UNITED STATES OF AMERICA

Before the

SECURITIES AND EXCHANGE COMMISSION

SECURITIES ACT OF 1933

Release No. 10221 / September 27, 2016

SECURITIES EXCHANGE ACT OF 1934

Release No. 78944 / September 27, 2016

ACCOUNTING AND AUDITING ENFORCEMENT

Release No. 3806 / September 27, 2016

ADMINISTRATIVE PROCEEDING

File No. 3-17582

In the Matter of

WEATHERFORD 

INTERNATIONAL PLC, 

F/K/A WEATHERFORD

INTERNATIONAL LTD., 

JAMES HUDGINS, CPA, 

AND DARRYL KITAY, CPA,

Respondents.

ORDER INSTITUTING PUBLIC 

ADMINISTRATIVE AND CEASE-ANDDESIST PROCEEDINGS PURSUANT TO 

SECTION 8A OF THE SECURITIES ACT 

OF 1933, SECTIONS 4C AND 21C OF THE 

SECURITIES EXCHANGE ACT OF 1934,

AND RULE 102(e) OF THE 

COMMISSION’S RULES OF PRACTICE, 

MAKING FINDINGS, AND IMPOSING 

REMEDIAL SANCTIONS AND A CEASEAND-DESIST ORDER (“ORDER”)

I.

The Securities and Exchange Commission (“Commission”) deems it appropriate that ceaseand-desist proceedings be, and hereby are, instituted pursuant to Section 8A of the Securities Act 

of 1933 (“Securities Act”) and Section 21C of the Securities Exchange Act of 1934 (“Exchange 

Act”) against Weatherford International plc, formerly known as Weatherford International Ltd. 

(“Weatherford”), James Hudgins, CPA (“Hudgins”), and Darryl Kitay, CPA (“Kitay”)

(collectively “Respondents”); and that public administrative proceedings be, and hereby are, 

instituted pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(iii) of the 

Commission’s Rules of Practice against Hudgins and Kitay.
2

II.

In anticipation of the institution of these proceedings, Respondents have submitted Offers

of Settlement (the “Offers”) that 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 them and the subject matter of 

these proceedings, which are admitted, Respondents consent to the entry of this Order, as set 

forth below.

III.

On the basis of this Order and Respondents’ Offers, the Commission finds1that: 

SUMMARY

1. Between 2007 and 2012, Weatherford, a large multinational provider of oil and 

natural gas equipment and services, issued false financial statements that inflated its earnings by 

over $900 million in violation of U.S. Generally Accepted Accounting Principles (“GAAP”). 

Weatherford issued materially false and misleading statements about its net income, earnings per 

share (“EPS”), effective tax rate (“ETR”), and other key financial information. Weatherford did 

not have sufficient internal accounting controls to identify and properly account for its 

accounting of income taxes throughout the relevant period.

2. As a result, Weatherford was forced to restate its financial statements on three 

separate occasions over eighteen months. The first restatement was made public on March 1, 2011 

when Weatherford announced that it would restate its financial results for 2007-2010 and that a 

material weakness existed in its internal control over financial reporting (“ICFR”) for the 

accounting of income taxes. That restatement, filed on March 8, 2011, reduced previously 

reported net income by approximately $500 million (the “First Restatement”). $461 million of 

the First Restatement resulted from a four-year income tax accounting fraud orchestrated by 

James Hudgins, the Vice President of Tax and later an officer of Weatherford, and Darryl Kitay, 

the tax manager and later senior tax manager who reported to Hudgins. Hudgins and Kitay made 

numerous post-closing adjustments or “plugs” to fill gaps to meet ETRs that Weatherford 

previously disclosed to analysts and the public. This deceptive intercompany tax accounting 

improperly inflated Weatherford’s earnings and materially understated its ETR and tax expense. 

3. The fraud created the misperception that the tax structure Weatherford designed 

to reduce its tax expense and ETR was far more successful than it actually was. From 2007 to 

2010, Weatherford regularly touted its favorable ETR to analysts and investors as one of its key 

competitive advantages, which it attributed to a superior international tax avoidance structure

that Hudgins constructed at the urging of senior management. The purportedly lower ETR rates 

Weatherford reported throughout this period proved illusory, as the First Restatement made 

 

1

The findings herein are made pursuant to Respondents’ Offers of Settlement and are not binding on any 

other person or entity in this or any other proceeding. 
3

clear. After announcing the First Restatement, Weatherford’s stock price declined nearly 11% in 

one trading day ($2.38 per share), closing at $21.14 per share on March 2, 2011. The decline 

eliminated over $1.7 billion from Weatherford’s market capitalization. 

4. Weatherford announced additional restatements in February 2012 and July 2012 

(the “Second Restatement” and “Third Restatement,” respectively). After the First Restatement, 

Weatherford attempted to remediate its material weakness in internal control over income tax 

accounting. Throughout its remediation efforts in 2011, Weatherford filed its Forms 10-Q on a 

timely basis and falsely reassured investors that it was performing additional reconciliations and 

post-closing procedures to ensure that its financial statements were fairly presented in conformity 

with GAAP. However, Weatherford, through Hudgins and Kitay, failed to review, assess and 

quantify known income tax accounting issues that had a high risk of causing additional material 

misstatement as early as July 2011. When Weatherford filed its Second Restatement on March 15, 

2012, Weatherford reported a $256 million drop in net income from 2007-2011 as a result of 

additional errors in its income tax accounting and its material weakness in internal control over 

income tax accounting remained. At least $84 million of that drop in net income resulted from an 

income tax accounting GAAP violation Respondents knew about, but failed to assess and quantify, 

before Weatherford filed its third quarter financial statements. 

5. Four months after filing the Second Restatement, Weatherford announced that it 

was withdrawing reliance on all previous financial statements because it had discovered additional 

income tax errors that reduced prior period net income by $107 million. By the time Weatherford 

issued its Third Restatement on December 17, 2012, Weatherford had reduced net income from 

prior periods by an additional $186 million, largely driven by books and records and internal 

accounting controls issues identified and corrected during Weatherford’s remediation efforts in 

2012.

6. As a result of the fraudulent income tax accounting, Weatherford accrued millions 

in improper benefits by using artificially inflated common stock to acquire numerous companies. 

Weatherford also raised over $5 billion from nine bond offerings during the relevant period. 

Hudgins used the artificially low ETRs and perceived successful tax avoidance strategies as, in 

part, a basis to justify becoming a long-desired officer of Weatherford in 2009, and to secure a 

large bonus in 2010.

7. As a result of the conduct described herein, Weatherford violated the antifraud 

provisions of Exchange Act Section 10(b) and Rule 10b-5 thereunder, and Securities Act Section 

17(a), the reporting provisions of Exchange Act Section 13(a) and Rules 12b-20, 13a-1, 13a-11, 

and 13a-13 thereunder, the books and records provisions of Exchange Act Section 13(b)(2)(A), and 

the internal accounting control provisions of Section 13(b)(2)(B).

8. As a result of the conduct described herein, Hudgins and Kitay violated the 

antifraud provisions of Securities Exchange Act Sections 10(b) and Rule 10b-5 thereunder, and 

Securities Act Section 17(a) and caused Weatherford to violate Securities Act Section 17(a) and 

Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Rules 10b-5, 12b-20, 13a-1, 

13a-11, and 13a-13 thereunder. Hudgins and Kitay also violated Exchange Act Section 13(b)(5) 
4

and Exchange Act Rule 13b2-1 promulgated thereunder, and Hudgins violated Exchange Act Rule 

13b2-2. In addition, both individuals violated the federal securities laws or rules and regulations 

thereunder pursuant to Section 4C of the Exchange Act and Rule 102(e)(1)(iii) of the 

Commission’s Rules of Practice.

RESPONDENTS

9. Weatherford International plc f/k/a Weatherford International Ltd. is a

multinational Irish public limited company based in Switzerland, with U.S. offices in Houston, 

Texas.

 Weatherford’s shares are registered with the Commission pursuant to Exchange Act 

Section 12(b) and are listed on the NYSE under the symbol “WFT.” Weatherford files periodic 

reports, including Forms 10-K and 10-Q, with the Commission pursuant to Exchange Act Section 

13(a) and related rules thereunder. 

10. In November 2013, the Commission charged Weatherford with: (a) violating the 

Foreign Corrupt Practices Act by authorizing bribes and improper travel and entertainment for 

foreign officials in the Middle East and Africa to win business; (b) falsifying its books and 

records to conceal these illicit payments and illegal transactions with countries subject to U.S. 

sanctions; and (c) failing to establish an effective system of internal accounting controls. 

