Danny R. Auerbach, Michael L. Glaser, and James Montgomery, II
SECURITIES EXCHANGE ACT OF 1934
Release No. 42881 / June 1, 2000
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1265 / June 1, 2000
ADMINISTRATIVE PROCEEDING
File No. 3-10042
In the Matter of
Respondent.
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ORDER MAKING FINDINGS AND IMPOSING A CEASE-AND-DESIST ORDER AS TO MICHAEL L. GLASER |
I.
On September 28, 1999, the Securities and Exchange Commission ("Commission") deemed it appropriate that public administrative cease-and-desist proceedings be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Michael L. Glaser ("Glaser").
Following the institution of those proceedings, Glaser submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, Glaser consents to the entry of this Order Making Findings and Imposing a Cease-and-Desist Order ("Order") without admitting or denying the findings set forth herein, except as to the jurisdiction of the Commission over him and over the subject matter of these proceedings, which are admitted.
The Commission has determined that it is appropriate to accept Glaser's Offer and accordingly is issuing this Order.
II.
On the basis of this Order and the Offer, the Commission finds the following:1
A. Computone Corporation ("Computone") is a company headquartered in Alpharetta, Georgia that designs, manufactures and sells computer hardware and software products. Computone's common stock is registered pursuant to Section 12(g) of the Exchange Act.
B. Computone filed with the Commission its April 7, 1995 Form 10-K on July 6, 1995.
C. Glaser, of Tempe, Arizona, is president of CYMA Systems ("CYMA"), a Tempe, Arizona company that develops and markets accounting software.
D. In or about March 1995, Glaser and the Chief Executive Officer ("CEO") of Computone had discussions which resulted in a draft Distributor Agreement between CYMA and Computone during April 1995.
E. On or about March 31, 1995, Glaser sent a letter to the CEO of Computone in which he made clear that CYMA would not purchase or take ownership of the products that Computone would be shipping to it, that CYMA would pay for the products only after it had sold them, and that title and risk would not pass to CYMA because it was accepting the products on consignment. On April 4, 1995, Glaser received a memorandum from Computone entitled "Clarification of Issues Related to the Distribution Agreement Between Computone and CYMA" which confirmed that CYMA would only be obligated to pay for the goods upon resale.
F. On or about April 5 and 6, 1995, Computone and CYMA, respectively, executed a Distributor Agreement, which stated that it was deemed effective as of April 3, 1995. The Distributor Agreement among other things: (1) characterized Computone and CYMA as "Seller and Buyer"; (2) provided that Computone was to sell its products to CYMA for subsequent sale; and (3) provided that title and associated risk of loss or damage of the shipped products was to pass to CYMA when it accepted the products at its Tempe, Arizona location.
G. On or about April 6, 1995, CYMA issued a purchase order to Computone for products invoiced at $206,005.
H. On or about April 21, 1995, Glaser instructed a subordinate to sign and return a confirmation request to Computone's auditors which stated that, among other things, with regard to the product shipped to CYMA pursuant to the April 6, 1995, purchase order, "[t]he balance of $206,005 due Computone Corporation for invoice #39480-I agrees with our records, except as follows:_________."
I. Glaser knew or should have known that the representation in the confirmation request was false because, notwithstanding the Distributor Agreement, CYMA was not obligated to pay Computone until CYMA resold the products.
J. In part as the result of CYMA's response to Computone's auditor's confirmation request, Computone recognized the CYMA/Computone transaction described above as a sale which caused Computone to overstate its FY 1995 reported income from continuing operations by approximately $124,684. In part, this caused Computone to report $126,000 of income from continuing operations for FY 1995 rather than a loss of approximately $435,107.
K. Glaser caused Computone to violate Sections 10(b) and 13(a) of the Exchange Act and Rules 10b-5 and 13a-1, thereunder, as more particularly described in paragraphs II.A through J, above.
III.
In view of the foregoing, it is appropriate to impose the sanction agreed to in the Offer. Accordingly, IT IS HEREBY ORDERED that Glaser cease and desist from committing or causing any violation and any future violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder and from causing any violation and any future violation of Section 13(a) of the Exchange Act and Rule 13a-1 thereunder.
By the Commission.
Jonathan G. Katz
Secretary
Footnote
1 The findings herein are made pursuant to the Offer of Settlement of Glaser and are not binding on any other person or entity named as a respondent in this or any other proceeding.