Wednesday, December 07, 2005 7:32:48 AM
RetailRoadshow.com
The WSJ has an interesting article about a new service called RetailRoadshow.com that "provides electronic roadshows for individual investors seeking information about public offerings." Such a service is available for the first time because of new SEC rules that went into effect on December 1. Prior to these rules, publicly available roadshows would have been prohibited as "gun jumping."
The RetailRoadshow.com service is pretty impressive, not to mention free. Pick a company from their list of those that are about to go public and within seconds you are watching the CEO deliver a roadshow-type performance, complete with PowerPoint-type slides that track the presentation.
A couple other quick thoughts and observations:
What is the over/under date for statements made during one of these roadshows showing up in a securities class action complaint? By the power vested in me, I'm setting it at June 30, 2006. I should point out that I set the over/under date for statements made in a corporate executive blog showing up in such a complaint at December 31, 2005, and, so far, it is looking like those who took the over are going to win.
Speaking of that, look who is the star of the Buy.com roadshow...yes, that's CEO Scott A. Blum. Remember him? Business Week does:
"You may remember Blum from his previous venture, storage systems maker Pinnacle Micro. In 1997, he consented (without admitting or denying wrongdoing, as they say) to a cease and desist order from the Securities and Exchange Commission, which charged that Pinnacle Micro had improperly recognized revenue."
11:07 AM | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/t/trackback/3803186
Listed below are links to weblogs that reference RetailRoadshow.com:
______________________________
:
In the Matter of : ORDER INSTITUTING PROCEEDING
: PURSUANT TO SECTION 21C OF THE
PINNACLE MICRO, INC., : SECURITIES EXCHANGE ACT OF 1934,
SCOTT A. BLUM, and : MAKING FINDINGS AND CEASE AND
LILIA CRAIG : DESIST ORDER
:
Respondents. :
______________________________:
I.
The Securities and Exchange Commission deems it appropriate to
institute an administrative proceeding pursuant to Section 21C of the
Securities Exchange Act of 1934 (Exchange Act) against:
A. Pinnacle Micro, Inc. (Pinnacle), to determine whether Pinnacle violated
Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules
12b-20, 13a-1, and 13a-13 thereunder;
B. Scott A. Blum (Blum), to determine whether Blum caused violations of
Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules
12b-20, 13a-1, and 13a-13 thereunder and whether Blum violated Exchange Act
Rule 13b2-2; and
C. Lilia Craig (Craig), to determine whether Craig violated Exchange Act
Rule 13b2-2.
II.
In anticipation of the institution of this proceeding, Pinnacle, Blum,
and Craig have submitted Offers of Settlement which the Commission has
determined to accept. In determining to accept the Offers, the Commission
considered remedial acts undertaken by Pinnacle and the cooperation
======END OF PAGE 1======
Respondents afforded the Commission staff. Solely for the purpose of this
proceeding and any other proceeding brought by or on behalf of the
Commission or in which the Commission is a party, and prior to a hearing
pursuant to the Commission's Rules of Practice, 17 C.F.R. 201.100 et
seq., and without admitting or denying the facts and findings set forth
herein, except as to the jurisdiction of the Commission over them, which
each admits, Pinnacle, Blum, and Craig each consent to the entry of this
Order Instituting Public Administrative Proceeding Pursuant to Section 21C
of the Securities Exchange Act of 1934, Making Findings and Cease and
Desist Order of the Commission, as set forth below.
III.
Based on the foregoing, the Commission finds:<(1)>
A. FACTS
1. Summary
Following the initial public offering of Pinnacle common stock in
1993, various Pinnacle officers and employees engaged in a variety of
improper accounting practices that violated generally accepted accounting
principles (GAAP). Those practices included: (a) improperly recording
revenue from products shipped after the close of certain of Pinnacle's
financial reporting periods (post-period shipments) and (b) inconsistently
accounting for the sales of certain electronic chips. These improper
accounting practices caused Pinnacle to overstate materially sales and
earnings reported in financial statements contained in annual and quarterly
reports filed with the Commission.
On April 18, 1995, Pinnacle announced that it was restating its
financial statements for fiscal 1993. The company disclosed that
previously reported net income for the year, $2.6 million, was overstated
by approximately $1 million, or 38.5 percent. The company also disclosed
that it was restating net income for the fourth quarter of fiscal 1993,
from $652,000 to a loss of ($804,000). These material overstatements were
due to the improper recognition of revenue from post-period shipments.
Pinnacle also disclosed that it could not determine the exact amount of any
overstatements or understatements for quarters prior to the fourth quarter
of 1993, because it lacked accurately dated shipping documents to establish
the date of shipment for certain sales. As a result of this inability to
establish the date of shipment for certain sales, Pinnacle's auditor for
fiscal 1993 and prior periods withdrew its opinions on Pinnacle's financial
statements for the year ended December 31, 1993 and all prior periods,
<(1)> The findings herein are made pursuant to respondents
Offers of Settlement and are not binding on any other person or
entity named as a respondent in this or any other proceeding.
======END OF PAGE 2======
except for its opinion on Pinnacle's balance sheet as of December 31,
1993.<(2)>
As a result of the improper accounting practices described
above,<(3)> Pinnacle violated Sections 13(a), 13(b)(2)(A), and
13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13
thereunder. These violations were caused by, among others, Blum,
Pinnacle's former Executive Vice President of Sales and Marketing. In
addition, Blum violated Exchange Act Rule 13b2-2 in making materially false
or misleading statements to Pinnacle's independent auditors concerning
Pinnacle's inconsistent accounting for the sales of certain electronic
chips. Craig, a former Vice-President of Finance, violated Exchange Act
Rule 13b2-2 in making materially false or misleading statements to
Pinnacle's independent auditors concerning post-period shipments.
2. The Respondents
a. Pinnacle is a Delaware corporation with its principal place
of business in Irvine, California. It designs and manufactures optical
storage systems for personal computer and workstation operating systems.