Weatherford agreed to pay $252.6 million to settle the Commission’s charges and related actions 

by four other agencies. As part of that settlement, Weatherford agreed to retain an independent 

compliance monitor for 18 months and to self-report to the SEC for an additional 18 months.

11. James M. Hudgins, age 62, resides in Texas. He served as Weatherford’s 

Director of Tax from January 1999 until mid-2000, when he became Vice President of Tax, and 

as an Officer from February 2009 until his resignation on March 31, 2012. Hudgins was licensed 

as a CPA by the State of Texas from 1988 until 2012.

12. Darryl S. Kitay, age 56, resides in Texas. He served as Weatherford’s Tax 

Manager and Senior Manager from April 2004 until 2011, then as Weatherford’s Tax Director 

through January 2013. Kitay reported to Hudgins from April 2004 until March 2012. Kitay was 

licensed as a CPA by the State of Texas in 1992 and expired in 2004. Weatherford relieved 

Kitay of all supervisory responsibilities associated with Weatherford’s income tax accounting in 

May 2012, after the filing of the Second Restatement. Weatherford terminated Kitay’s 

employment in July 2013.

RELEVANT ENTITY

13. Ernst & Young LLP (“Ernst & Young”) is a professional services limited liability 

partnership, headquartered in New York City, with offices located throughout the United States. It 

is a member firm of Ernst & Young Global Limited and provides auditing, consulting, and tax 

services to a variety of companies, including companies whose securities are registered with the 

Commission and trade in the U.S. markets. Ernst & Young was Weatherford’s external auditor 

from 2001 to March 2013. On March 7, 2013, Weatherford’s audit committee decided not to reappoint Ernst & Young.
5

FACTS

Background

14. From its inception through merger of two predecessor companies in 1998, 

Weatherford employed an aggressive strategy to become a top-tier multinational provider of oil 

and natural gas equipment and services. One part of that strategy was based on exponential 

revenue growth fueled by hundreds of acquisitions designed to expand Weatherford’s 

multinational footprint. During the decade before the First Restatement, Weatherford’s revenue 

increased from $1.8 billion to $10.2 billion. Emails among Weatherford’s senior management 

reflected that Weatherford took pride in being an entrepreneurial high-growth organization that 

placed a premium on more growth and better earnings. This growth came, often, at the expense of 

ensuring good governance and compliance. During the relevant period, Weatherford failed to 

ensure that its internal controls over income tax accounting kept up with its growth. 

15. Another key component of that strategy was to develop a superior international 

tax avoidance structure that reduced Weatherford’s ETR and tax expense (and increased EPS and 

cash flow) while providing a competitive advantage over U.S.-based peer companies. In 2002, 

Weatherford changed its place of incorporation from the U.S. to Bermuda, a 0% tax jurisdiction, 

through a process known as inversion.2 

16. Weatherford further refined its international tax structure from 2003 through 2006 

by implementing a series of hybrid instruments to facilitate the movement of revenue from 

higher tax rate jurisdictions (i.e., Canada and United States) to lower tax rate jurisdictions (i.e., 

Hungary and Luxembourg). Hybrid instruments are often used in international tax planning to 

achieve deductions in one, typically high tax rate, jurisdiction and shift income to another, typically 

low tax rate, jurisdiction. Hybrid instruments are structured to incorporate features of both debt 

and equity, such that the instrument typically qualifies as debt in one jurisdiction and equity in

another. Payments on debt may be deducted in computing taxable income while the yields are 

accrued but not necessarily paid, and, therefore, not calculated as taxable income.

17. Taken together, these tax avoidance strategies were designed largely to reduce 

Weatherford’s tax expense and ETR, while increasing EPS and cash flow. As a result, these 

international tax avoidance strategies reduced Weatherford’s ETR from 36.3% in 2001 to 25.9% 

by the end of 2006.

18. As the then-Vice President of Tax, Hudgins was the architect of Weatherford’s 

tax structure, tax planning, and was responsible for executing tax strategies designed to reduce 

Weatherford’s ETR and tax expense. Hudgins was also responsible for ensuring that 

 

2

In 2009, Weatherford took steps to preserve the tax avoidance structure it created by changing its place of 

incorporation from Bermuda to Switzerland through a series of share exchange transactions commonly referred to as 

redomestication. In 2014, Weatherford changed its place of incorporation from Switzerland to Ireland when, 

through merger agreement, Weatherford International plc, an Ireland-based public limited company, became the 

new public holding company/parent of Weatherford’s group of companies.
6

Weatherford’s consolidated income tax accounts were properly maintained and that the 

consolidated tax provisions, underlying expenses, and related financial disclosures were 

accurately and fairly presented in all material respects in accordance with GAAP. Kitay, who 

reported to Hudgins, was responsible for preparing and reviewing Weatherford’s consolidated 

income tax accounts and underlying expenses that were reported in Weatherford’s financial 

statements.

19. From 2002 through October 2006, Hudgins reported to a Chief Financial Officer 

(“CFO”) who was a CPA with significant accounting experience. In October 2006, after the 

departure of that CFO, the Vice President of Finance was appointed CFO. The new CFO was 

trained as an attorney and had considerable mergers and acquisition experience. However, the 

new CFO was not a CPA and had limited accounting knowledge and experience. 

20. To compensate for the CFO’s limited accounting knowledge and experience, 

Weatherford created the new position of Chief Accounting Officer (“CAO”) to supervise and 

take responsibility of Weatherford’s accounting. Under this new arrangement, Weatherford’s tax 

department was considered more like a “finance” function focused on tax strategy and planning, 

not tax accounting. Thus, beginning in October 2006, Hudgins and Weatherford’s tax 

department no longer reported directly to Weatherford’s accounting department or to senior 

management with sufficient knowledge or experience to assess whether Weatherford’s income 

tax accounting was being fairly and accurately presented in accordance with GAAP. As a result, 

the tax department had virtually no accounting oversight.

21. Achieving and sustaining a lower ETR was very important to Weatherford’s 

profitability strategy during the relevant period. Weatherford senior management and Hudgins

understood that Weatherford’s tax structure and resulting ETR added significant value and was 

material to analysts and investors alike. Wall Street analysts closely followed Weatherford’s 

ETR and its effect on earnings. Each percentage point in Weatherford’s ETR translated into 

$0.02 to $0.03 in EPS. Weatherford’s senior management knew its tax department was 

perpetually understaffed and overworked during the years leading up to the First Restatement. 

Hudgins led a tax staff that was roughly the same size as when he was hired, Hudgins pressed his 

employees to work long hours to make Weatherford’s tax structure extremely competitive. 

Weatherford and Hudgins quickly gained a reputation with the company’s external auditor as a 

challenging and demanding client known for taking aggressive accounting positions, particularly 

in the area of income tax accounting. 

22. Although Weatherford reduced its ETR by nearly 10% from 2001 to the end of 

2006, its CFO remarked that Weatherford’s ETR remained somewhat above that of other 

inverted peer companies in his response to an analyst’s question during the year end earnings call

on January 30, 2007. Soon thereafter, Weatherford started reporting ETR results that created a 

false perception that its international tax structure was outperforming similarly-situated 

competitors by a significant margin. For example, in 2008 and 2009, fueled by its deceptive 

income tax accounting practices, Weatherford reported pre-restatement ETRs of 17.1% and 

6.5%. 
7

$461 Million Tax Accounting Fraud Leads to First Restatement

23. In connection with fiscal years 2007 through 2010, Hudgins and Kitay engaged in 

fraudulent practices relating to income tax accounting that violated GAAP and made 

Weatherford’s financial statements materially false and misleading. During each of those years, 

Weatherford repeatedly and publicly disclosed ETR estimates and recorded tax expense that 

Hudgins and Kitay knew, or were reckless in not knowing, were fabricated. Each year, Hudgins 

and Kitay made or authorized unsupported post-closing adjustments to accounting data that 

intentionally lowered Weatherford’s actual ETR and tax expense. To do so, they reversed 

accounting data that had been correctly input into Weatherford’s consolidated tax provision from 

the company’s accounting system, and did not notify Weatherford’s accounting department why 

they had made such adjustments. They performed no work to support the adjustments, which 

were merely a “plug” to arrive at the lower estimated ETR and tax expense amounts. Without 

disclosing how they arrived at their numbers, Hudgins and Kitay provided these amounts for 

inclusion in Weatherford’s consolidated financial statements, which senior management shared 

with analysts and investors repeatedly during earnings calls and public financial statements. This 

conduct went undetected for over four fiscal years.

