Raintree Healthcare Corporation, formerly known as Unison HealthCare Corporation

Securities Exchange Act of 1934
Release No. 41925 / September 28, 1999

Accounting and Auditing Enforcement
Release No. 1162 / September 28, 1999

Administrative Proceeding
File No. 3-10036

_________________________________
                                 :
    In the Matter of             :
                                 :
                                 : ORDER INSTITUTING PROCEEDINGS
  RAINTREE HEALTHCARE            : PURSUANT TO SECTION 21C OF
 CORPORATION, formerly known     : SECURITIES EXCHANGE ACT OF
   as Unison HealthCare          : 1934 AND RULE 102(e) OF
   Corporation, and              : COMMISSION'S RULES OF PRACTICE, 
   LISA M. BEUCHE,               : MAKING FINDINGS, IMPOSING
                                 : SANCTIONS, AND IMPOSING A
    Respondents.                 : CEASE-AND-DESIST ORDER
_________________________________:

I.

The Securities and Exchange Commission deems it appropriate and in the public interest that proceedings be, and hereby are, instituted against Raintree HealthCare Corporation, formerly known as Unison HealthCare Corporation, pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), and against Lisa M. Beuche pursuant to Section 21C of the Exchange Act and Rule 102(e) of the Commission's Rules of Practice.¹

II.

Raintree and Beuche have submitted Offers of Settlement to the Commission in anticipation of the institution of this administrative proceeding. The Commission has determined that it is appropriate and in the public interest to accept their Offers of Settlement. Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings herein, except that Raintree and Beuche admit the jurisdiction of the Commission over them and over the subject matter of this proceeding, Raintree and Beuche consent to the entry of this Order Instituting Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, Imposing Sanctions, and Imposing a Cease-and-Desist Order (the "Order").

III.

On the basis of this Order and Raintree's and Beuche's Offers of Settlement, the Commission makes the following findings:²

A. RESPONDENT

1. Raintree HealthCare Corporation, formerly known as Unison HealthCare Corporation, owned and operated more than 50 health care facilities in 1996. Unison, a Delaware corporation with principal executive offices in Scottsdale, Arizona, registered its securities with the Commission under Section 12(g) of the Exchange Act. Unison's common stock was listed for trading on the NASDAQ National Market System. Unison filed for bankruptcy reorganization in May 1998, and subsequently changed its name to Raintree.

2. Lisa M. Beuche, the controller, was responsible for operations and financial reporting at Unison. Beuche currently serves as vice president for financial reporting at Raintree, Unison's successor. Beuche, a licensed CPA in the State of Washington, currently resides in Arizona.

B. OTHERS

1. The CEO, who served as Unison's president and as a board member, resigned from his positions at the board's request in April 1997. The CEO is a defendant in a separate injunctive action that the Commission has filed in federal district court, and has consented to the entry of an injunction against him. The CEO, a licensed CPA, has also consented to the institution of an administrative action pursuant to Rule 102(e) of the Commission's Rules of Practice.

2. The CFO, who also served as a member of Unison's board, resigned from both positions at the board's request in March 1997. The CFO, a licensed CPA, is a defendant in a separate injunctive action that the Commission has filed in federal district court.

C. SUMMARY

This matter involves materially misstated quarterly reports filed by Unison HealthCare Corporation, a regional health care provider now known as Raintree HealthCare Corporation. Officers of Unison made unsupported adjustments in financial accounting records that materially inflated Unison's net income for two consecutive quarters in 1996. Unison's CEO and Beuche, acting at the CEO's direction, made an unsupported journal entry that materially increased Unison's Medicare revenue for the second quarter of 1996. The CEO, the CFO, and Beuche, acting at the direction of the CEO and the CFO, made unsupported journal entries that materially increased Medicare receivables and materially decreased expenses for the third quarter of 1996.

In a letter to Unison's auditors, the CEO knowingly misrepresented that Unison's financial statements fairly presented its financial condition, results of operations, and cash flows, and that the statements had been prepared in accordance with Generally Accepted Accounting Principles (GAAP). Beuche signed the letter knowing that the financial statements contained adjustments to net income that lacked an adequate basis.