In July 1993, Pinnacle conducted an initial public offering of 2 million
shares of common stock at $10.50 per share. Pinnacle's common stock is,
and was at all times relevant, quoted on the NASDAQ stock market, and is
registered with the Commission pursuant to Section 12(g) of the Exchange
Act. Pinnacle files periodic reports with the Commission pursuant to
Section 13(a) of the Exchange Act which are publicly disseminated.
b. Blum, age 31, served as Vice President of Sales and Marketing
from October 1987 to July 1992. From July 1992 until June 1996, Blum was
Pinnacle's Executive Vice President of Sales and Marketing. From July 1996
until October 1, 1996, Blum was Vice President of Marketing. From June
1988 until he resigned in December 1996, he was a member of the Board of
Directors. Together Blum and his father, the Chief Executive Officer of
Pinnacle, beneficially own approximately 22 percent of the outstanding
common stock of the company.
c. Craig, age 44 and a resident of California, was Pinnacle's
<(2)> On March 30, 1995, Pinnacle's original independent auditor
resigned as a result of former senior management's response to
the auditor's discovery of post-period shipments at Pinnacle.
See also Pinnacle Micro, Inc. Form 8-K, dated March 30, 1995.
<(3)> More recently, Pinnacle capitalized certain non-recurring
engineering expenditures that were later determined should have
been charged to income. On April 12, 1996, Pinnacle restated its
financial statements for the quarter ended September 30, 1995 to
reflect adjustments for the capitalized non-recurring engineering
expenditures. Third quarter 1995 income was restated from
$222,000 to $24,000, a reduction of $198,000. See also Pinnacle
Micro, Inc. Form 8-K, dated February 20, 1996.
======END OF PAGE 3======
Corporate Controller from November 1993 until March 1994. From April 1994
until she resigned in November 1994, Craig was Pinnacle's Vice President of
Finance. Craig acted as Pinnacle's Principal Financial and Principal
Accounting Officer from April 1994 until August 1994. Prior to joining
Pinnacle, Craig had worked for several privately held companies. She is
not a certified public accountant.
3. Other Relevant Person
James G. Hanley, age 34, joined Pinnacle in April 1989 and served as
the Chief Financial Officer of Pinnacle until August 1992. From August
1992 until May 1995, Hanley served as Vice President of Operations. From
May 1995 until December 1995, Hanley was Senior Vice President of Corporate
Development. Currently, Hanley is General Manager, Strategic Products
Group. Hanley was also a director of the company from April 1993 until
September 1995. He is not a certified public accountant.<(4)>
4. Post-period Shipments
From its initial public offering in July 1993 until June 1994,
Pinnacle consistently reported increased sales along with record earnings
both in its annual and quarterly reports filed with the Commission and in
press releases. To achieve such steady growth, Pinnacle's management,
including Blum, established ambitious sales targets. At times, in order to
meet its sales and earning targets, Pinnacle improperly recognized revenue
by recognizing revenue in a quarter from shipments made after the end of
that quarter (the cut-off date) of Pinnacle's financial reporting periods.
Generally accepted accounting principles (GAAP), however, require that
revenue be recognized in financial statements when it is both (1) realized
or realizable and (2) earned. Statement of Financial Accounting Concepts
No. 5 (SFAC No. 5). In general, under this principle, revenue from the
sale of a product is recognized at the date of sale, usually the date of
shipment to the customer. See, e.g., In the Matter of Matthew Grant and
Robert Goldstein, AAER No. 410 [1991-1995 AAER Transfer Binder] Fed. Sec.
L. Rep. (CCH) 73,869, at 63,118 (August 24, 1992).
At the end of a quarter, if the orders processed by the shipping
department were not sufficient to meet the sales goal, the shipping
department was told to continue shipping until the sales goal was met. In
order for Pinnacle to recognize revenue from shipments made after the end
of that quarter, Pinnacle employees predated packing lists, shipping
records, and invoices to conceal that orders had not been shipped until
after the end of the period. For example, the shipping department, which
used United Parcel Service of America, Inc. (UPS) shipping records as part
of Pinnacle's shipping log, would not advance the date on the UPS computer.
This allowed Pinnacle to date UPS airbills and Pinnacle's shipping log as
<(4)> In a related action, the Commission has filed a civil
action against Hanley seeking injunctive and other relief.
Securities and Exchange Commission v. James G. Hanley, United
States District Court for the District of Columbia.
======END OF PAGE 4======
if the shipments had been shipped prior to the end of a period when, in
fact, Pinnacle made the shipments after the end of the period. The
shipping department would also pre-date or back-date packing lists provided
for the preparation of invoices to coincide with the last day of the
period. The order processing department would also back-date invoices to
reflect the last day of the period. As a result, Pinnacle recorded sales
as of the last day of the quarter and not on the actual shipment dates.
On several occasions, when there was not enough product available to
fill orders needed to meet the sales goals, manufacturing continued after
the end of a period. In order to conceal the fact that the order was
manufactured and shipped after the end of the period, the shipping
department prepared packing lists, shipping records, and invoices in
advance of receiving the product from manufacturing. Moreover, when
manufacturing and shipping continued after the end of the period, Pinnacle
delayed its physical inventory count, which would otherwise have required
the company to freeze the movement of product in the shipping and
manufacturing departments on the day after the end of the reporting period.
Blum was aware of Pinnacle's practice of recording revenue from post-
period shipments when the company was privately held. He and other members
of management failed, however, to take steps to terminate the practice
after Pinnacle's initial public offering in July 1993. Indeed, Blum was
aware that the shipping department engaged in post-period shipments in
order to make shipments in time to meet the sales goals that he
established. In addition, Blum signed Pinnacle's Form 10-K for the fiscal
year-ended December 31, 1993, which contained materially false information
concerning sales and net income, resulting from Pinnacle's post-period
shipments.
Shortly before the end of the second quarter 1994, management,
including Blum, learned that it would not be able to make shipments in time
to meet sales projections for that quarter unless revenue was recognized
from post-period shipments. In the presence of Blum, Pinnacle's director
of manufacturing was instructed to take as long as he needed to complete
manufacturing and shipping of booked sales to meet the sales projections
for the quarter. Accordingly, orders shipped on July 1 and July 2, the
first two days after the end of the quarter, were recorded as sales as of
June 30.
Pinnacle's newly-hired controller learned that Pinnacle planned to
continue shipping after the end of the June 30 quarter and recognize
revenue from those sales in that quarter. The controller told Craig that
such an action was improper financial reporting and requested that Craig
discuss the matter with Blum and Pinnacle's Chief Executive Officer.
Craig, under continuing pressure from the company's then senior management
to record additional sales in the second quarter, indicated that the
controller should not get involved. Nevertheless, the controller
subsequently contacted both the chairman of Pinnacle's audit committee and
Pinnacle's independent auditor and advised them of the post-period
shipments.
