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Thomas M. Melton (4999)
IN THE UNITED STATES DISTRICT COURT
The Plaintiff Securities and Exchange Commission ("Commission"), alleges: SUMMARY 1. Defendant R. Bruce Acacio ("Acacio") was, at all times relevant to the actions and conduct set forth in this Complaint, the president, chief executive officer and chairman of the board of California Software Corporation ("California Software"). California Software is an Irvine, California-based software company whose common stock is traded on the Over the Counter Bulletin Board. At all times relevant to the violations charged in this complaint, Acacio was acting as president of California Software, and his specified duties included responsibility over the accounting functions of the company. Acacio was responsible for the company's false financial statements which were disseminated to the public, investors and which were filed with the Commission. California Software materially overstated its revenues, earnings, assets and shareholders equity contrary to Generally Accepted Accounting Principles ("GAAP") in financial statements included in a registration statement and periodic reports it filed with the Commission from August 1999 through May 2000. 2. The false financial statements included in California Software's filings and registration statement were reported in an amended Form 10-SB filed in September 1999, in two Forms 10-Q filed in August 1999 and November 1999, in a Form 10-KSB filed in March 2000 and in a Form 10-QSB filed in May 2000 (hereinafter sometimes referred to as the "Filings"). 3. California Software restated its financial statements for December 31, 1999 and the quarter ended March 31, 2000, which were included in amended Forms 10-KSB and 10-QSB, respectively, filed with the Commission. As a result of the restatement of its financial statements for the year ended December 31, 1999, California Software reduced gross revenues from $12,009,337 to $2,571,164 and net income for that year was reduced from $2,829,996 to net losses of $419,737. California Software also reduced total assets from $6,070,652 to $954,301 and shareholders equity was reduced from $2,881,459 to $296,498. These restatements were material. 4. Acacio was responsible for the Filings of California Software. As a result of his conduct in this case, Acacio violated Sections 17(a)(2) and (3) of the Securities Act of 1933 ("Securities Act") [15 U.S.C. § 77q(a)(2) and (3)] and Rules 13b2-1 and 13b2-2 promulgated under the Exchange Act [17 C.F.R. §§ 240.13b2-1 and 240.13b2-2] and aided, abetted and caused California Software's violations of Sections 13(a) and 13(b)(2) of the Exchange Act [15 U.S.C. §§ 78m(a) and 78m(b)(2)] and Rules 12b-11, 12b-20, 13a-1, 13a-13 [17 C.F.R. 240. §§ 12b-11, 12b-20, 13a-1 and 13a-13] promulgated thereunder. JURISDICTION AND VENUE 5. This Court has jurisdiction pursuant to Sections 21 and 27 of the Exchange Act [15 U.S.C. §§ 78u and 78aa]. 6. The Commission brings this action seeking a permanent injunction and civil penalties pursuant to Sections 20(b) and (d) of the Securities Act [15 §§ 77t(b) and (d)] and Sections 21(d)(1) and (d)(3) of the Exchange Act [15 U.S.C. §§ 78u(d)(1) and (d)(3)]. 7. Certain of the acts and transactions constituting violations of the Securities Act and Exchange Act have occurred within the District of Utah. Solicitations, offers and transactions in the securities of California Software, by and on behalf of California Software, were made within the District of Utah. 8. The defendant, directly or indirectly, used the means and instrumentalities of interstate commerce, or of the mails, or the facilities of a national securities exchange in connection with the acts practices and courses of business alleged herein. THE DEFENDANT 9. R. Bruce Acacio, age 40, founded California Software and was chairman of the board, chief executive officer and president during the time period relevant to this case. Acacio no longer holds the position of president of the company. ISSUER 10. California Software Corporation is a Nevada corporation with principal offices in Irvine, California. California Software's common stock was registered pursuant to Section 12(g) of the Exchange Act [15 U.S.C. § 77l(g)] and is traded on the Over the Counter Bulletin Board. STATEMENT OF FACTS California Software's Background and Filings with the Commission 11. California Software was incorporated in Nevada in October 1998. In January 1999, California Software acquired its predecessor company, California Software Products, Inc. ("CSPI"), through a reverse merger, and took over the operations of CSPI. Among other things, California Software's business is to develop, market and sell software designed for the IBM AS/400 midrange computer. 12. In March 1999 California Software filed a Form 10-SB with the Commission, seeking to register its common stock with the Commission pursuant to Section 12(g) of the Exchange Act. After several amendments, California Software submitted its Form 10-SB with the Commission in September 1999. That Form 10-SB contained audited balance sheets for CSPI for the years 1997 and 1998, and of California Software as of January 12, 1999. 13. Those balance sheets were materially false because they reflected financial information concerning California Software and CSPI that did not comply with GAAP due to, among other things, improper revenue recognition. 14. As a reporting company, California Software is required to make periodic filings with the Commission. Those Filings contained, among other information, financial statements. These Filings were disseminated to investors and prospective investors. 