Significantly, the unsupported adjustments to net income enabled Unison to publicly report positive earnings in line with analysts estimates for the second quarter of 1996 and its own announced estimates for the third quarter of 1996. Together, these unsupported accounting entries materially increased Unison's reported revenue by nearly $6 million. Unison later restated its results of operations to report a pretax loss of nearly $15 million for the nine-month period that included both quarters.

D. FACTS

1. Second Quarter 1996

For Unison's second quarter of 1996, which ended June 30, analysts were predicting that Unison would report net income of approximately $0.21 per share. One day before Unison was to announce second quarter earnings, Beuche generated a profit and loss statement from Unison's ledgers. This statement of operations, time stamped "7/31/96 3:46 pm," showed Unison's second quarter net income to be only $54,000, or $0.00 per share. Beuche gave the document to the CEO, who reviewed it and wrote on it "as is w/ Medicare" to indicate that the figures had come from Unison's ledgers.

The CEO instructed Beuche to prepare another statement of operations containing an additional $800,000 of income. Beuche prepared a new statement of operations, which was time stamped "7/31/96 3:58 pm." This second statement of operations showed revised net income of $851,000 and earnings per share of $0.206. The CEO wrote "what it takes" on the second statement of operations and instructed Beuche to make the adjustment increasing Medicare revenue by $800,000. Beuche told the CEO that she was uncomfortable in recording the adjustment because she was not shown the documentary support for it. The CEO responded that his number was the number that Unison was going to report. Beuche acquiesced and prepared a journal entry on Unison's books increasing the Medicare revenues by $800,000.

The next day, Unison issued a press release announcing net income of $851,000 and earnings of $0.21 per share for the quarter ended June 30, 1996. Unison thereafter filed a Form 10-Q with the Commission reporting net income of $851,000 for the quarter. The $800,000 adjustment lacked support in the company's records, and permitted Unison to report second quarter earnings in line with analysts' estimates. Unison later restated its results of operations, reversing the $800,000 adjustment to Medicare revenues.³

2. Private Note Offering

At the end of October 1996 Unison completed a $100 million note offering. Although the offering was private, the indenture required Unison to file a registration statement with the Commission. Accordingly, Unison needed to include the previous year's audit report in the registration statement. This also meant that Unison's auditors needed to conduct a post-report review.

In connection with the auditors' post-report review, the CEO prepared a letter to the auditors that falsely represented that Unison's June 30, 1996 financial statements fairly presented Unison's financial condition, results of operations, and cash flows, and that the statements had been prepared in accordance with GAAP. The CEO made those representations knowing that Unison's second quarter financial statements had materially overstated net income by virtue of the false $800,000 revenue adjustment, and that Unison therefore had not prepared the June 30 financial statements in accordance with GAAP. Beuche signed the letter knowing that financial statements contained adjustments to net income that lacked an adequate basis.

3. Third Quarter 1996

Analysts were estimating that Unison would earn $0.36 per share for the third quarter, which ended September 30, 1996. During September 1996, however, Unison announced that it was expecting third quarter earnings to be somewhat smaller: $0.28 to $0.31 per share before a $4 million one-time charge.

In early November 1996, a few days before Unison was to report third quarter earnings, the CEO, the CFO, and Beuche met in the CEO's office to discuss Unison's third quarter financials. Beuche produced a profit and loss statement that showed a loss for the quarter. Beuche told the CEO and the CFO that she did not have confidence in the figures that she had generated from Unison's third quarter ledgers because not all accounts had been reconciled.

The CEO excused Beuche from the room, saying, according to the CFO, that Beuche did not need to see "how sausage is made." The CEO then jotted down figures from the profit and loss statement and added certain adjustments to arrive at a net income figure. On a separate sheet of paper the CEO wrote "1,225,372 = 29.8¢," a reference to net income and earnings figures for the quarter.