======END OF PAGE 5======
Consequently, the independent auditor, at the direction of Pinnacle's
audit committee, conducted a preliminary investigation and verified that
some of the shipments that Pinnacle's shipping log indicated had been
shipped on June 30, in fact, had been shipped after that date. Thereafter,
the independent auditor informed Blum and Pinnacle's Chief Executive
Officer that the auditor had reasons to suspect that Pinnacle had
improperly recorded revenue on post-period shipments during the second
quarter of 1994. After consulting with Blum, Pinnacle's Chief Executive
Officer immediately sent termination letters to Pinnacle's independent
auditor. The termination was rescinded, however, after Blum and Pinnacle's
Chief Executive Officer learned that the termination of its independent
auditor would trigger a reporting obligation with the Commission and
National Association of Securities Dealers.
Subsequently, Pinnacle decided to have its independent auditor conduct
a special review to determine the extent to which Pinnacle had recorded
post-period shipments. As a result, on July 18, 1994, the independent
auditor met with Pinnacle's Chief Executive Officer, Hanley, Craig, and
counsel for Pinnacle to discuss the special review procedures. At the
meeting and in the presence of Pinnacle's Chief Executive Officer and
Hanley, the independent auditor asked Craig whether there were any sales
recorded through June 30, 1994 that were not shipped as of June 30, 1994.
Craig replied no. As set forth above, however, Craig knew that certain
shipments which were made in July were improperly recorded as sales in the
previous quarter ended June 30, 1994.
On August 8, Pinnacle publicly announced that it was not releasing
second quarter results because it intended to restate its financial results
for the quarter and year ended December 31, 1993, and the first quarter of
1994. Thereafter, on April 18, 1995, Pinnacle filed an amended Form 10-K,
which restated its financial statements for the quarter and year ended
December 31, 1993. Pinnacle restated fourth quarter net income from
$652,000 to a loss of ($804,000) and year-end net income from $2.6 million
to $1.6 million or 38.5 percent of net income.<(5)> Pinnacle did not
need to restate its financial statements in its Form 10-Q for the quarter
ended June 30, 1994, because of the discovery of Pinnacle's practice of
improper revenue recognition prior to Pinnacle's filing financial
statements for that period.
In its amended Form 10-K for the year-ended December 31, 1993,
Pinnacle also disclosed that it could not determine the exact amount of any
overstatements or understatements for quarters prior to the fourth quarter
of 1993, because it lacked accurately dated shipping documents to establish
the date of shipment for certain sales. As a result of this inability to
establish the date of shipment for certain sales, Pinnacle's auditor for
<(5)> In its quarterly report on Form 10-Q for the quarter ended
March 31, 1994, Pinnacle understated sales by approximately $2.4
million or 18.5% because it prematurely recognized those sales in
the fourth quarter of 1993. Accordingly, Pinnacle restated its
first quarter net income from $679,000 to $1,255,000 or 84.4%.
======END OF PAGE 6======
fiscal 1993 and prior periods withdrew its opinions on Pinnacle's financial
statements for the year ended December 31, 1993 and all prior periods,
except for its opinion on Pinnacle's balance sheet as of December 31, 1993.
5. Failure to Disclose the Re-classification ofChange in the Method
of Accounting for Electronic Chip Sales
In addition to recording revenue from post-period shipments, Pinnacle
also engaged in other improper accounting practices to meet sales goals.
In 1993, Pinnacle learned that it had a surplus inventory of electronic
chips used in its optical drives and decided to sell the surplus. Because
these sales were short lived and were out-of-the ordinary-course of
business, Pinnacle determined in the second quarter of 1993 to record the
electronic chip sales as miscellaneous income. In accounting for the
electronic chip sales as miscellaneous income, Pinnacle netted the revenues
from these sales against the associated cost of goods sold, and included
that amount in miscellaneous income.
In the third quarter of 1993, however, Blum suggested to the company's
Chief Financial Officer that the electronic chip revenue be recorded as
sales. The company reported a portion of the electronic chip revenue as
sales, and the remaining portion was reported as miscellaneous income.
This change was made so that Pinnacle could meet its previously disclosed
sales target of approximately $10 million for that quarter. Pinnacle
reported approximately $444,000 of the $851,000 from the electronic chip
sales as revenue for that quarter. In management's monthly financial
reviews, Pinnacle's chief financial officer informed Pinnacle's Chief
Executive Officer, Blum, and Hanley, of the amount of electronic chips
revenue that had been recorded as sales.
Under GAAP, there is a presumption that, in preparation of financial
statements, an accounting principle once adopted should not be changed in
accounting for events and transactions of a similar type. Accounting
Principles Board (APB) Opinion No. 20, Accounting Changes, 15 (1971).
Consistent use of accounting principles from one period to another enhances
the utility of financial statements to users by facilitating analysis and
understanding of comparative accounting data. Id. If an entity makes a
change in accounting principle, it must disclose that change and justify
the use of an alternative acceptable accounting principle as preferable.
Id. at 16; APB Opinion No. 28, Interim Financial Reporting, 23 (1973).
While this manipulation of electronic chip sales did not affect Pinnacle's
earnings, Pinnacle in its Form 10-Q for its quarter ended September 30,
1993, did not disclose that electronic chip sales had been inconsistently
reported in order to meet Pinnacle's sales targetthe change in the method
of accounting for electronic chip sales.
On January 13, 1995, Pinnacle's independent auditor separately
interviewed Blum and other Pinnacle officers to make inquiries and obtain
verbal representations concerning its special review of Pinnacle's
financial statements for the fiscal year ended December 31, 1993. The
independent auditor asked Blum, among other things, whether there were any
======END OF PAGE 7======
financial statement issues, other than post-period shipments, about which
it should be concerned. Blum replied that there were not. As set forth
above, Blum, however, knew that Pinnacle recorded a portion of the
electronic chip revenue as sales.
6. Erroneous Capitalization of Non-Recurring Engineering
Expenditures
During 1995, Pinnacle incurred the majority of its non-recurring
engineering expenditures from the design and development of application
specific integrated circuits (ASICs) for use in APEX, Pinnacle's new
optical disk drive. In the first three quarters of 1995, Pinnacle
capitalized certain of the non-recurring engineering expenditures related
to APEX in the expectation that the costs would be matched with revenue
when APEX shipped. During the year-end audit, Pinnacle reevaluated the
nature of these expenditures and determined that they should in fact be
considered as research and development and expensed.