15. On or about August 25, 1999, California Software filed its first Form 10-Q for the period ending June 30, 1999, which was amended twice in November 1999. On or about November 16, 1999, California Software filed a Form 10-Q for the period ending September 30, 1999, and on or about May 16, 2000, California Software filed a Form 10-QSB for the period ending March 31, 2000. Those filings contained financial statements which were unaudited, and were materially false because they reflected financial information that did not comply with GAAP due to, among other things, improper revenue recognition. 16. On or about March 14, 2000 California Software filed its Form 10-KSB for December 31, 1999. Included in that filing were California Software's audited financial statements for the year ending December 31, 1999. Those financial statements were materially false because they reflected financial information concerning California Software that did not comply with GAAP due to, among other things, improper revenue recognition. 17. The Filings California Software filed with the Commission, set forth above, were made public upon filing and were available to, and were used by, investors in the stock of California Software in making investment decisions. California Software's Revenue Recognition Method 18. Since at least 1996, as part of their marketing practice, California Software and CSPI offered to provide potential customers copies of its software for evaluation for a stated period of time, usually 30 days, after which evaluation the potential customer could decide whether to purchase the software or return it to the company. 19. Until California Software restated its financial statements in October 2000, California Software and CSPI recognized revenue upon shipment of the software to potential customers, whether or not persuasive evidence existed of an arrangement to purchase the software by the potential customer. 20. California Software recognized as revenue and booked as accounts receivables, shipments of software to potential customers for whom persuasive evidence did not exist of an arrangement to purchase the software, or to potential customers who had never agreed to take the software for evaluation. Proper Accounting For Software Sales 21. Generally accepted accounting principles require that revenue from the sale of software be recognized consistent with AICPA Statement of Position ("SOP") 97-2, which contains specific guidance on when a company may recognize revenue from the sale of software. 22. In general, under SOP 97-2 four criteria must be met prior to recognizing revenue for the sale of software: (i) persuasive evidence of an arrangement exists, (ii) delivery has occurred, (iii) the vendor's fee is fixed or determinable, and (iv) collectibility on the sale is probable. 23. Under the revenue recognition method utilized by California Software and CSPI prior to the restatement of the financial statements in September 1999, those companies recognized revenue before persuasive evidence of an arrangement to purchase the software existed and prior to a determination that collectibility on the sale was probable. 24. In the notes to California Software's restated financial statements which were included in the amended Form 10-KSB for December 31, 1999, filed with the Commission on or about October 18, 2000, California Software admitted that SOP 97-2 applied to its method of revenue recognition, and that the previous financial statements filed by the company did not comply with GAAP. Acacio's Role in the Violations 25. Acacio and another individual purchased CSPI in December 1996. In October 1998, Acacio and another individual incorporated California Software for the purpose of creating a publicly held company, with the intent of merging CSPI's operations into California Software. In January 1999, California Software merged with CSPI and took over its operations. 26. From the date of his acquisition of CSPI to the present, Acacio has been the chief executive officer and chairman of the board of directors of CSPI and California Software. Acacio acted as president of those companies from the date of his acquisition of CSPI until June 2000, when Acacio assigned the title and responsibilities of president to another individual. 27. In his capacity as chief executive officer, president and chairman of the board of directors of California Software, Acacio had the responsibility to ensure that the filings California Software filed with the Commission were accurate and contained all material information. Moreover, Acacio had specifically assigned to himself the duties and responsibilities pertaining to the accounting functions of California Software and he personally supervised the activities of that department of the company. 28. Although Acacio did not personally prepare the Filings California Software filed with the Commission, Acacio was responsible for the contents of those Filings. 29. As evidence of such responsibility, the securities laws require Acacio to manually sign a signature page to the reports filed with the Commission, and California Software is required to keep an original copy of the signature page in the company's files, and to make the original signature page available to staff of the Commission, upon request. 30. With respect to the Filings referenced in this case, Acacio did not sign any of the filings filed with the Commission at or before the time of their filing, and California Software does not have manually signed signature pages in its files for any of the Filings California Software filed with the Commission, and could not produce such to the Commission's staff when requested. 