The CEO and the CFO asked Beuche to rejoin their meeting, whereupon the CEO gave Beuche the sheet of paper on which he had written the revised figures. Saying "here's the numbers we need to get to," the CEO instructed Beuche to report the numbers as Unison's third quarter net income and earnings figures. Unconcerned about what specific adjustments should be made to achieve the desired earnings, the CEO added, "I don't care how we get there."

Beuche told the CEO and the CFO that she was uncomfortable with the support for the numbers. The CEO and the CFO directed Beuche to make the adjustments and told her that they would assume responsibility for the accuracy of the figures. Later, the CEO told Beuche, "well, we [have] just come off a road show [for the $100 million note offering], we can't report a loss." The revised figures were consistent with Unison's September 1996 announcement that it expected third quarter earnings to be in the $0.28 to $0.31 range.

Neither the CEO nor the CFO told Beuche how they had arrived at the adjusted net income and earnings figures. After the meeting, Beuche asked the CFO what adjustments she should make to Unison's accounting records. The CFO told Beuche to increase revenue by the amount listed on a document called the "Medicare mini-cost report."⁴ The mini-cost report, however, showed that Unison already had booked $3.391 million more in Medicare revenue than it would collect at year's end. Beuche nonetheless followed the CFO's instruction and calculated Unison's net income with an additional $3.391 million.

That increase in Medicare revenue alone was not sufficient to increase Unison's earnings by the amount the CEO and the CFO had determined, but the CFO instructed Beuche not to increase Medicare revenue any further. Unison had told analysts that its goal was to achieve a 60% quality mix -- a measure of performance showing the proportion of revenues derived from non-Medicaid sources -- by the end of 1997. Had Unison recorded a significantly greater increase in Medicare revenues, it would have reached or exceeded that target much earlier than expected. Therefore, Unison needed to record an additional $1.7 million in net income in order to reach an earnings figure of $0.30. Accordingly, Beuche plugged the difference by making an adjustment reducing expenses by $1.7 million.

Beuche instructed a subordinate to record two separate journal entries that increased Unison's net income by just enough to reach the target earnings figure. The first entry recorded the $3.391 million in Medicare revenue and receivables.⁵ The second entry recorded a $1.7 million reduction in Unison's accounts payable. Beuche included a note in each journal entry that the adjustment was being made to "record September allocations per [the CFO]."

Unison included the artificially increased net income in its Form 10-Q for the period ended September 30, 1996, reporting net income of $1.227 million and earnings of $0.30 per share. The $3.391 million and $1.7 million adjustments, which lacked any support whatsoever, allowed Unison to report third quarter net income and earnings in line with its own announced estimates. Unison later restated its results of operations, reversing the $3.391 million adjustment to revenues and the $1.7 million adjustment to expenses.

4. The Restatement

On March 11, 1997, Unison announced that it intended to restate results of operations for the nine-month period ended September 30, 1996 by an estimated pretax amount of five or six million dollars. Unison's stock price immediately dropped from $9.625 to $5.235 per share that day, a decline of more than 40%. In May 1997, Unison announced that it would restate the results of operations for the nine months ended September 30, 1996 from pretax income of $328,000 to a pretax loss of almost $15 million.

In November 1997 Unison filed a Form 10-Q reporting a pre-tax loss of $17 million ($2.73 per share) for the third quarter of 1996, and a pre-tax loss of $14.4 million ($2.43 per share) for the nine-month period ended September 30, 1996. Unison also filed a Form 10-K reporting a pre-tax loss of $31.794 million for the fiscal year ended December 31, 1996.

Unison's board of directors promptly brought this matter to the Commission's attention, and removed the CEO and the CFO.

E. LEGAL DISCUSSION

1. Unison

Issuers must file accurate quarterly reports with the Commission pursuant to Section 13(a) of the Exchange Act and Rule 13a-13 thereunder. See SEC v. Savoy Industries Inc., 587 F.2d 1149 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). Rule 12b-20 requires that an issuer's statements and reports contain all information necessary to ensure that statements made in them are not materially misleading. Scienter is not necessary to establish a violation of Section 13(a).