As a result of its capitalization of ASICs non-recurring engineering
expenditures, Pinnacle overstated its third quarter net income reported in
its Form 10-Q for the quarter ended September 30, 1995, by approximately
$198,000. On April 12, 1996, Pinnacle restated its financial statements
for the quarter ended September 30, 1995. Third quarter net income was
restated from $222,000 to $24,000. The financial statements for the
quarters ending April 1, 1995, and July 1, 1995 were not restated as the
change was not material.
B. APPLICABLE LAW
1. Pinnacle's Reporting Violations: Section 13(a) of the Exchange
Act and Rules 12b-20, 13a-1, and 13a-13 thereunder
Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13
thereunder require issuers of securities registered pursuant to Section 12
of the Exchange Act, such as Pinnacle, to file with the Commission annual
reports on Form 10-K and quarterly reports on Form 10-Q. Pursuant to
instructions applicable to Form 10-K and Form 10-Q, the financial
statements contained in these periodic reports must conform with Regulation
S-X, which requires conformity with GAAP. 17 C.F.R. 210.4-01(a)(1). An
issuer violates these provisions if it files a report on Form 10-K or Form
10-Q that contains materially false or misleading information. SEC v.
Savoy Industries, Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied,
440 U.S. 913 (1979). In addition, Exchange Act Rule 12b-20 requires that
periodic reports filed with the Commission contain all information
necessary to ensure that the statements made are not materially misleading.
Pinnacle violated Section 13(a) of the Exchange Act and Rules 12b-20,
13a-1, and 13a-13 thereunder by disseminating to the public and filing with
the Commission annual and quarterly reports for at least four periods, the
quarter and year ended December 31, 1993 and the quarters ended September
======END OF PAGE 8======
30, 1993 and September 30, 1995 that contained materially inaccurate
financial statements. Pinnacle improperly recognized revenue on sales
prior to the time of shipment. Pinnacle also failed to disclose iIn its
Form 10-Q for the quarter ended September 30, 1993, thatPinnacle
manipulated electronic chip sales had been manipulated in order to meet
Pinnacle'its sales targets. Blum, among others, caused these violations.
Pinnacle also materially understated expenses and overstated profits in its
Form 10-Q for the quarter ended September 30, 1995 as a result of the
capitalization of non-recurring engineering expenditures.
2. Pinnacle's Record Keeping Violations: Section 13(b)(2)(A) of the
Exchange Act
Section 13(b)(2)(A) of the Exchange Act requires issuers such as
Pinnacle to make and keep books, records, and accounts that accurately and
fairly reflect the issuer's transactions. Pinnacle's practice of recording
revenue from post-period shipments involved the preparation of, among other
things, inaccurately dated invoices. The invoices were integral to
Pinnacle's ability to prepare its financial statements. The practice of
deliberately creating improperly dated invoices was in itself a violation
of Section 13(b)(2)(A), and also resulted in Pinnacle improperly
maintaining books and records which included revenue from sales that had
been recognized in contravention of GAAP. Pinnacle's failure to account
properly for electronic chip sales also violated Section 13(b)(2)(A).
Blum, among others, caused these violations.
3. Pinnacle's Internal Control Violations: Section 13(b)(2)(B) of
the Exchange Act
Section 13(b)(2)(B) requires issuers such as Pinnacle to "devise and
maintain a system of internal accounting controls" sufficient to provide
reasonable assurances that, among other things, transactions are executed
in accordance with management's general or specific authorization and are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP.
Pinnacle lacked internal accounting controls sufficient to ensure the
preparation of accurate and complete consolidated financial statements in
compliance with GAAP. Among other things, Pinnacle did not have internal
controls in place to test the validity of the dates of shipments. Pinnacle
also had inadequate internal controls to assure that it correctly accounted
for electronic chip sales. See, e.g., In the Matter of Valley Systems
Inc., AAER No. 707, (Sept. 14, 1995). Blum, among others, caused these
violations.
4. Blum and Craig's Misrepresentations to Accountants in Connection
with the Preparation of Required Reports: Exchange Act Rule
======END OF PAGE 9======
13b2-2
Exchange Act Rule 13b2-2 prohibits any officer or director of an
issuer from making materially false or misleading statements or omitting to
state any material fact to an accountant in connection with any required
audit of the issuer's financial statements or the preparation of a report
required to be filed with the Commission. In the July 18, 1994 meeting,
described above, Pinnacle's independent auditor specifically questioned
Craig in the presence of Pinnacle's Chief Executive Officer and Hanley
about whether any post-period shipments had occurred. Although she knew
that post-period shipments had been recorded as revenue in the quarter
ended June 30, 1994, Craig stated that there were none. Accordingly, Craig
violated Rule 13b2-2 when she failed to tell Pinnacle's auditors that the
company had recognized revenue from post-period shipments.
Blum also violated Rule 13b2-2. In the January 13, 1995 meeting
described above, Pinnacle's independent auditor questioned Blum about
whether there was anything improper with the electronic chip sales.
Although he knew electronic chip sales had been reported inconsistently in
the third quarter ended September 30, 1993, Blum stated that there was
nothing improper about these sales.
IV.
FINDINGS
Based on the foregoing, the Commission finds that:
A. Pinnacle violated Sections 13(a), 13(b)(2)(A), and
13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-
13 thereunder; and
B. Blum caused violations of Sections 13(a), 13(b)(2)(A), and
13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-
13 thereunder, and violated Exchange Act Rule 13b2-2; and
C. Lilia Craig violated Exchange Act Rule 13b2-2.
V.
ORDER
Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the
Exchange Act, that:
A. Pinnacle cease and desist from committing or causing any
violations and any future violations of Sections 13(a),
13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules
12b-20, 13a-1, and 13a-13 thereunder.
B. Blum cease and desist from causing any violations and any
future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B)
======END OF PAGE 10======
of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13
thereunder, and cease and desist from committing or causing any
violation and any future violation of Rule 13b2-2 under the
Exchange Act.
C. Craig cease and desist from committing or causing any
violation and any future violation of Rule 13b2-2.
By the Commission.
Jonathan G. Katz
Secretary
======END OF PAGE 11======
The WSJ has an interesting article about a new service called RetailRoadshow.com that "provides electronic roadshows for individual investors seeking information about public offerings." Such a service is available for the first time because of new SEC rules that went into effect on December 1. Prior to these rules, publicly available roadshows would have been prohibited as "gun jumping."