31. Once California Software began filing documents and reports with the Commission, Acacio bore the responsibility to ensure that the company's books and records accurately and fairly reflected the transactions and dispositions of the company's assets, and that the company's internal accounting controls were sufficient to provide reasonable assurances that, among other things, the company's financial statements are prepared in conformity with GAAP. 32. Since California Software became a reporting company, Acacio has failed to ensure that its books and records accurately and fairly reflected the transactions and dispositions of the company's assets, and its internal accounting controls were sufficient to provide reasonable assurances that, among other things, the company's financial statements are prepared in conformity with GAAP. FIRST CLAIM FOR RELIEF Acacio Violated Sections 17(a)(2) and (3) of the Securities Act [15 U.S.C. § 77q(a)(2) and (3)] 33. Paragraphs 1 through 32 are realleged and incorporated by reference herein. 34. Section 17(a)(2) and (3) makes it unlawful for any person in the offer or sale of any securities by the use of any means of interstate commerce or the mails: a. to obtain money or property 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; or b. to engage in any transaction, practice, or course of business which operates or would operate as a fraud or deceit upon the purchaser. 35. By reason of the foregoing, Acacio violated Sections 17(a)(2) and (3) of the Securities Act [15 U.S.C. §§ 77q(a)(2) and (3)]. SECOND CLAIM FOR RELIEF Acacio Aided and Abetted California Software's Violations of Section 13(a) of the Exchange Act [15 U.S.C. § 78m(a) and Rules 12b-20, 13a-1 and 13a-13 [ 17 C.F.R. 240. §§ 12b-20, 13a-1 and 13a-13] 36. Paragraphs 1 through 35 are realleged and incorporated by reference herein. 37. Section 13(a) and Rules 12b-20, 13a-1 and 13a-13 require companies filing registration statements and periodic reports with the Commission to file truthful reports that do not omit information that would otherwise make the information contained in the filings not misleading. 38. By reason of the foregoing, Acacio caused California Software's violations of Section 13(a) and Rules 12b-20, 13a-1 and 13a-13. THIRD CLAIM FOR RELIEF Acacio Aided and Abetted California Software's Violations of Section 13(b)(2) of the Exchange Act [15 U.S.C. § 78m(b)(2)] and Directly Violated Rules 13b2-1 and 13b2-2 [17 C.F.R. 240. §§ 13b2-1 and 13b2-2] 39. Paragraphs 1 through 38 are realleged and incorporated by reference herein. 40. Section 13(b)(2) of the Exchange Act [15 U.S.C. § 78m(b)(2)] requires reporting companies to: a. maintain books and records that accurately and fairly reflect the transactions and dispositions of the company's assets; and b. establish internal accounting controls that are sufficient to provide reasonable assurances that, among other things, the company's financial statements are prepared in conformity with GAAP. 41. Rule 13b2-1 [17 C.F.R. § 240.13b2-1] prohibits any person from, directly or indirectly, falsifying or causing to be falsified, any book, records or account subject to Section 13(b)(2)(A) of the Exchange Act [15 U.S.C. § 78m(b)(2)(A)]. 42. Rule 13b2-2 [17 C.F.R. § 240.13b2-2] prohibits any director or officer of an issuer from, making or causing any materially false or misleading statements, or omitting to state, or causing the omission of, material facts to accountants in connection with any audit or examination, or the preparation or filing of any report required to be filed with the Commission. 43. Based on the foregoing, Acacio aided and abetted California Software's violations of 13(b)(2) and directly violated Rules 13b2-1 and 13b2-2 thereunder. FOURTH CLAIM FOR RELIEF Acacio Aided and Abetted California Software's Violation of Rule 12b-11 [17 C.F.R. § 240.12b-11] 44. Paragraphs 1 through 43 are realleged and incorporated by reference herein. 45. Rule 12b-11 under the Exchange Act [17.C.F.R. § 240.12b-11] (the "Rule") requires that when reports filed with the Commission are required to be signed, the signatory to the filing shall manually sign a signature page authenticating, acknowledging or otherwise adopting the signature that appears on the filing. The Rule further requires that the signature be made at or before the time of the filing, retained by the filer and furnished to the Commission or its staff upon request. 46. As set forth at length above, California Software did not maintain a manually signed signature page, as required by The Rule. Acacio was the officer who was responsible for signing or otherwise adopting the signature that appears on the filing. 47. Based on the foregoing, Acacio aided and abetted California Software's violation of Rule 12b-11 [17 C.F.R. § 240.12b-11]. PRAYER FOR RELIEF WHEREFORE, Plaintiff Commission respectfully requests that this Court enter judgment against defendant Acacio: 1) enjoining him from violations of Sections 17(a)(2) and (3) of the Securities Act and Rules 13b2-1 and 13b2-2 promulgated under the Exchange Act; 2) enjoining him from aiding, abetting and causing violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-11, 12b-20, 13a-1 and 13a-13 thereunder; 3) ordering him to pay civil penalties pursuant to Section 20(d) of the Securities Act and Section 21(d)(3) of the Exchange Act; and grant such other relief as this Court deems just and proper.
http://www.sec.gov/litigation/complaints/complr17292.htm
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