To comply with Rule 13a-13 and Regulation S-X, an issuer's Form 10-Q filings must include financial statements that have been prepared in accordance with Generally Accepted Accounting Principles ("GAAP"). Under GAAP, an issuer's financial statements are complete only when they contain all material information necessary to represent validly the underlying events and conditions. See FASB Statement of Financial Accounting Concepts 2, ¶ 79. GAAP defines assets as probable future economic benefits obtained or controlled by a particular entity as a result of past transactions or events, and liabilities as probable future sacrifices of economic benefits arising from present obligations to transfer assets or to provide services as a result of past transactions or events. An asset's probable future benefit contributes directly or indirectly to net cash inflows.

Here, there was no underlying support for the Medicare receivables recorded through the journal entries, and Unison could not receive any future net cash inflows from them. Therefore, Unison improperly recorded Medicare receivables of $800,000 in the second quarter and $3.391 million in the third quarter that did not meet the definition of an asset. Similarly, the $1.7 million adjustment reducing accounts payable in the third quarter failed to reflect Unison's actual liabilities. See FASB Statement of Financial Accounting Concepts 6. Thus, Unison's financial statements for the second and third quarters of 1996 were not prepared in accordance with GAAP.

The adjustment to Unison's second quarter financial statements artificially inflated net income by a material amount. The $800,000 adjustment was material because it boosted Unison's quarterly net income from a relatively insignificant $54,000, or $.00 per share, to a substantial gain of $851,000, or $.21 per share. The $800,000 adjustment lacked support in the company's records, and permitted Unison to report second quarter earnings in line with analysts' estimates. Therefore, Unison's Form 10-Q filing for the second quarter of 1996 was materially false and misleading.

Similarly, the adjustments to Unison's third quarter financial statements artificially inflated net income by material amounts. The $3.391 million adjustment to revenues and the $1.7 million adjustment to expenses were material because they enabled Unison to report positive net income of $1.2 million, or $.30 per share, rather than a loss of almost $4 million. The $3.391 million and $1.7 million adjustments, which lacked any support whatsoever, allowed Unison to report third quarter net income and earnings in line with its own announced estimates. Therefore, Unison's Form 10-Q filing for the third quarter of 1996 was materially false and misleading.

The financial statements that Unison included in its Forms 10-Q for the second and third quarters of 1996 overstated net income by material amounts. Accordingly, Unison violated Section 13(a) of the Exchange Act and Rule 13a-13. Unison's successor, Raintree, has submitted an offer of settlement whereby it consents to the issuance of this Order compelling it to cease and desist from committing or causing any violation of Section 13(a) of the Exchange Act and Rule 13a-13.

2. Beuche

Section 13(b)(5) of the Exchange Act proscribes the circumvention of or the failure to implement an issuer's system of internal accounting controls, or the knowing falsification of any book, record, or account subject to Section 13(b)(2)(A).⁶Rule 13b2-1 prohibits any person from falsifying or causing the falsification of any book, record, or account subject to Section 13(b)(2)(A). Rule 13b2-2 prohibits officers and directors from making materially false statements or omissions to accountants in connection with any audit or examination of financial statements, or in preparing any document or report filed with the Commission.

As Unison's controller, Beuche had responsibility for Unison's filings with the Commission. Beuche was aware of problems in Unison's new internal accounting system, and she doubted the accuracy of the statement of operations she had prepared from Unison's ledgers. Beuche was uncomfortable with her superiors' instructions to make adjustments increasing Unison's net income by unsupported, material amounts. Nonetheless, abdicating her own responsibility, Beuche followed the directions of her superiors and made the adjustments for two consecutive quarters.

Beuche also made materially misleading statements to Unison's auditors. In connection with the October 1996 note offering, Beuche represented that Unison's second quarter 1996 financial statements fairly presented Unison's financial condition, results of operations, and cash flows, and that Unison had prepared those statements in accordance with GAAP. At that time, Beuche knew that the $800,000 adjustment to Medicare revenue did not have adequate support.