The RetailRoadshow.com service is pretty impressive, not to mention free. Pick a company from their list of those that are about to go public and within seconds you are watching the CEO deliver a roadshow-type performance, complete with PowerPoint-type slides that track the presentation.
A couple other quick thoughts and observations:
What is the over/under date for statements made during one of these roadshows showing up in a securities class action complaint? By the power vested in me, I'm setting it at June 30, 2006. I should point out that I set the over/under date for statements made in a corporate executive blog showing up in such a complaint at December 31, 2005, and, so far, it is looking like those who took the over are going to win.
Speaking of that, look who is the star of the Buy.com roadshow...yes, that's CEO Scott A. Blum. Remember him? Business Week does:
"You may remember Blum from his previous venture, storage systems maker Pinnacle Micro. In 1997, he consented (without admitting or denying wrongdoing, as they say) to a cease and desist order from the Securities and Exchange Commission, which charged that Pinnacle Micro had improperly recognized revenue."
11:07 AM | Permalink
TrackBack
TrackBack URL for this entry:
http://www.typepad.com/t/trackback/3803186
Listed below are links to weblogs that reference RetailRoadshow.com:
______________________________
:
In the Matter of : ORDER INSTITUTING PROCEEDING
: PURSUANT TO SECTION 21C OF THE
PINNACLE MICRO, INC., : SECURITIES EXCHANGE ACT OF 1934,
SCOTT A. BLUM, and : MAKING FINDINGS AND CEASE AND
LILIA CRAIG : DESIST ORDER
:
Respondents. :
______________________________:
I.
The Securities and Exchange Commission deems it appropriate to
institute an administrative proceeding pursuant to Section 21C of the
Securities Exchange Act of 1934 (Exchange Act) against:
A. Pinnacle Micro, Inc. (Pinnacle), to determine whether Pinnacle violated
Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules
12b-20, 13a-1, and 13a-13 thereunder;
B. Scott A. Blum (Blum), to determine whether Blum caused violations of
Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules
12b-20, 13a-1, and 13a-13 thereunder and whether Blum violated Exchange Act
Rule 13b2-2; and
C. Lilia Craig (Craig), to determine whether Craig violated Exchange Act
Rule 13b2-2.
II.
In anticipation of the institution of this proceeding, Pinnacle, Blum,
and Craig have submitted Offers of Settlement which the Commission has
determined to accept. In determining to accept the Offers, the Commission
considered remedial acts undertaken by Pinnacle and the cooperation
======END OF PAGE 1======
Respondents afforded the Commission staff. Solely for the purpose of this
proceeding and any other proceeding brought by or on behalf of the
Commission or in which the Commission is a party, and prior to a hearing
pursuant to the Commission's Rules of Practice, 17 C.F.R. 201.100 et
seq., and without admitting or denying the facts and findings set forth
herein, except as to the jurisdiction of the Commission over them, which
each admits, Pinnacle, Blum, and Craig each consent to the entry of this
Order Instituting Public Administrative Proceeding Pursuant to Section 21C
of the Securities Exchange Act of 1934, Making Findings and Cease and
Desist Order of the Commission, as set forth below.
III.
Based on the foregoing, the Commission finds:<(1)>
A. FACTS
1. Summary
Following the initial public offering of Pinnacle common stock in
1993, various Pinnacle officers and employees engaged in a variety of
improper accounting practices that violated generally accepted accounting
principles (GAAP). Those practices included: (a) improperly recording
revenue from products shipped after the close of certain of Pinnacle's
financial reporting periods (post-period shipments) and (b) inconsistently
accounting for the sales of certain electronic chips. These improper
accounting practices caused Pinnacle to overstate materially sales and
earnings reported in financial statements contained in annual and quarterly
reports filed with the Commission.
On April 18, 1995, Pinnacle announced that it was restating its
financial statements for fiscal 1993. The company disclosed that
previously reported net income for the year, $2.6 million, was overstated
by approximately $1 million, or 38.5 percent. The company also disclosed
that it was restating net income for the fourth quarter of fiscal 1993,
from $652,000 to a loss of ($804,000). These material overstatements were
due to the improper recognition of revenue from post-period shipments.
Pinnacle also disclosed that it could not determine the exact amount of any
overstatements or understatements for quarters prior to the fourth quarter
of 1993, because it lacked accurately dated shipping documents to establish
the date of shipment for certain sales. As a result of this inability to
establish the date of shipment for certain sales, Pinnacle's auditor for
fiscal 1993 and prior periods withdrew its opinions on Pinnacle's financial
statements for the year ended December 31, 1993 and all prior periods,
<(1)> The findings herein are made pursuant to respondents
Offers of Settlement and are not binding on any other person or
entity named as a respondent in this or any other proceeding.
======END OF PAGE 2======
except for its opinion on Pinnacle's balance sheet as of December 31,
1993.<(2)>
As a result of the improper accounting practices described
above,<(3)> Pinnacle violated Sections 13(a), 13(b)(2)(A), and
13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13
thereunder. These violations were caused by, among others, Blum,
Pinnacle's former Executive Vice President of Sales and Marketing. In
addition, Blum violated Exchange Act Rule 13b2-2 in making materially false
or misleading statements to Pinnacle's independent auditors concerning
Pinnacle's inconsistent accounting for the sales of certain electronic
chips. Craig, a former Vice-President of Finance, violated Exchange Act
Rule 13b2-2 in making materially false or misleading statements to
Pinnacle's independent auditors concerning post-period shipments.
2. The Respondents
a. Pinnacle is a Delaware corporation with its principal place
of business in Irvine, California. It designs and manufactures optical
storage systems for personal computer and workstation operating systems.
In July 1993, Pinnacle conducted an initial public offering of 2 million
shares of common stock at $10.50 per share. Pinnacle's common stock is,
and was at all times relevant, quoted on the NASDAQ stock market, and is
registered with the Commission pursuant to Section 12(g) of the Exchange
Act. Pinnacle files periodic reports with the Commission pursuant to
Section 13(a) of the Exchange Act which are publicly disseminated.
b. Blum, age 31, served as Vice President of Sales and Marketing
from October 1987 to July 1992. From July 1992 until June 1996, Blum was
Pinnacle's Executive Vice President of Sales and Marketing. From July 1996
until October 1, 1996, Blum was Vice President of Marketing. From June
1988 until he resigned in December 1996, he was a member of the Board of
Directors. Together Blum and his father, the Chief Executive Officer of
Pinnacle, beneficially own approximately 22 percent of the outstanding
common stock of the company.
c. Craig, age 44 and a resident of California, was Pinnacle's
<(2)> On March 30, 1995, Pinnacle's original independent auditor
resigned as a result of former senior management's response to
the auditor's discovery of post-period shipments at Pinnacle.