24. Throughout 2007-2010, Hudgins and Kitay made these manual post-closing 

adjustments within a line item on the consolidated tax provision labeled intercompany “dividend 

exclusion.”3 These dividend exclusion adjustments, which ranged from $286 million to $439 

million per year, involved different Weatherford entities within Weatherford’s corporate 

elimination account, which was known as the “Eliminations region.” These adjustments were 

then tax effected at 35%, which falsely lowered Weatherford’s year-end provision for income 

taxes by $100 million to $154 million each year. These dividend exclusion adjustments also 

overstated net income, understated ETR and tax expense, and ultimately created a $461 million 

phantom income tax receivable.

25. These adjustments were made to allow Weatherford’s reported ETR and earnings 

results to better align with analysts’ expectations and Weatherford’s previously-announced 

projected results. Hudgins and Kitay did not tell anyone outside of Weatherford’s tax 

department the true reason they made these adjustments. Kitay identified the existence of the 

adjustments to Ernst & Young each year, but, when questioned about them, Kitay made 

misleading and inconsistent responses to the auditors and failed to disclose the true reason for the 

adjustments. Kitay sometimes asked Hudgins to review his responses before providing them to 

Ernst & Young. 

26. The errors were finally discovered in February 2011. By that time, the phantom 

income tax receivable had increased to such dramatically disproportionate heights, over $460 

million, that it defied even the unsupported explanations of Hudgins and Kitay. Shortly 

thereafter, Weatherford released the First Restatement in March 2011. 

 

3 Dividend exclusion represents the amount of intercompany dividends that a corporation must exclude from 

its taxable income.
8

First Restatement - Dividend Exclusion Plug Adjustments

Fiscal Year 2007

27. In December 2006, Weatherford, through Hudgins, initially forecasted an ETR of 

29% for fiscal year 2007. However, emails among senior management reflected that the 

company was under pressure to meet Wall Street expectations and to offset shortfalls in its

quarterly earnings targets by lowering its ETR. By the time Weatherford announced its second 

quarter earnings results on July 23, 2007, the company informed analysts that ETR would “run 

between of 20 and 21% on average for the entire year.” Weatherford reported similar ETR 

results in its financial statements and earnings releases for the third quarter of 2007, creating the 

perception that its tax avoidance strategies were finally beginning to outperform those of its 

competitors and yield long-term value to investors. 

28. Throughout the first three quarters of 2007, Weatherford recorded ETR and tax 

expense pursuant to FIN 18, “Accounting for Income Taxes in Interim Periods.” FIN 18 

prescribes an estimated annualized ETR approach for computing the tax provisions for the first 

three quarters of the year, which is based on a company’s best estimate of current year ordinary 

income. GAAP, however, does not allow companies to use FIN 18 to calculate their year-end tax 

provisions. 

29. To comply with GAAP, Weatherford was required to record ETR and tax expense 

at year end pursuant to FAS 109, “Accounting for Income Taxes.” 4 FAS 109 establishes standards 

on how companies should account for and report the effects of income taxes, including the 

calculation of the year-end consolidated tax provision. The tax data for every Weatherford entity 

was compiled in the field and in Houston. Tax department personnel in Houston under Hudgins 

and Kitay’s supervision reviewed that information, after which the tax provisions for legal entities 

were finalized and then combined on a region-by-region basis. The region-based tax provisions 

were then consolidated to arrive at a single tax provision from which current and deferred assets 

and liabilities, associated tax expense (or benefit), and ETR were calculated and recorded.

30. Shortly before Weatherford was scheduled to release its year-end financial results 

for 2007, however, Hudgins and Kitay discovered the year-end ETR and tax expense that had 

been calculated pursuant to FAS 109 far exceeded the ETR estimates and tax expense 

disseminated publicly to analysts and investors during the first three quarters of 2007 based on 

their ETR estimates. Faced with what they considered to be an immovable deadline for reporting 

earnings, Hudgins and Kitay falsified the year-end consolidated tax provision by making an 

unsubstantiated manual $439.7 million post-closing “plug” adjustment to two different 

Weatherford Luxembourg entities within Weatherford’s Eliminations region. To do so, they 

intentionally reversed accounting data that had been correctly input to Weatherford’s 

consolidated tax provision via the company’s accounting system. 

 

4

Effective for interim and annual periods ending after September 15, 2009, FASB codified authoritative 

accounting literature in the Accounting Standards Codification. As such, FIN 18 and FAS 109 were superseded by 

ASC Topic 740. The substantive provisions of the codified guidance are consistent with the superseded standards.
9

31. The resulting plug adjustment, which Hudgins and Kitay then improperly applied 

a 35% tax rate to, allowed Weatherford to reduce its tax expense by $153.9 million for the year 

and to lower its ETR in line with previous ETR estimates publicly disclosed during quarterly 

calls with analysts. 

32. Hudgins and Kitay took no steps to determine the necessity and accuracy of the 

plug adjustment, either before or after it was made. They performed no work at any time to 

determine whether plugging the gap was appropriate under GAAP and made no attempt to 

substantiate the difference between the their publicly disclosed ETR estimates and tax expenses

with the FAS 109 actual results that they were witnessing. Both Hudgins and Kitay knew, or 

were reckless in not knowing, that they should have reviewed and substantiated the actual tax 

numbers after the close process, but they never did. Hudgins and Kitay made no attempt to alert 

Weatherford’s accounting department, internal auditor, or senior management of the significant 

issues related to its FAS 109 actual ETR results. Nor did they notify the company’s external 

auditor of any discrepancy. And Weatherford, for its part, never questioned or reviewed the 

methods Hudgins and Kitay used to move Weatherford’s ETR downward from 29% to 20% over 

the span of one year. 

 33. The 20% ETR Weatherford announced to analysts and investors during its yearend conference call allowed Weatherford to ultimately meet Wall Street’s earnings expectations. 

In an internal email expressing disappointment with operational results, Weatherford’s CEO

stated:

In spite of our ability to meet Wall Street’s 2007 earnings expectations, the reality 

is that our operations delivered $130 million less than the EBIT target set. . . . a 

lower than expected tax rate (20% vs. 29%) allow[ed] us to make our Wall Street 

numbers for the year.

34. During 2007 and throughout the relevant period, Hudgins signed representation 

letters relied upon by Weatherford senior management and Ernst & Young indicating, without 

exception, that the internal controls over financial reporting for the accounting of income taxes 

were effective and that the income tax accounting was completed in accordance with GAAP. 

These statements were false. 

Fiscal Year 2008

35. In 2008, Weatherford initially forecasted ETR at 22-23% for the year. During the 

second and third quarters of 2008, however, Weatherford touted lower ETR estimates of 17-18% 

in quarterly filings and calls with analysts. Those estimates were based on interim tax provisions 

prepared and reviewed by Hudgins and Kitay. In its pre-restatement Form 10-K for the period 

ending December 31, 2008, Weatherford reported an ETR of 17.1% for the year.

36. In 2008, Weatherford implemented a new automated software program, modified 

to Weatherford’s needs and specifications, to prepare its year-end tax provisions, replacing 

Microsoft Excel spreadsheets. The tax software was a significant upgrade because it 

automatically populated – or “mapped” – financial accounting data into Weatherford’s tax 

provisions. For example, the tax software was designed to ensure that all intercompany dividend 
10

income and related dividend exclusion amounts would be automatically “mapped” and 

eliminated in consolidation without attributing any tax benefit to Weatherford. Manual 

intervention of the mapping process required an override of the system. 

37. Weatherford’s tax personnel from the field collected and input detailed taxspecific information into the tax software near and at year-end. After Weatherford filed its Form 

10-Q for the period ending September 30, 2008, Weatherford prepared a “pretend” hard close of 

Weatherford’s tax accounts and tax provisions based on tax information collected from the field

using recently filed third quarter numbers. The purpose of the pretend hard close was to ensure 

that Weatherford’s tax accounting controls were in place for the end of the year.” Essentially, 

the pretend hard close was a “dry run” of all the steps Weatherford would later perform to 

finalize its consolidated tax provision at year-end. Accordingly, the pretend hard close process 

would provide information regarding the effectiveness of Weatherford’s ICFR for the accounting 

of income taxes, but the results themselves would not be incorporated into Weatherford’s 

financial statements. 

