From today's SEC Digest:|
CEASE AND DESIST PROCEEDINGS INSTITUTED AGAINST JAMES MONTGOMERY, II, DANNY AUERBACH AND MICHAEL GLASER
The Commission announced that on September 28 it instituted administrative cease and desist proceedings against James Montgomery, II, of Auburn, GA, Danny R. Auerbach, of Lawrenceville, GA, and Michael L. Glaser, of Tempe, AZ. Montgomery was a director of sales for Computone Corporation of Alpharetta, GA. Auerbach was Computone's national sales manager and currently is its director of North American sales. Glaser is the president of a customer of Computone. In the Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 (Order), the Division of Enforcement alleges that these individuals took steps that caused Computone to violate the federal securities laws prohibiting fraud, the filing of false reports with the Commission, the failure to keep accurate books and records, and the failure to maintain an adequate system of internal accounting controls. Montgomery and Auerbach are also alleged to have knowingly falsified Computone's books, records and accounts.
The Division of Enforcement alleges that Montgomery altered a customer's purchase order so that Computone could recognize the sale and lied to Computone's outside auditors about the altered purchase order. Auerbach is alleged to have created a fictitious sales order while knowing that no such order was placed. Finally, the Order alleges that Glaser agreed to falsely represent that his employer had entered into a contract to purchase computer equipment from Computone and that it owed Computone the purchase price when in fact his employer would pay for the products only if it sold them..
A hearing will be held before an administrative law judge to determine whether the allegations in the Order are true and, if so, what, if any, remedial sanctions against Montgomery, Auerbach and Glaser are appropriate. (Rel. 34-41931; AAE Rel. 1180; File No. 3- 10042)
COMPUTONE CORPORATION AND CERTAIN OFFICERS SUED FOR INFLATING EARNINGS
On September 28, the Commission filed a complaint against Computone Corporation of Alpharetta, Georgia, Thomas J. Anderson, its former president and chief executive officer, Gregory A. Alba, Donald A. Pearce, its former vice president of finance, and certain other officers for inflating Computone's earnings. The complaint alleges that from October 1993 through October 1997 the defendants fraudulently overstated Computone's income; they improperly recognized revenue in approximately 240 transactions where, among other things, customers had never placed orders, products were not shipped to customers, products were shipped before customers wanted delivery, or the risks/rewards of ownership had not passed to the customers. Computone's income was also overstated as a result of the deliberate refusal to timely record product returns and failure to properly account for various expenses. As a result, the defendants collectively violated the antifraud, reporting, books and records, and internal control provisions of the Securities Exchange Act of 1934 (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-13, 13b2-1 and 13b2-2 thereunder).
The complaint asks the Court to issue permanent injunctions against all the defendants and seeks civil money penalties against Anderson, Alba, Pearce, Hume and Kretschman, and disgorgement plus prejudgment interest against Anderson. The Commission also seeks a court order barring Anderson from serving as an officer and director in the future. [SEC v. Computone Corporation et al., Civil Action No. 1:99-CV-2496, N.D. Ga.] (LR-16307; AAE Rel. 1178)
ADMINISTRATIVE CEASE AND DESIST ORDER ENTERED AGAINST RICKY BARKLEY
The Commission announced that on September 28 it instituted and simultaneously settled an administrative proceeding against Ricky D. Barkley of Cumming, Ga., who consented to the entry of a cease-and-desist order against him without admitting or denying the Order's findings. In its Order, the Commission found that Barkley, a CPA, while employed as an accounting manager at Computone Corporation located in Alpharetta, Ga., allowed Computone in 1994 and 1995 to record transactions as sales not in conformity with generally accepted accounting principles; this caused Computone to materially overstate its income and further caused Computone to file false reports with the Commission and to make false entries in the internal books and records of the company. The Commission also found that Barkley failed to tell Computone's auditors about the company's misstated FY 1995 first quarter financial statements even though he was concerned that they were materially misstated. The Commission found that Barkley violated Section 13(b)(5) of the Securities Exchange Act and Rules 13b2-1 and 13b2-2 and caused Computone to violate Sections 13(a), 13(b)(2)(A) and (B) of the Securities Exchange Act and Rules 12b-20, 13a-13 and 13b2-1. (Rel. 34-41923, AAE Rel. 1160; File No. 3-10034)
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