See also Pinnacle Micro, Inc. Form 8-K, dated March 30, 1995.
<(3)> More recently, Pinnacle capitalized certain non-recurring
engineering expenditures that were later determined should have
been charged to income. On April 12, 1996, Pinnacle restated its
financial statements for the quarter ended September 30, 1995 to
reflect adjustments for the capitalized non-recurring engineering
expenditures. Third quarter 1995 income was restated from
$222,000 to $24,000, a reduction of $198,000. See also Pinnacle
Micro, Inc. Form 8-K, dated February 20, 1996.
======END OF PAGE 3======
Corporate Controller from November 1993 until March 1994. From April 1994
until she resigned in November 1994, Craig was Pinnacle's Vice President of
Finance. Craig acted as Pinnacle's Principal Financial and Principal
Accounting Officer from April 1994 until August 1994. Prior to joining
Pinnacle, Craig had worked for several privately held companies. She is
not a certified public accountant.
3. Other Relevant Person
James G. Hanley, age 34, joined Pinnacle in April 1989 and served as
the Chief Financial Officer of Pinnacle until August 1992. From August
1992 until May 1995, Hanley served as Vice President of Operations. From
May 1995 until December 1995, Hanley was Senior Vice President of Corporate
Development. Currently, Hanley is General Manager, Strategic Products
Group. Hanley was also a director of the company from April 1993 until
September 1995. He is not a certified public accountant.<(4)>
4. Post-period Shipments
From its initial public offering in July 1993 until June 1994,
Pinnacle consistently reported increased sales along with record earnings
both in its annual and quarterly reports filed with the Commission and in
press releases. To achieve such steady growth, Pinnacle's management,
including Blum, established ambitious sales targets. At times, in order to
meet its sales and earning targets, Pinnacle improperly recognized revenue
by recognizing revenue in a quarter from shipments made after the end of
that quarter (the cut-off date) of Pinnacle's financial reporting periods.
Generally accepted accounting principles (GAAP), however, require that
revenue be recognized in financial statements when it is both (1) realized
or realizable and (2) earned. Statement of Financial Accounting Concepts
No. 5 (SFAC No. 5). In general, under this principle, revenue from the
sale of a product is recognized at the date of sale, usually the date of
shipment to the customer. See, e.g., In the Matter of Matthew Grant and
Robert Goldstein, AAER No. 410 [1991-1995 AAER Transfer Binder] Fed. Sec.
L. Rep. (CCH) 73,869, at 63,118 (August 24, 1992).
At the end of a quarter, if the orders processed by the shipping
department were not sufficient to meet the sales goal, the shipping
department was told to continue shipping until the sales goal was met. In
order for Pinnacle to recognize revenue from shipments made after the end
of that quarter, Pinnacle employees predated packing lists, shipping
records, and invoices to conceal that orders had not been shipped until
after the end of the period. For example, the shipping department, which
used United Parcel Service of America, Inc. (UPS) shipping records as part
of Pinnacle's shipping log, would not advance the date on the UPS computer.
This allowed Pinnacle to date UPS airbills and Pinnacle's shipping log as
<(4)> In a related action, the Commission has filed a civil
action against Hanley seeking injunctive and other relief.
Securities and Exchange Commission v. James G. Hanley, United
States District Court for the District of Columbia.
======END OF PAGE 4======
if the shipments had been shipped prior to the end of a period when, in
fact, Pinnacle made the shipments after the end of the period. The
shipping department would also pre-date or back-date packing lists provided
for the preparation of invoices to coincide with the last day of the
period. The order processing department would also back-date invoices to
reflect the last day of the period. As a result, Pinnacle recorded sales
as of the last day of the quarter and not on the actual shipment dates.
On several occasions, when there was not enough product available to
fill orders needed to meet the sales goals, manufacturing continued after
the end of a period. In order to conceal the fact that the order was
manufactured and shipped after the end of the period, the shipping
department prepared packing lists, shipping records, and invoices in
advance of receiving the product from manufacturing. Moreover, when
manufacturing and shipping continued after the end of the period, Pinnacle
delayed its physical inventory count, which would otherwise have required
the company to freeze the movement of product in the shipping and
manufacturing departments on the day after the end of the reporting period.
Blum was aware of Pinnacle's practice of recording revenue from post-
period shipments when the company was privately held. He and other members
of management failed, however, to take steps to terminate the practice
after Pinnacle's initial public offering in July 1993. Indeed, Blum was
aware that the shipping department engaged in post-period shipments in
order to make shipments in time to meet the sales goals that he
established. In addition, Blum signed Pinnacle's Form 10-K for the fiscal
year-ended December 31, 1993, which contained materially false information
concerning sales and net income, resulting from Pinnacle's post-period
shipments.
Shortly before the end of the second quarter 1994, management,
including Blum, learned that it would not be able to make shipments in time
to meet sales projections for that quarter unless revenue was recognized
from post-period shipments. In the presence of Blum, Pinnacle's director
of manufacturing was instructed to take as long as he needed to complete
manufacturing and shipping of booked sales to meet the sales projections
for the quarter. Accordingly, orders shipped on July 1 and July 2, the
first two days after the end of the quarter, were recorded as sales as of
June 30.
Pinnacle's newly-hired controller learned that Pinnacle planned to
continue shipping after the end of the June 30 quarter and recognize
revenue from those sales in that quarter. The controller told Craig that
such an action was improper financial reporting and requested that Craig
discuss the matter with Blum and Pinnacle's Chief Executive Officer.
Craig, under continuing pressure from the company's then senior management
to record additional sales in the second quarter, indicated that the
controller should not get involved. Nevertheless, the controller
subsequently contacted both the chairman of Pinnacle's audit committee and
Pinnacle's independent auditor and advised them of the post-period
shipments.