38. In December 2008, as part of the pretend hard close process, Kitay ran the tax 

software to calculate Weatherford’s consolidated tax provision on at least two occasions using 

data from Weatherford’s third quarter. Kitay noticed, and informed Hudgins, that Weatherford’s 

actual ETR closely aligned with its originally forecasted ETR of 22-23% and not the lower 

quarterly 17-18% ETR estimates and tax expense reported in quarterly financial statements and 

conference calls with analysts. Despite the fact that Hudgins and Kitay had advance notice that 

there was another gap, during the process that was supposed to permit time to fix control issues 

and errors before year end, neither Hudgins nor Kitay made any effort to address or analyze the 

sizeable gap or inform others outside of the tax department of the gap that was occurring in the 

second consecutive year. Instead, during a pretend hard close process that was explicitly 

designed to identify and correct potential tax accounting errors before year-end, Hudgins and 

Kitay directed others to manually override the tax software to generate results aligned with 

previously disclosed ETRs and tax expense.

39. In January 2009, in preparation for year-end closing, Kitay again ran the tax 

software to calculate Weatherford’s tax provision for year-end 2008. As a result, Hudgins and 

Kitay discovered the year-end actual ETR and tax expense they calculated pursuant to FAS 109 

far exceeded the ETR estimates and tax expense the company had disseminated publicly to 

analysts and investors during the first three quarters of 2008. Faced with yet another opportunity 

to disclose and analyze the large gap between the actual ETR they calculated pursuant to FAS 

109 and the lower ETR estimates they reported earlier in the year, Hudgins and Kitay opted to 

perpetuate the fraud. Specifically, Hudgins and Kitay again “plugged the gap” and falsified the 

year-end consolidated tax provision by making an unsubstantiated manual post-closing 

adjustment of $303.7 million. The improper adjustment was made to different Luxembourg 

entities within Weatherford’s Eliminations region than those used in 2007. The 2008 plug 

adjustment, which was improperly tax effected at 35%, allowed Weatherford to reduce its tax 

expense by $106.3 million and lower its ETR in line with previous estimates publicly disclosed 

during quarterly calls with analysts. Although Ernst & Young repeatedly questioned this 

adjustment during its year-end audit and proposed reclassifying the adjustment to a Bermuda
11

entity within the Eliminations region, neither Hudgins nor Kitay informed Ernst & Young of the 

true reason for the adjustment.

40. Neither Hudgins nor Kitay notified anyone outside of the tax department that they 

overrode the tax software program to finalize the ETR and resulting tax expense for fiscal year 

2008. Nor did they disclose any concerns that errors existed within Weatherford’s corporate 

accounting that could compromise the actual ETR results and the integrity of the newly installed, 

multi-million dollar tax accounting program. In fact, the only review Hudgins performed in 

2008 was to ask Kitay if the adjustment “was the same treatment as last year.” Further, 

Weatherford senior management did not ask Hudgins how the ETR had moved from 22% to the 

final disclosed rate of 17.1%, which beat analysts’ expectations once again.

41. During 2008, Hudgins actively lobbied for officer status and the higher 

compensation it brought. Hudgins justified becoming an officer, in part, by pointing to the ETR 

he was able to obtain for Weatherford. For example, in November 2008, Hudgins allegedly sent 

an email to Weatherford’s CEO, which included the following: 

“I’m very upset that I’m not an officer yet. I achieved a 17% rate this year, and all of 

you treat me like sh[**].” 

Weatherford promoted Hudgins to officer shortly after Weatherford released earnings for fiscal 

year 2008, which reflected a pre-restatement ETR of 17.1%.

Fiscal Years 2009-2010

42. In 2009 and 2010, Weatherford continued to report ETR estimates and tax 

expense in quarterly financial statements and conference calls with analysts that conflicted with 

the significantly higher actual ETR results Hudgins and Kitay were calculating at year end under 

FAS 109. During both the pretend hard close process and at year-end for these years, Hudgins 

and Kitay once again observed large gaps between the actual ETR and year-end tax expense they 

calculated using the tax software and the lower estimated ETR and resulting tax expenses that 

they reported to analysts and investors. Hudgins and Kitay never disclosed these large gaps to 

anyone at Weatherford outside the tax department.

43. Faced with four additional opportunities to disclose and analyze these gaps during 

the pretend hard close and year-end process in 2009 and 2010, Hudgins and Kitay chose each 

time to make unsupported adjustments to Weatherford’s consolidated tax provision that 

artificially lowered the company’s ETR. They made unsubstantiated manual post-closing plug 

adjustments of $290.4 million and $286.6 million during year end 2009 and 2010, respectively, 

by overriding accounting data that had been automatically and correctly input into Weatherford’s 

consolidated tax provision. These plug adjustments, which were made in 2009 and 2010 using a 

Bermuda entity within Weatherford’s Eliminations region, improperly lowered Weatherford’s 

tax expense by $101.6 million and $100.3 million during 2009, and 2010, respectively. 

44. Each year, Hudgins and Kitay used different entities that masked the post-closing 

adjustments that plugged gaps to allow Weatherford to lower its ETR and appear to have a 

successful and competitive tax structure. For three of the four fiscal years, the dividend 

exclusion plug adjustments involved different entities within Weatherford’s Eliminations region. 
12

For example, the dividend exclusion plug adjustments made within Weatherford’s Eliminations 

region in 2009 and 2010 involved the same Bermuda entity, but the plug adjustments made in 

2007 and 2008 were associated with three different Luxembourg entities. Hudgins and Kitay 

aggravated the magnitude of the fraud by inappropriately tax-effecting these adjustments by 

attributing a 35% tax rate to calculate the “tax benefit” purportedly associated with either 0%-

tax-rate (Bermuda) or low-single-tax-rate (Luxembourg) jurisdictions, as follows:

WFT Luxembourg SARL $195,430,220

WFT Financing (Luxembourg) SARL $244,298,216

Total Unsupported Adjustment $439,728,436

Tax Rate Improperly Applied 35%

2007 Plugged Tax Benefit $153,904,953

WFT Luxembourg SARL $195,429,960

WFT Investment (Luxembourg) SARL $108,245,404

Total Unsupported Adjustment $303,675,364

Tax Rate Improperly Applied 35%

2008 Plugged Tax Benefit $106,286,377

Total Unsupported Adj. - WFT Bermuda Ltd. $290,407,796

Tax Rate Improperly Applied 35%

2009 Plugged Tax Benefit $101,642,729

Total Unsupported Adj. - WFT Bermuda Ltd. $286,632,936

Tax Rate Improperly Applied 35%

2010 Plugged Tax Benefit $100,321,528

Unsupported Manual Entries - Fiscal Year 2007

Unsupported Manual Entries - Fiscal Year 2008

Unsupported Manual Entries - Fiscal Year 2009

Unsupported Manual Entries - Fiscal Year 2010

First Restatement - Phantom Income Tax Receivable

45. The inappropriate plug adjustments and the resulting improper tax benefits 

recorded from 2007 through 2010 created a $461 million debit balance to Weatherford’s current 

income tax payable, which Respondents reclassified as an income tax receivable for reporting 

purposes. “Current income tax payable” is a balance sheet liability account with a credit balance

comprised of taxes to be paid within a year. While income tax receivables with debit balances 

may arise for short periods, such as when a company is due a tax refund, the multi-year large 
13

debit balance Weatherford experienced should have raised red flags long before the First 

Restatement. 

46. Weatherford’s $461 million receivable balance was not the product of an 

abnormally large anticipated refund, the prospect for which Respondents had no reasonable 

expectation. Instead, this phantom income tax receivable occurred because the current income 

tax payable accounts annually recorded from the consolidated tax provision were understated by 

the amount of each year’s fraudulent tax benefit. Essentially, the consolidated tax provision and 

the resulting balance sheet understatement did not reflect the tax amounts Weatherford actually 

paid to various jurisdictions. Over time, this disparity created a huge debit balance anomaly 

within Weatherford’s current income tax payable account that was as high as $155 million in 

2009, grew to $279 million at June 30, 2010, and to $441 million at December 31, 2010. The 

effect of the phantom income tax receivable is shown below:5 

47. Hudgins and Kitay knew, or were reckless in not knowing, that the dividend 

exclusion plug adjustments were causing the corresponding phantom income tax receivable. 

Kitay reviewed the balance sheet tax accounts by region on at least an annual basis, and by early 

2009, was aware of the rising income tax debit balance. 

48. Hudgins and Kitay made misleading statements about the true reasons for the 

growing tax debit balance, claiming falsely that they had made either sizeable prepayments or 

overpayments to foreign tax jurisdictions that they would be working to recover. For example, 

during the fourth quarter of 2009, Weatherford reclassified the large debit balance within the 

Current Income Tax Payable account to a Prepaid Other account. In response to Ernst & Young 

inquiries about the large “Prepaid Other” debit balance, Kitay responded “we do not believe it 

would be appropriate to classify these balances as receivables until such time as a claim for 

 

5

The year-end 2010 current income tax balance of $441,553,629 included the $461 million phantom 

receivable and a $20 million credit balance to “U.S. Income Tax Payable.”
14

refund has been filed.” By 2010, Hudgins was aware of the phantom receivable and told others 

at Weatherford that he was working to recover all overpaid amounts, although he knew there 

were no such overpaid amounts. 

