis made materially false or misleading statements 

to the Auditors in connection with their audits of the company’s financial statements and internal 

financial controls.   

LEGAL STANDARDS AND VIOLATIONS 

35. Under Section 21(C) of the Exchange Act, the Commission may impose a cease-

and-desist order upon any person who is violating, has violated, or is about to violate any provision 

of the Exchange Act or any rule or regulation thereunder, and upon any other person that is, was, 

or would be a cause of the violation, due to an act of omission the person knew or should have 

known would contribute to such violation.   

36. As a result of the conduct described above, Margis violated Section 13(b)(5) of 

the Exchange Act, which states that no person shall knowingly circumvent or knowingly fail to 

implement a system of internal accounting controls or knowingly falsify any book, record or 

account.   

37. Also as a result of the conduct described above, Margis caused Panasonic to 

violate Section 13(b)(2)(A) of the Exchange Act, which requires issuers that have a class of 

securities registered pursuant to Section 12 of the Exchange Act and issuers with reporting 

obligations pursuant to Section 15(d) of the Exchange Act to make and keep books, records, and 

accounts which, in reasonable detail, accurately and fairly reflect their transactions and 

disposition of their assets. 

38. As a result of the conduct described above, Margis also caused Panasonic to 

violate Section 13(b)(2)(B) of the Exchange Act, which requires issuers that have a class of 

securities registered pursuant to Section 12 of the Exchange Act and issuers with reporting 

obligations pursuant to Section 15(d) of the Exchange Act to devise and maintain a system of 

internal accounting controls sufficient to provide reasonable assurances that (i) transactions are 

executed in accordance with management’s general or specific authorization; (ii) transactions are 

recorded as necessary (I) to permit preparation of financial statements in conformity with 

generally accepted accounting principles or any other criteria applicable to such statements, and 

(II) to maintain accountability for assets; (iii) access to assets is permitted only in accordance 

with management’s general or specific authorization; and (iv) the recorded accountability for 

assets is compared with the existing assets at reasonable intervals and appropriate action is taken 

with respect to any differences. 

39. Finally, as a result of the conduct describe above, Margis violated Exchange Act 

Rule 13b2-1, which states that no person shall, directly or indirectly, falsify or cause to be 

falsified, any book, record, or account subject to section 13(b)(2)(A) and Rule 13b2-2, which 

states, in relevant part, that no director or office of an issuer shall, directly or indirectly:  (1) 

make or cause to be made a materially false or misleading statement to an accountant in connection 



 8 

with; or (2) omit to state, or cause another person to omit to state, any material fact necessary in 

order to make statements made, in light of the circumstances under which such statements were 

made, not misleading, to an accountant in connection with:  (i) any audit, review or examination of 

the financial statements of the issuer required to be made pursuant to this subpart; or (ii) the 

preparation or filing of any document or report required to be filed with the Commission pursuant 

to this subpart or otherwise.  

IV. 

 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent’s Offer. 

 Accordingly, it is hereby ORDERED that: 

 A. Pursuant to Section 21C of the Exchange Act, Margis cease-and-desist from 

committing or causing any violations and any future violations of Exchange Act Sections 

13(b)(2)(A), 13(b)(2)(B), and 13(b)(5) [15 U.S.C. §§ 78m(b)(2)(A), 78m(b)(2)(B) and 78m(b)(5)] 

and Rules 13b2-1 and 13b2-2 thereunder [17 C.F.R. §§ 240.13b2-1 and 240.13b2-2].   

 B. Margis shall, within ten (10) days of the entry of this Order, pay a civil money 

penalty in the amount of  $75,000 to the Securities and Exchange Commission for remission to the 

United States Treasury, subject to Exchange Act Section 21F(g)(3).  If timely payment is not 

made, additional interest shall accrue pursuant to 31 U.S.C. § 3717.  Payment must be made in one 

of the following ways:   

(1)  Respondent may transmit payment electronically to the Commission, which will 

provide detailed ACH transfer/Fedwire instructions upon request;  

(2)  Respondent may make direct payment from a bank account via Pay.gov through the 

SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

(3)  Respondent may pay by certified check, bank cashier’s check, or United States 

postal money order, made payable to the Securities and Exchange Commission and 

hand-delivered or mailed to:  

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169. 

Payments by check or money order must be accompanied by a cover letter identifying 

Panasonic as Respondent in these proceedings, and the file number of these proceedings.  A copy 

of the cover letter and check or money order must be sent to Charles Cain, Chief, FCPA Unit, 

Division of Enforcement, Securities and Exchange Commission, 100 F Street, N.E., Washington, 

DC 20549.   

 

 

 

 

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V. 

It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 

523 of the Bankruptcy Code, 11 U.S.C. § 523, the findings in this Order are true and admitted by 

Respondent, and further, any debt for civil penalty or other amounts due by Respondent under this 

Order or any other judgment, order, consent order, decree or settlement agreement entered in 

connection with this proceeding, is a debt for the violation by Respondent of the federal securities 

laws or any regulation or order issued under such laws, as set forth in Section 523(a)(19) of the 

Bankruptcy Code, 11 U.S.C. § 523(a)(19). 

 By the Commission. 

 

       Brent J. Fields 

       Secretary