======END OF PAGE 5======
Consequently, the independent auditor, at the direction of Pinnacle's
audit committee, conducted a preliminary investigation and verified that
some of the shipments that Pinnacle's shipping log indicated had been
shipped on June 30, in fact, had been shipped after that date. Thereafter,
the independent auditor informed Blum and Pinnacle's Chief Executive
Officer that the auditor had reasons to suspect that Pinnacle had
improperly recorded revenue on post-period shipments during the second
quarter of 1994. After consulting with Blum, Pinnacle's Chief Executive
Officer immediately sent termination letters to Pinnacle's independent
auditor. The termination was rescinded, however, after Blum and Pinnacle's
Chief Executive Officer learned that the termination of its independent
auditor would trigger a reporting obligation with the Commission and
National Association of Securities Dealers.
Subsequently, Pinnacle decided to have its independent auditor conduct
a special review to determine the extent to which Pinnacle had recorded
post-period shipments. As a result, on July 18, 1994, the independent
auditor met with Pinnacle's Chief Executive Officer, Hanley, Craig, and
counsel for Pinnacle to discuss the special review procedures. At the
meeting and in the presence of Pinnacle's Chief Executive Officer and
Hanley, the independent auditor asked Craig whether there were any sales
recorded through June 30, 1994 that were not shipped as of June 30, 1994.
Craig replied no. As set forth above, however, Craig knew that certain
shipments which were made in July were improperly recorded as sales in the
previous quarter ended June 30, 1994.
On August 8, Pinnacle publicly announced that it was not releasing
second quarter results because it intended to restate its financial results
for the quarter and year ended December 31, 1993, and the first quarter of
1994. Thereafter, on April 18, 1995, Pinnacle filed an amended Form 10-K,
which restated its financial statements for the quarter and year ended
December 31, 1993. Pinnacle restated fourth quarter net income from
$652,000 to a loss of ($804,000) and year-end net income from $2.6 million
to $1.6 million or 38.5 percent of net income.<(5)> Pinnacle did not
need to restate its financial statements in its Form 10-Q for the quarter
ended June 30, 1994, because of the discovery of Pinnacle's practice of
improper revenue recognition prior to Pinnacle's filing financial
statements for that period.
In its amended Form 10-K for the year-ended December 31, 1993,
Pinnacle also disclosed that it could not determine the exact amount of any
overstatements or understatements for quarters prior to the fourth quarter
of 1993, because it lacked accurately dated shipping documents to establish
the date of shipment for certain sales. As a result of this inability to
establish the date of shipment for certain sales, Pinnacle's auditor for
<(5)> In its quarterly report on Form 10-Q for the quarter ended
March 31, 1994, Pinnacle understated sales by approximately $2.4
million or 18.5% because it prematurely recognized those sales in
the fourth quarter of 1993. Accordingly, Pinnacle restated its
first quarter net income from $679,000 to $1,255,000 or 84.4%.
======END OF PAGE 6======
fiscal 1993 and prior periods withdrew its opinions on Pinnacle's financial
statements for the year ended December 31, 1993 and all prior periods,
except for its opinion on Pinnacle's balance sheet as of December 31, 1993.
5. Failure to Disclose the Re-classification ofChange in the Method
of Accounting for Electronic Chip Sales
In addition to recording revenue from post-period shipments, Pinnacle
also engaged in other improper accounting practices to meet sales goals.
In 1993, Pinnacle learned that it had a surplus inventory of electronic
chips used in its optical drives and decided to sell the surplus. Because
these sales were short lived and were out-of-the ordinary-course of
business, Pinnacle determined in the second quarter of 1993 to record the
electronic chip sales as miscellaneous income. In accounting for the
electronic chip sales as miscellaneous income, Pinnacle netted the revenues
from these sales against the associated cost of goods sold, and included
that amount in miscellaneous income.
In the third quarter of 1993, however, Blum suggested to the company's
Chief Financial Officer that the electronic chip revenue be recorded as
sales. The company reported a portion of the electronic chip revenue as
sales, and the remaining portion was reported as miscellaneous income.
This change was made so that Pinnacle could meet its previously disclosed
sales target of approximately $10 million for that quarter. Pinnacle
reported approximately $444,000 of the $851,000 from the electronic chip
sales as revenue for that quarter. In management's monthly financial
reviews, Pinnacle's chief financial officer informed Pinnacle's Chief
Executive Officer, Blum, and Hanley, of the amount of electronic chips
revenue that had been recorded as sales.
Under GAAP, there is a presumption that, in preparation of financial
statements, an accounting principle once adopted should not be changed in
accounting for events and transactions of a similar type. Accounting
Principles Board (APB) Opinion No. 20, Accounting Changes, 15 (1971).
Consistent use of accounting principles from one period to another enhances
the utility of financial statements to users by facilitating analysis and
understanding of comparative accounting data. Id. If an entity makes a
change in accounting principle, it must disclose that change and justify
the use of an alternative acceptable accounting principle as preferable.
Id. at 16; APB Opinion No. 28, Interim Financial Reporting, 23 (1973).
While this manipulation of electronic chip sales did not affect Pinnacle's
earnings, Pinnacle in its Form 10-Q for its quarter ended September 30,
1993, did not disclose that electronic chip sales had been inconsistently
reported in order to meet Pinnacle's sales targetthe change in the method
of accounting for electronic chip sales.
On January 13, 1995, Pinnacle's independent auditor separately
interviewed Blum and other Pinnacle officers to make inquiries and obtain
verbal representations concerning its special review of Pinnacle's
financial statements for the fiscal year ended December 31, 1993. The
independent auditor asked Blum, among other things, whether there were any
======END OF PAGE 7======
financial statement issues, other than post-period shipments, about which
it should be concerned. Blum replied that there were not. As set forth
above, Blum, however, knew that Pinnacle recorded a portion of the
electronic chip revenue as sales.
6. Erroneous Capitalization of Non-Recurring Engineering
Expenditures
During 1995, Pinnacle incurred the majority of its non-recurring
engineering expenditures from the design and development of application
specific integrated circuits (ASICs) for use in APEX, Pinnacle's new
optical disk drive. In the first three quarters of 1995, Pinnacle
capitalized certain of the non-recurring engineering expenditures related
to APEX in the expectation that the costs would be matched with revenue
when APEX shipped. During the year-end audit, Pinnacle reevaluated the
nature of these expenditures and determined that they should in fact be
considered as research and development and expensed.