49. Hudgins and Kitay knew that Weatherford was not entitled to, nor had any 

expectation of, receiving tax refunds for the receivable amount. Neither they nor Weatherford 

corporate accounting personnel responsible for monitoring the balance sheet made any attempt to 

reconcile Weatherford’s rising income tax receivable balance at any time before February 2011.

First Restatement – Discovery of Material Weakness and Material Misstatement

50. While performing its audit of Weatherford’s 2010 pretend hard close consolidated 

tax provision, Ernst & Young uncovered certain income tax accounting errors that increased 

Weatherford’s overall tax liability for fiscal year 2010, including a spreadsheet computational error 

related to a Slovakia-based subsidiary that increased Weatherford’s tax expense and tax liability by 

$13.4 million. Hudgins knew the impact these errors would have on Weatherford’s ETR and tax 

expense targets. Hudgins instructed the tax department to work around the clock to hunt for 

additional credits to reduce the tax liability and offset the unexpected Slovakia tax charge. 

51. On January 20, 2011, Hudgins informed an Ernst & Young tax partner that he 

found “Pepto Bismol” to offset the unexpected Slovakia tax charge. On January 21, 2011, Kitay 

sent Ernst & Young an email with a list of newly recorded offsetting tax benefits, which Ernst & 

Young understood to be Hudgins’ “Pepto Bismol.” Among the items, most of which were later 

determined to be unsupportable, the list included a tax benefit for $14.4 million in Russia 

intercompany expenses (i.e., management fees, royalties, interest, mark-up and service fees). At 

the time Hudgins informed Ernst & Young that he recorded the Russian tax benefit, he did not 

have the appropriate signed documentation in place to take the tax benefit. Emails exchanged 

between Hudgins and Kitay during this period make clear that Hudgins knew a portion ($8.2 

million) of Russian intercompany expenses were not deductible. Ultimately, Ernst & Young 

determined that Weatherford did not have appropriate supporting documentation to record the tax 

benefit associated with the Russian intercompany expenses and rejected Hudgins’ representations 

to the contrary. 

52. In performing its audit of Weatherford’s 2010 pretend hard close, Ernst & Young 

and Weatherford identified a number of additional income tax accounting errors that increased 

Weatherford’s tax expense by tens of millions of dollars, including: (1) failure to timely accrue 

foreign flat taxes; (2) uncertain tax position accruals that were not reflected in Weatherford’s 

consolidated tax provisions; (3) entries to prematurely reverse liabilities related to uncertain tax 

positions (some of which were improperly classified as current taxes payable); and (4)

understatements of income tax expense related to deferred tax liability. 

53. On or about February 15, 2011, after consideration of the errors and issues 

discovered and after consultation with Ernst & Young, Weatherford’s internal audit group 

concluded that there was a material weakness in internal control surrounding accounting for 

income taxes due to: inadequate staffing and technical expertise; ineffective review and approval 
15

practices; inadequate processes to effectively reconcile income tax accounts; and inadequate 

controls over the preparation of Weatherford’s quarterly tax provision. 

54. After the identification of the material weakness, Ernst & Young expanded the 

audit procedures for all income tax accounts, including a reconciliation of Weatherford’s current 

taxes payable (and receivable) accounts. On or about February 20, 2011 a review of 

Weatherford’s income tax receivable balance uncovered the phantom $461 million receivable in 

the Eliminations Region account, which, in turn, led to the First Restatement. At no time prior to 

this process, did Hudgins or Kitay inform anyone of the true reason they made the post-closing 

adjustments.

55. On March 1, 2011, Weatherford filed a Form 8-K with the Commission, in which it 

made public for the first time that it would be restating its financial results for 2007-2010 and 

that a material weakness existed in its ICFR for the accounting of income taxes. Weatherford’s 

stock price dropped nearly 11% to $21.14 on the news. 

56. On March 8, 2011, Weatherford filed its First Restatement, in which it restated its 

previously reported financial results for the years ended December 31, 2007, 2008 and 2009, and 

the first three quarters of 2010. According to Weatherford, the First Restatement was necessary 

to correct “errors in [the Company’s] accounting for income taxes.” The First Restatement 

reduced Weatherford’s previously reported net income by $500 million, $461 million of which 

related to the dividend exclusion plug adjustment, which the First Restatement called “an error in 

determining the tax consequences of intercompany amounts over multiple years.” The following 

table depicts the impact the Restatement had on Weatherford’s reported net income for the 

periods covered by the First Restatement:

Year Ended

Reported Net 

Income

(in millions)

Restated Net 

Income

(in millions)

% Change

2007 $ 1,070.6 $ 940.6 13.8%

2008 $ 1,393.2 $ 1,246.5 11.3%

2009 $ 253.8 $ 170.1 42.6%

Q1 - Q3 2010 $ 78.3 $ (21.6) 462.0%

Second and Third Restatements

57. Immediately after filing its First Restatement, Weatherford initiated a large-scale 

effort led by Hudgins to remediate its material weakness in ICFR for its accounting of income 

taxes. Thus, Weatherford put Hudgins in charge of the tax accounting remediation process and 

permitted Kitay to be an active participant. Throughout 2011, Weatherford continued to timely 

report earnings and file its financial statements. In doing so, Weatherford provided repeated 

assurances to the public that it performed “additional reconciliations and other post-closing 

procedures” to ensure its financial statements were true, accurate, and in compliance with 

GAAP. Hudgins, for his part, executed signed representation letters to Weatherford’s then-CFO
16

and Ernst & Young that falsely claimed his belief that Weatherford’s consolidated tax provisions 

and underlying expenses were “fairly presented in all material respects in accordance with 

GAAP” and that he was neither aware of any material transactions that had not been properly 

recorded in the consolidated income tax accounts nor any deviations from GAAP that would 

cause material misstatements in Weatherford’s financial statements.

58. Before the end of the second quarter in 2011, Weatherford identified dozens of 

issues related to its internal control for the accounting of income taxes that required thorough 

review and remediation. Weatherford and Hudgins, however, performed little, if any, testing to 

determine whether, and to what extent, these failures could cause additional material 

misstatements in Weatherford’s financial statements. Instead, Weatherford, through Hudgins, 

developed a time line for remediation that, in relevant part, pushed out until the fourth quarter of 

2011 the review, assessment, and quantification of major issues that had a high risk of causing 

material misstatement in previously filed Weatherford financial statements dating back to 2007, 

if not earlier. For example, prior to 2012, Weatherford accounted for withholding taxes on 

certain intercompany transactions (i.e., interest, management fees, royalties, and rent) on a cash 

basis. This is contrary to GAAP, which requires accrual basis accounting treatment. 

Weatherford, through Hudgins, did not hide the cash basis accounting treatment from Ernst & 

Young before the First Restatement, but claimed, without support, that the difference in 

treatment was immaterial to Weatherford’s financials. They were wrong. The Second 

Restatement included an $84 million reduction to Weatherford’s previously reported net income 

to correct for Weatherford’s failure to accrue for these withholding taxes prior to 2012. 

59. The failure to consider accrual basis accounting treatment for these withholding 

taxes reflected a breakdown of internal controls for accounting of income taxes, particularly in a 

company like Weatherford that was experiencing long-term exponential growth on a multinational scale. Before Weatherford filed its Form 10-Q for the period ending September 30, 

2011, Weatherford and Hudgins, knew, or were reckless in not knowing, that their failure to 

accrue for withholding taxes on intercompany transactions (i.e., interest, management fees, 

royalties, and rent) was a deviation from GAAP that would cause Weatherford’s financial 

statements to be materially misstated. By July 2011, and perhaps sooner, Weatherford and 

Hudgins recognized that the failure to accrue for withholding taxes on intercompany transactions 

was erroneous. They also knew Weatherford was conducting training worldwide to remediate 

the behavior. Despite this knowledge, they made no effort to quantify the difference between 

cash and accrual accounting before Weatherford issued its Form 10-Q for the quarter ended 

September 30, 2011. Instead, they scheduled that work to be performed during the fourth quarter 

of 2011. 