In view of the foregoing, Beuche willfully violated Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2, and was a cause of and willfully aided and abetted Unison's violations of Section 13(a) of the Exchange Act and Rule 13a-13. Beuche has submitted an offer of settlement whereby she would consent to the issuance of this Order compelling her to cease and desist from committing or causing any violation of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2, from causing any violation of Section 13(a) of the Exchange Act and Rule 13a-13, and denying her the privilege of appearing or practicing before the Commission as an accountant pursuant to Rule 102(e) of the Commission's Rules of Practice.

IV. FINDINGS

On the basis of this Order and the Offers of Settlement that Raintree and Beuche have submitted, the Commission finds that Unison, now known as Raintree, violated Section 13(a) of the Exchange Act and Rule 13a-13.

The Commission further finds that Beuche, a certified public accountant licensed in the State of Washington, willfully violated Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2, and caused and willfully aided and abetted Unison's violations of Section 13(a) of the Exchange Act and Rule 13a-13.

V. ORDER

Based on the foregoing, the Commission deems it appropriate and in the public interest to accept Raintree's and Beuche's Offers of Settlement. In determining to accept the Offers of Settlement, the Commission considered the remedial acts that Raintree promptly undertook and the cooperation it afforded the Commission staff.

Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Raintree cease and desist from committing or causing any violation and any future violation of Section 13(a) of the Exchange Act and Rule 13a-13.

IT IS FURTHER ORDERED, pursuant to Section 21C of the Exchange Act, that Beuche cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2, and from causing any violation or any future violation of Section 13(a) of the Exchange Act and Rule 13a-13.

IT IS FURTHER ORDERED, effective immediately, that:

A. Beuche be, and hereby is, denied the privilege of appearing or practicing before the Commission as an accountant.

B. Two (2) years from the date of this Order, Beuche may apply to the Commission by submitting an application to the Office of the Chief Accountant requesting that she be permitted to resume appearing or practicing before the Commission as:

1. a preparer or reviewer, or a person responsible for the preparation or review, of financial statements of a public company to be filed with the Commission upon submission of an application satisfactory to the Commission in which Beuche undertakes that, in her practice before the Commission, her work will be reviewed by the independent audit committee of the company for which she works or in some other manner acceptable to the staff of the Commission.

2. an independent public accountant upon submission of an application to the Office of the Chief Accountant of the Commission containing a showing satisfactory to the Commission that:

(a) Beuche, or any firm with which she is or becomes associated in any capacity, is and will remain a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") as long as she appears or practices before the Commission as an independent accountant;

(b) Beuche, or any firm with which she is or becomes associated, has received an unqualified report relating to her or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and

(c) Beuche will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education, as long as she appears or practices before the Commission as an independent public accountant.

C. The Commission's review of any request or application by Beuche to resume appearing or practicing before the Commission may include consideration of, in addition to the matter referred to above, any other matters relating to Beuche's character, integrity, professional conduct, or qualifications to appear or practice before the Commission.

By the Commission.

_______________________

Jonathan G. Katz
Secretary

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Footnotes

-[1]-Paragraph 1 of Rule 102(e) provides in relevant part that:

The Commission may . . . deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter . . . (iii) [t]o have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder.

-[2]- The findings herein are made pursuant to Raintree's and Beuche's Offers of Settlement, and are not binding on any other person or entity in this or any other proceeding.

-[3]- Unison reported a pre-tax loss of nearly $15 million for the nine-month period that included the second quarter 1996. It did not determine the extent of the loss, if any, that should have been recorded for the second quarter alone.

-[4]-The mini-cost report identified the Medicare revenue that Unison had booked and the Medicare reimbursements it expected to receive at year's end.

-[5]-As mentioned above, the mini-cost report disclosed that Unison had already overbooked Medicare revenue and receivables by $3.391 million, and therefore indicated that an entry should have been made to Unison's books and records reducing Medicare revenue and receivables by $3.391 million. Consequently, the $3.391 million journal entry effectively boosted Unison's revenue by twice that amount, or $6.782 million.

-[6]-Section 13(b)(2)(A) of the Exchange Act requires issuers to make and keep books, records, and accounts that accurately reflect the transactions and dispositions of their assets.