As a result of its capitalization of ASICs non-recurring engineering
expenditures, Pinnacle overstated its third quarter net income reported in
its Form 10-Q for the quarter ended September 30, 1995, by approximately
$198,000. On April 12, 1996, Pinnacle restated its financial statements
for the quarter ended September 30, 1995. Third quarter net income was
restated from $222,000 to $24,000. The financial statements for the
quarters ending April 1, 1995, and July 1, 1995 were not restated as the
change was not material.
B. APPLICABLE LAW
1. Pinnacle's Reporting Violations: Section 13(a) of the Exchange
Act and Rules 12b-20, 13a-1, and 13a-13 thereunder
Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13
thereunder require issuers of securities registered pursuant to Section 12
of the Exchange Act, such as Pinnacle, to file with the Commission annual
reports on Form 10-K and quarterly reports on Form 10-Q. Pursuant to
instructions applicable to Form 10-K and Form 10-Q, the financial
statements contained in these periodic reports must conform with Regulation
S-X, which requires conformity with GAAP. 17 C.F.R. 210.4-01(a)(1). An
issuer violates these provisions if it files a report on Form 10-K or Form
10-Q that contains materially false or misleading information. SEC v.
Savoy Industries, Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied,
440 U.S. 913 (1979). In addition, Exchange Act Rule 12b-20 requires that
periodic reports filed with the Commission contain all information
necessary to ensure that the statements made are not materially misleading.
Pinnacle violated Section 13(a) of the Exchange Act and Rules 12b-20,
13a-1, and 13a-13 thereunder by disseminating to the public and filing with
the Commission annual and quarterly reports for at least four periods, the
quarter and year ended December 31, 1993 and the quarters ended September
======END OF PAGE 8======
30, 1993 and September 30, 1995 that contained materially inaccurate
financial statements. Pinnacle improperly recognized revenue on sales
prior to the time of shipment. Pinnacle also failed to disclose iIn its
Form 10-Q for the quarter ended September 30, 1993, thatPinnacle
manipulated electronic chip sales had been manipulated in order to meet
Pinnacle'its sales targets. Blum, among others, caused these violations.
Pinnacle also materially understated expenses and overstated profits in its
Form 10-Q for the quarter ended September 30, 1995 as a result of the
capitalization of non-recurring engineering expenditures.
2. Pinnacle's Record Keeping Violations: Section 13(b)(2)(A) of the
Exchange Act
Section 13(b)(2)(A) of the Exchange Act requires issuers such as
Pinnacle to make and keep books, records, and accounts that accurately and
fairly reflect the issuer's transactions. Pinnacle's practice of recording
revenue from post-period shipments involved the preparation of, among other
things, inaccurately dated invoices. The invoices were integral to
Pinnacle's ability to prepare its financial statements. The practice of
deliberately creating improperly dated invoices was in itself a violation
of Section 13(b)(2)(A), and also resulted in Pinnacle improperly
maintaining books and records which included revenue from sales that had
been recognized in contravention of GAAP. Pinnacle's failure to account
properly for electronic chip sales also violated Section 13(b)(2)(A).
Blum, among others, caused these violations.
3. Pinnacle's Internal Control Violations: Section 13(b)(2)(B) of
the Exchange Act
Section 13(b)(2)(B) requires issuers such as Pinnacle to "devise and
maintain a system of internal accounting controls" sufficient to provide
reasonable assurances that, among other things, transactions are executed
in accordance with management's general or specific authorization and are
recorded as necessary to permit preparation of financial statements in
conformity with GAAP.
Pinnacle lacked internal accounting controls sufficient to ensure the
preparation of accurate and complete consolidated financial statements in
compliance with GAAP. Among other things, Pinnacle did not have internal
controls in place to test the validity of the dates of shipments. Pinnacle
also had inadequate internal controls to assure that it correctly accounted
for electronic chip sales. See, e.g., In the Matter of Valley Systems
Inc., AAER No. 707, (Sept. 14, 1995). Blum, among others, caused these
violations.
4. Blum and Craig's Misrepresentations to Accountants in Connection
with the Preparation of Required Reports: Exchange Act Rule
======END OF PAGE 9======
13b2-2
Exchange Act Rule 13b2-2 prohibits any officer or director of an
issuer from making materially false or misleading statements or omitting to
state any material fact to an accountant in connection with any required
audit of the issuer's financial statements or the preparation of a report
required to be filed with the Commission. In the July 18, 1994 meeting,
described above, Pinnacle's independent auditor specifically questioned
Craig in the presence of Pinnacle's Chief Executive Officer and Hanley
about whether any post-period shipments had occurred. Although she knew
that post-period shipments had been recorded as revenue in the quarter
ended June 30, 1994, Craig stated that there were none. Accordingly, Craig
violated Rule 13b2-2 when she failed to tell Pinnacle's auditors that the
company had recognized revenue from post-period shipments.
Blum also violated Rule 13b2-2. In the January 13, 1995 meeting
described above, Pinnacle's independent auditor questioned Blum about
whether there was anything improper with the electronic chip sales.
Although he knew electronic chip sales had been reported inconsistently in
the third quarter ended September 30, 1993, Blum stated that there was
nothing improper about these sales.
IV.
FINDINGS
Based on the foregoing, the Commission finds that:
A. Pinnacle violated Sections 13(a), 13(b)(2)(A), and
13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-
13 thereunder; and
B. Blum caused violations of Sections 13(a), 13(b)(2)(A), and
13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-
13 thereunder, and violated Exchange Act Rule 13b2-2; and
C. Lilia Craig violated Exchange Act Rule 13b2-2.
V.
ORDER
Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the
Exchange Act, that:
A. Pinnacle cease and desist from committing or causing any
violations and any future violations of Sections 13(a),
13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Rules
12b-20, 13a-1, and 13a-13 thereunder.
B. Blum cease and desist from causing any violations and any
future violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B)
======END OF PAGE 10======
of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13
thereunder, and cease and desist from committing or causing any
violation and any future violation of Rule 13b2-2 under the
Exchange Act.
C. Craig cease and desist from committing or causing any
violation and any future violation of Rule 13b2-2.
By the Commission.
Jonathan G. Katz
Secretary
======END OF PAGE 11======
Report scum err scams here #board-610
Join the InvestorsHub Community
Register for free to join our community of investors and share your ideas. You will also get access to streaming quotes, interactive charts, trades, portfolio, live options flow and more tools.