60. On February 21, 2012, Weatherford announced it had not remediated its material 

weakness in its internal controls for accounting of income taxes and had identified additional 

errors which required a second restatement, which it filed on March 15, 2012 (the “Second 

Restatement”). Weatherford’s stock price dropped nearly 14% from $17.79 to $15.36 on the 

February 21, 2012 news of the Second Restatement, resulting in a market capitalization loss of

over $1.8 billion. The Second Restatement restated Weatherford financial results from 2007 

through 2011, reducing net income by an additional $256 million as a result of additional errors 

in Weatherford’s income tax accounting, $84 million of which was driven by the failure to 
17

accrue for intercompany withholding taxes. The remaining errors represented the culmination of 

a year-long, then-still incomplete, remediation effort led by Hudgins that revealed a complete 

breakdown of internal accounting controls and a wholesale failure to make and keep books and 

records that accurately and fairly reflected Weatherford’s tax transactions. The effort revealed

hundreds of erroneous income tax accounting entries covering multiple tax topics, including: (i) 

uncertain tax positions; (ii) deferred tax assets and liabilities; and (iii) valuation allowances. On 

March 23, 2012, Weatherford announced the voluntary resignation of Hudgins and its CFO. 

After the filing of the Second Restatement, Weatherford relieved Kitay of all supervisory 

responsibilities associated with Weatherford’s income tax accounting.

61. Four months later, on July 24, 2012, Weatherford announced that it would restate 

certain prior years’ financial statements, including $92 million in prior period tax expenses and 

further adjustments of up to $15 million. The Third Restatement was caused, in part, by a 

material tax accounting error that a Weatherford employee initially identified in an email dated 

March 8, 2012, shortly before the filing of Weatherford’s Second Restatement.6 The email, 

however, went unanswered for over a month. As a result, Weatherford failed to establish a 

timely reserve for this liability, which resulted from Weatherford’s improper allocation of 

regional costs among its Latin American entities for tax purposes. Weatherford later claimed 

this error “fell through the cracks” and was the result of an internal control failure that allowed 

the issue to remain unaddressed until after the Second Restatement was filed, and shortly after 

Weatherford issued $1.3 billion in Senior Notes on April 4, 2012. Weatherford’s stock dropped 

another 8.8% from $12.80 to $11.67 as a result of the July 24, 2012 announcement.

62. On July 24, 2012, after restating and re-restating its financial statements from 

2007 forward, Weatherford again announced that it was withdrawing reliance on previously-filed 

financial statements and that it would stop issuing financial statements until it had completed 

additional procedures and reviews of its accounting for income taxes. Pursuant to the July 24, 

2012 announcement, Weatherford conducted reconciliations of tax-basis balance sheets for each

legal entity that was part of its consolidated financial statements. Upon conclusion of this 

exercise, Weatherford issued the Third Restatement on December 17, 2012 in a Form 10-K/A for 

the fiscal year ending on December 31, 2011. The Third Restatement reduced net income by an 

additional $186 million, largely driven by Weatherford’s then-continuing effort to remediate its 

material weakness over its internal controls for accounting of income taxes. On February 25, 

2014, Weatherford reported that it had successfully remediated its material weakness in internal 

controls for accounting of income taxes when it filed its Form 10-K for the year ended December 

31, 2013. 

VIOLATIONS

63. Securities Act Section 17(a)(1), Exchange Act Section 10(b) and Rule 10b-5

thereunder prohibit fraudulent conduct in the offer or sale of securities and in connection with 

the purchase or sale of securities.

 

6 Weatherford’s July 24, 2012 filing also included a material weakness finding related to a long-term 

construction contract accounted for erroneously under the percentage-of-completion method of accounting. This 

material weakness was reported as remediated as of December 31, 2012 when Weatherford issued its Form 10-K on 

March 4, 2013. 
18

64. Securities Act Section 17(a)(2) prohibits any person from obtaining money or

property in the offer or sale of securities by means of any untrue statement of a material fact or 

any omission to state a material fact necessary in order to make the statements made, in light of 

the circumstances under which they were made, not misleading.

65. Securities Act Section 17(a)(3) prohibits any person from engaging in any 

transaction, practice, or course of business which operates or would operate as a fraud or deceit

upon the purchaser in the offer or sale of securities.

66. Exchange Act Section 13(a) and Rules 13a-1, 13a-11 and 13a-13 thereunder 

require that every issuer of a security registered pursuant to Exchange Act Section 12 file with 

the Commission, among other things, annual, quarterly and other reports as the Commission may 

require.

67. Rule 12b-20 under the Exchange Act requires that, in addition to the information

expressly required to be included in a statement or report filed with the Commission, there shall 

be added such further material information, if any, as may be necessary to make the required

statements, in light of the circumstances under which they are made not misleading.

68. Exchange Act Section 13(b)(2)(A) requires reporting companies to make and

keep books, records and accounts which, in reasonable detail, accurately and fairly reflect their

transactions and dispositions of their assets.

69. Exchange Act Section 13(b)(2)(B) requires all reporting companies to devise and

maintain a system of internal accounting controls sufficient to provide reasonable assurances that

transactions are recorded as necessary to permit preparation of financial statements in accordance

with GAAP.

70. Exchange Act Section 13(b)(5) prohibits any person from knowingly 

circumventing or knowingly failing to implement a system of internal accounting controls or 

knowingly falsifying any book, record, or account described in Section 13(b)(2).

71. Rule 13b2-1 under the Exchange Act prohibits any person from directly or 

indirectly, falsifying or causing to be falsified, any book, record, or account subject to Exchange 

Act Section 13(b)(2)(A). Rule 13b2-2(a) under the Exchange Act provides that no director or 

officer of an issuer shall, in connection with financial-statement audits, reviews, or examinations 

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

directly or indirectly: (1) make or cause to be made a materially false or misleading statement to 

an accountant; 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. 
19

Findings

72. As a result of the conduct described above, Weatherford violated Securities Act 

Section 17(a) and Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(2)(B) and Rules 

10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 thereunder.

73. As a result of the conduct described above, Hudgins: (i) willfully violated 

Securities Act Section 17(a), Exchange Act Sections 10(b) and 13(b)(5) and Rules 10b-5(a) and 

(c), 13b2-1 and 13b2-2 promulgated thereunder; (ii) caused Weatherford’s violations of 

Securities Act Section 17(a), Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and (B) and Rules 

10b-5, 12b-20, 13a-1, 13a-11, and 13a-13 promulgated thereunder; and (iii) willfully violated the 

federal securities laws or rules and regulations thereunder pursuant to Section 4C of the 

Exchange Act and Rule 102(e)(1)(iii) of the Commission’s Rules of Practice.

74. As a result of the conduct described above, Kitay: (i) willfully violated Securities 

Act Section 17(a), Exchange Act Sections 10(b) and 13(b)(5) and Rules 10b-5(a) and (c), 13b2-1 

promulgated thereunder; (ii) caused Weatherford’s violations of Securities Act Section 17(a), 

Exchange Act Sections 10(b), 13(a), 13(b)(2)(A) and (B) and Rules 10b-5, 12b-20, 13a-1, 13a11, and 13a-13 promulgated thereunder; and (iii) willfully violated the federal securities laws or 

rules and regulations thereunder pursuant to Section 4C of the Exchange Act and Rule 

102(e)(1)(iii) of the Commission’s Rules of Practice.

COOPERATION AND REMEDIAL ACTIONS

In determining to accept Weatherford’s Offer, the Commission considered remedial acts 

undertaken by Weatherford and cooperation it afforded the Commission staff. Weatherford 

retained outside counsel to conduct an investigation after the First and Second Restatements and its 

Audit Committee retained separate outside counsel to conduct an independent investigation 

pursuant to Section 10A of the Exchange Act. The results of those investigations were shared with 

Commission staff. Over a period of several years, Weatherford expended significant resources to 

remediate the material weakness in its internal controls for accounting of income taxes. 

Weatherford employed third-party consultants to develop enhanced controls to overhaul its tax 

accounting process and accounting functions. It created several new positions within its tax 

department to prevent the recurrence of similar income tax accounting issues. Weatherford 

replaced Hudgins and its CFO with more experienced accounting professionals and modified its 

reporting lines to ensure appropriate review of the consolidated tax provision and all accounting for 

income taxes. 

UNDERTAKINGS

Weatherford shall comply with the following undertakings: 

1. Report to the Commission staff during a two-year term, as set forth herein, 

Weatherford’s compliance with Commission regulations and GAAP regarding its 

accounting for income taxes, financial reporting, and the status of any remediation, 
20

implementation, auditing and testing of its internal accounting controls and 

compliance measures. During this two-year period, should Weatherford discover

credible evidence, not already reported to the Commission staff, that significant 

deficiencies in the design or operation of its accounting for income taxes exist, 

Weatherford shall report such significant deficiencies to the Commission staff and 

state that it cannot certify compliance. During this two-year period, Weatherford 

shall: (1) conduct an initial review and submit an initial report, and (2) conduct and

prepare follow-up reviews and reports, as described below:

a. Weatherford shall submit to the Commission staff a written report within 150

calendar days of the entry of this Order setting forth a complete description of its

internal accounting controls, policies, and procedures over its accounting for 

income taxes, including the consolidated tax provision, quarterly tax provision, 

elimination accounting, effective tax rate, financial reporting of income taxes, and 

internal audit of the tax and accounting departments (the “Initial Report”). The 

Initial Report should also include Weatherford’s remediation efforts to date,

including a description of the controls, policies, and procedures in place, and any 

proposals to make improvements, that are reasonably designed to improve the

internal accounting controls, policies and procedures of Weatherford for ensuring

compliance with Commission regulations and GAAP, and the parameters of the

subsequent reviews. The Initial Report shall be transmitted to Tracy Price, 

Assistant Director, Division of Enforcement, Securities and Exchange 

Commission, 100 F Street, NE, Washington, DC 20549-5631. Weatherford may

extend the time period for issuance of the Initial Report with prior written

approval of the Commission staff.

b. Weatherford shall undertake at least two follow-up reviews, for fiscal years 2016 

and 2017, incorporating any comments provided by the Commission staff on the 

previous report, to further test, monitor and assess whether its internal accounting 

controls, policies and procedures over its accounting for income taxes are 

reasonably designed to: (1) provide reasonable assurance of compliance with 

Commission regulations and GAAP; and (2) detect and prevent material 

weaknesses or significant deficiencies in the design or operation of its accounting 

for income taxes. Weatherford shall submit to the Commission staff follow-up 

reports summarizing the 2016 and 2017 reviews (the “Follow-up Reports”).

i. The first Follow-up Report shall be completed by no later than 180 days after 

the Initial Report. The second Follow-up Report shall be completed by no later 

than 380 days after the completion of the Initial Report. Weatherford may 

extend the time period for issuance of the Follow-up Reports with prior written 

approval of the Commission staff.

ii. The Initial and Follow-up Reports submitted by Weatherford will likely include 

proprietary, financial, confidential, and competitive business information. Public 

disclosure of the reports could discourage cooperation, impede pending or 
21

potential government investigations and thus undermine the objectives of the 

reporting requirement. For these reasons, among others, the reports and the 

contents thereof are intended to remain and shall remain non-public, except (a) 

pursuant to court order, (b) as agreed by the parties in writing, (c) to the extent 

that the Commission staff determines in its sole discretion that disclosure would 

be in furtherance of the Commission's discharge of its duties and 

responsibilities, or (d) is otherwise required by law.

c. Certify, in writing, compliance with the undertaking(s) set forth above. The 

certification shall identify the undertaking(s) provide written evidence of 

compliance in the form of a narrative, and be supported by exhibits sufficient to 

demonstrate compliance. The Commission staff may make reasonable requests for 

further evidence of compliance, and Weatherford agrees to provide such evidence. 

The certification and supporting materials shall be submitted to Tracy Price, 

Assistant Director, Division of Enforcement, with a copy to the Office of the Chief 

Counsel of the Enforcement Division, no later than 30 days from the date of the 

completion of the undertakings.

d. Within two-years of the entry of this Order, should Weatherford discover credible

evidence, not already reported to the Commission staff, that its internal control over 

financial reporting in areas unrelated to accounting for income taxes is not free 

from material weakness, Weatherford shall provide a detailed report of any material

weakness to the Commission staff. 

2. Weatherford shall preserve and retain all documentation regarding all certifications and 

reports for seven (7) years and will make it available to the Commission staff upon 

request.

3. In determining whether to accept Weatherford’s Offer, the Commission has considered 

these undertakings. Weatherford agrees that if the Division of Enforcement believes 

that Weatherford has not satisfied these undertakings, it may petition the Commission 

to reopen the matter to determine whether additional sanctions are appropriate. For 

good cause shown, the Commission staff may in its sole discretion extend any of the 

procedural dates relating to the undertakings. 

4. Weatherford (including its officers, directors, and employees, and third-party 

consultants within Weatherford’s control) shall cooperate fully with the Commission 

with respect to this action and any related judicial or administrative proceeding or 

investigation commenced by the Commission or to which the Commission is a party 

and subject to compliance with applicable law. Weatherford agrees that such 

cooperation shall include, but is not limited to:

a. Production of Information: at the Commission’s request, upon reasonable notice, 

and without subpoena, Weatherford (including its officers, directors, and 

employees, and third-party consultants within Weatherford’s control) shall 

truthfully and completely disclose all information requested by the Commission 
22

staff in connection with the Commission’s investigation, litigation or other related 

proceedings, except with respect to information related to clients other than 

Weatherford, which information shall be produced in response to subpoena or other 

appropriate legal process;

b. Production of Documents: at the Commission’s request, upon reasonable notice, 

and without subpoena, Weatherford (including its officers, directors, and 

employees, and third-party consultants within Weatherford’s control) shall provide 

any document, record or other tangible evidence requested by the Commission staff 

in connection with the Commission’s investigation, litigation or other related 

proceedings, except with respect to documents related to clients other than 

Weatherford, which information shall be produced in response to subpoena or other 

appropriate legal process; and

c. Production of Cooperative Personnel: at the Commission’s request, upon 

reasonable notice, and without subpoena, Weatherford (including its officers, 

directors, and employees, and third-party consultants within Weatherford’s control) 

shall secure the attendance and truthful statements, deposition, or testimony of any 

Weatherford officer, director, or employee or third-party consultant within 

Weatherford’s control, excluding any person who is a party to any related litigated 

judicial or administrative proceeding, at any meeting, interview, testimony, 

deposition, trial, or other legal proceeding.

The foregoing obligations are subject to Weatherford’s reservation of rights:

(i) to claim that documents or information requested is subject to attorneyclient privilege or attorney-work-product protection; and 

(ii) to seek entry of a confidentiality order as to: sensitive business documents 

or information; sensitive personnel documents or information; or 

confidential information pertaining to clients other than Weatherford.

d. Service and Personal Jurisdiction Consents: Weatherford further agrees that, with 

respect to this action and any related judicial or administrative proceeding or 

investigation commenced by the Commission or to which the Commission is a 

party, it will: (i) accept service by email, mail or facsimile transmission of notices, 

requests, or subpoenas issued by the Commission for documents or testimony at 

depositions, hearings, or trials, or in connection with any related investigation by 

the Commission staff (“Commission Service”); (ii) appoint Weatherford’s 

undersigned attorney as agent to receive Commission Service; (iii) with respect to 

Commission Service, waive the territorial limits upon service contained in Rule 45 

for the Federal Rules of Civil Procedure and any applicable local rules, provided 

that the party requesting the testimony reimburses Weatherford’s travel, lodging, 

and subsistence expenses at the then-prevailing U.S. Government per diem rates; 

and (iv) consent to personal jurisdiction over Weatherford in any United States 

District Court for purposes of enforcing any Commission Service.
23

IV.

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

agreed to in Respondents’ Offers.

Accordingly, pursuant to Section 8A of the Securities Act, Sections 4C and 21C of the

Exchange Act, and Rule 102(e) of the Commission’s Rules of Practice, it is hereby ORDERED,

effective immediately, that:

A. Weatherford cease and desist from committing or causing any violations and any 

future violations of Securities Act Section 17(a), Exchange Act Sections 10(b), 

13(a), 13(b)(2)(A) and13(b)(2) (B), and Rules 10b-5, 12b-20, 13a-1, 13a-11, and 

13a-13 promulgated thereunder.

B. Hudgins cease and desist from committing or causing any violations and any future 

violations of Securities Act Section 17(a), Exchange Act Sections 10(b), 13(a), 

13(b)(2)(A), 13(b)(2)(B), and 13(b)(5), and Rules 10b-5, 12b-20, 13a-1, 13a-11, 

13a-13, 13b2-1, and 13b2-2 promulgated thereunder.

C. Hudgins is denied the privilege of appearing and practicing before the Commission 

as an accountant.

D. Hudgins be, and hereby is, prohibited for five (5) years from the date of this Order

from acting as an officer or director of any issuer that has a class of securities 

registered pursuant to Section 12 of the Exchange Act and is required to file reports 

pursuant to Section 15(d) of the Exchange Act.

E. After five (5) years from the date of this Order, Hudgins may request that the 

Commission consider his reinstatement by submitting an application (Attention: 

Office of the Chief Accountant) to resume appearing or practicing before the 

Commission as:

1. a preparer or reviewer, or a person responsible for the preparation or review, of 

any public company’s financial statements that are filed with the Commission. 

Such an application must satisfy the Commission that Hudgins’ work in his 

practice before the Commission will be reviewed either by the independent audit 

committee of the public company for which he works or in some other acceptable 

manner, as long as he practices before the Commission in this capacity; and/or

2. an independent accountant. Such an application must satisfy the Commission 

that: (a) Hudgins, or the public accounting firm with which he is associated, is 

registered with the Public Company Accounting Oversight Board (“Board”) in 

accordance with the Sarbanes-Oxley Act of 2002, and such registration continues 

to be effective; (b) Hudgins, or the registered public accounting firm with which 

he is associated, has been inspected by the Board and that inspection did not
24

identify any criticisms of or potential defects in Hudgins’, or the firm’s quality 

control system that would indicate that Hudgins will not receive appropriate 

supervision; (c) Hudgins has resolved all disciplinary issues with the Board, and 

has complied with all terms and conditions of any sanctions imposed by the Board 

(other than reinstatement by the Commission); and (d) Hudgins acknowledges his 

responsibility, as long as Hudgins appears or practices before the Commission as 

an independent accountant, to comply with all requirements of the Commission 

and the Board, including, but not limited to, all requirements relating to 

registration, inspections, concurring partner reviews and quality control standards

F. The Commission will consider an application by Hudgins to resume appearing or 

practicing before the Commission provided that his state CPA license is current and 

he has resolved all other disciplinary issues with the applicable state boards of 

accountancy. However, if state licensure is dependent on reinstatement by the 

Commission, the Commission will consider an application on its other merits. The 

Commission’s review may include consideration of, in addition to the matters 

referenced above, any other matters relating to Hudgins’ character, integrity, 

professional conduct, or qualifications to appear or practice before the Commission.

G. Kitay cease and desist from committing or causing any violations and any future 

violations of Securities Act Section 17(a), Exchange Act Sections 10(b), 13(a), 

13(b)(2)(A), 13(b)(2)(B), and 13(b)(5), and Rules 10b-5, 12b-20, 13a-1, 13a-11, 

13a-13, and 13b2-1 promulgated thereunder.

H. Kitay is denied the privilege of appearing and practicing before the Commission as 

an accountant.

I. After five (5) years from the date of this Order, Kitay may request that the 

Commission consider his reinstatement by submitting an application (Attention: 

Office of the Chief Accountant) to resume appearing or practicing before the 

Commission as:

1. a preparer or reviewer, or a person responsible for the preparation or review, of 

any public company’s financial statements that are filed with the Commission. 

Such an application must satisfy the Commission that Kitay’s work in his practice 

before the Commission will be reviewed either by the independent audit 

committee of the public company for which he works or in some other acceptable 

manner, as long as he practices before the Commission in this capacity; and/or

2. an independent accountant. Such an application must satisfy the Commission 

that: (a) Kitay, or the public accounting firm with which he is associated, is 

registered with the Public Company Accounting Oversight Board (“Board”) in 

accordance with the Sarbanes-Oxley Act of 2002, and such registration continues 

to be effective; (b) Kitay, or the registered public accounting firm with which he 

is associated, has been inspected by the Board and that inspection did not identify 
25

any criticisms of or potential defects in Kitay’s, or the firm’s quality control 

system that would indicate that Kitay will not receive appropriate supervision; (c) 

Kitay has resolved all disciplinary issues with the Board, and has complied with 

all terms and conditions of any sanctions imposed by the Board (other than 

reinstatement by the Commission); and (d) Kitay acknowledges his responsibility, 

as long as Kitay appears or practices before the Commission as an independent

accountant, to comply with all requirements of the Commission and the Board, 

including, but not limited to, all requirements relating to registration, inspections, 

concurring partner reviews and quality control standards

J. The Commission will consider an application by Kitay to resume appearing or 

practicing before the Commission provided that his state CPA license is current and 

he has resolved all other disciplinary issues with the applicable state boards of 

accountancy. However, if state licensure is dependent on reinstatement by the 

Commission, the Commission will consider an application on its other merits. The 

Commission’s review may include consideration of, in addition to the matters 

referenced above, any other matters relating to Kitay’s character, integrity, 

professional conduct, or qualifications to appear or practice before the Commission.

K. Weatherford shall pay a civil money penalty in the amount of $140,000,000 to the 

Securities and Exchange Commission. Payment and post-Order interest pursuant to 

SEC Rule of Practice 600 shall be made in the following installments: one 

installment of $50,000,000 million due within twenty-one (21) days of the date of 

the entry of this Order, and then three installments of $30,000,000 due within 120, 

240, and 360 days of the entry of this Order. If any payment is not made by the date 

the payment is required by this Order, the entire outstanding balance of civil 

penalties, plus any additional interest accrued pursuant to SEC Rule of Practice 600 

or 31 U.S.C. Section 3717, shall be due and payable immediately, without further 

application.

L. Hudgins shall, within twenty-one (21) days of the entry of this Order, pay 

disgorgement of $169,728, prejudgment interest of $39,339, and a civil money 

penalty in the amount of $125,000, for a total of $334,067 to the Securities and 

Exchange Commission. If timely payment is not made, additional interest shall 

accrue pursuant to SEC Rule of Practice 600 or 31 U.S.C. Section 3717.

M. Kitay shall pay a civil money penalty in the amount of $30,000 to the Securities and 

Exchange Commission. Payment and post-Order interest pursuant to SEC Rule of 

Practice 600 shall be made in the following installments: one installment of $10,000 

due within twenty-one (21) days of the date of the entry of this Order; one 

installment of $10,000 due within 180 days of the date of the entry of this Order; and 

one installment of $10,000 due within 360 days of the date of the entry of this Order. 

If any payment is not made by the date the payment is required by this Order, the 

entire outstanding balance of civil penalties, plus any additional interest accrued
26

pursuant to SEC Rule of Practice 600 or 31 U.S.C. Section 3717, shall be due and 

payable immediately, without further application.

N. Payment must be made in one of the following ways:

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

will provide detailed ACH transfer/Fedwire instructions upon request;

(2) Respondents 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) Respondents 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

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

identifying Weatherford International plc, James Hudgins, or Darryl Kitay as a 

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

copy of the cover letter and check or money order must be simultaneously sent to 

Tracy L. Price, Esq., Assistant Director, Division of Enforcement, Securities and 

Exchange Commission, 100 F St., NE, Washington, DC 20549-5631.

P. Pursuant to Section 308(a) of the Sarbanes-Oxley Act of 2002, as amended, a Fair

Fund is created for the disgorgement, prejudgment interest AND civil money 

penalties referenced in Paragraphs K, L, and M above. Amounts ordered to be 

paid as civil money penalties pursuant to this Order shall be treated as penalties 

paid to the government for all purposes, including all tax purposes. To preserve the 

deterrent effect of the civil penalty, Weatherford, Hudgins, and Kitay agree that in 

any Related Investor Action, they shall not argue that they are entitled to, nor shall 

they benefit by, offset or reduction of any award of compensatory damages by the 

amount of any part of Weatherford’s, Hudgins’, and Kitay’s payment of a civil 

penalty in this action ("Penalty Offset"). If the court in any Related Investor Action 

grants such a Penalty Offset, Weatherford, Hudgins, and Kitay agree that they shall, 

within 30 days after entry of a final order granting the Penalty Offset, notify the 

Commission's counsel in this action and pay the amount of the Penalty Offset to the 

Securities and Exchange Commission. Such a payment shall not be deemed an 

additional civil penalty and shall not be deemed to change the amount of the civil 

penalty imposed in this proceeding. For purposes of this paragraph, a "Related 

Investor Action" means a private damages action brought against Weatherford, 
27

Hudgins, and/or Kitay by or on behalf of one or more investors based on 

substantially the same facts as alleged in the Order instituted by the Commission in 

this proceeding.

Q. Respondents Hudgins and Kitay stipulate solely for purposes of exceptions to 

discharge set forth in Section 523 of the Bankruptcy Code, 11 U.S. C. §523, that the 

findings in the Order are true and admitted by Respondents Hudgins and Kitay, and 

further, any debt for disgorgement, prejudgment interest, civil penalty or other 

amounts due by Respondents Hudgins and Kitay under the 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 Respondents Hudgins 

and Kitay 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).

R. Respondent Weatherford shall comply with the undertakings enumerated in Section

III. above.

By the Commission.

Brent J Fields

Secretary