UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 39931 / April 30, 1998 Accounting and Auditing Enforcement Release No. 1030 / April 30, 1998 Administrative Proceeding File No. 3-9594 _______________________________________ : In the Matter of :ORDER INSTITUTING PROCEEDINGS :AND OPINION AND ORDER Leslie Danish, CPA :PURSUANT TO RULE 102(e) OF THE :COMMISSION'S RULES OF PRACTICE Respondent. : : ______________________________________ : I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Leslie Danish ("Danish"), a certified public accountant, pursuant to Rule 102(e)(1)(ii)[1] of the Commission's Rules of Practice. In anticipation of the institution of this administrative proceeding, Danish has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. 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 without admitting or denying the findings or conclusions set forth herein, except that he admits the Commission's jurisdiction over him and the subject matter of these proceedings, Danish consents to the issuance of this Order, the entry of the findings and conclusions contained herein, and the imposition of the sanction set forth below. Accordingly, IT IS ORDERED that proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice be, and hereby are, instituted. II. On the basis of this Order and the Offer of Settlement submitted by Danish, the Commission makes the following findings[2]: BACKGROUND 1.Towers Financial Corp. ("Towers") was a Delaware corporation with its principal place of business in New York.[3] Beginning in July 1990, Towers formed a series of five subsidiaries, named Towers Healthcare Receivables Funding Corporations I through V ("Funding Corporations"). Between July 1990 and July 1992, the Funding Corporations sold approximately $210 million of bonds to 27 institutions ("Bonds"). Towers and the Funding Corporations filed for protection under Chapter 11 of the Bankruptcy Code in March 1993; a trustee was appointed under Chapter 11 in April 1993 ("Chapter 11 Trustee"). The Chapter 11 Trustee determined that the Funding Corporations' FY 1992 financial statements materially overstated the Funding Corporations' assets and income. The Chapter 11 Trustee determined that the Funding Corporations' advances to healthcare providers as of June 30, 1992, had a net realizable value of only $28.5 million, $126.5 million less than the originally reported balance.[4] The Chapter 11 Trustee attributed $37 million of the necessary write- off of uncollectible advances to the income statement for FY 1992, changing income of $1.3 million into a $35.7 million loss. 2.Leslie A. Danish, ("Danish") is a partner in the audit department of Richard A. Eisner, LLP (the "Firm"), and served as the engagement partner for the Firm's audits of the Funding Corporations for their fiscal years ended on June 30, 1991, and June 30, 1992. Danish is a certified public accountant in the state of New York. SUMMARY 3.The Funding Corporations raised funds through private offerings to institutional investors ("Bondholders") purportedly for the purchase of accounts receivables from Towers, which, in turn, was to acquire the accounts receivable from healthcare providers (e.g., doctors, medical group practices and hospitals) ("Healthcare Receivables"). The $210 million in bonds issued by the five Funding Corporations purported to be "asset-backed," or fully secured by Healthcare Receivables. The Funding Corporations' financial statements for the year ended June 30, 1992 reported $300 million in purchased Healthcare Receivables as assets. The Funding Corporations reported cash advanced to Towers of $155 million toward the purchase of the Healthcare Receivables, with the deferred portion of the purchase price, or $145 million, reported as a liability to Towers. Thus it appeared from the FY 1992 financial statements that the Funding Corporations had purchased Healthcare Receivables from Towers to collateralize the Bonds, as required by indentures governing the Funding Corporations' activities. The balance of bond proceeds was reported as a receivable from Towers (see  20 infra) and cash. 4.The Firm audited, and issued reports dated October 23, 1992, which contained unqualified opinions on the Funding Corporations' FY 1992 financial statements. The Firm included in the reports an "emphasis of a matter" fourth paragraph, which referred to notes in the financial statements relating to, among other things, certain operating restrictions imposed by indentures to which the Funding Corporations were a party, and actual and potential violations by the Funding Corporations of certain of those restrictions. 5.The FY 1992 financial statements departed from generally accepted accounting principles ("GAAP") as a result of the failure to account properly for disbursements to certain healthcare providers, which were loans and not advances on the purchase price of Healthcare Receivables, and the failure to provide an allowance for doubtful accounts on such loans. The carrying value of these loans was impaired because (a) the providers did not have the financial wherewithal to repay the loans, and (b) there was inadequate collateral for the loans. A substantial portion of the Healthcare Receivables and other assets collateralizing the loans were worthless. Danish, the engagement partner for each audit, was responsible for the Firm's issuance of the unqualified audit reports on the Funding Corporations' FY 1992 financial statements. The Firm's audit reports erroneously stated that the financial statements were prepared in conformity with GAAP and that the audits had been conducted in accordance with Generally Accepted Auditing Standards ("GAAS"). THE FUNDING CORPORATIONS' MISUSE OF BOND PROCEEDS AND FALSE FINANCIAL STATEMENTS 6.The Funding Corporations were special-purpose corporations established by Towers to finance the purchase of Healthcare Receivables. Towers was primarily a collection agency that was purportedly already engaged in the purchase of Healthcare Receivables prior to the formation of the Funding Corporations, having represented to purchasers of promissory notes issued by Towers that Towers was buying receivables from healthcare providers with proceeds from the promissory notes. In fact, Towers was spending the proceeds of the promissory notes to pay the principal and interest on the promissory notes and for, among other things, extravagant salaries, benefits and other perquisites for Towers officers, including Hoffenberg, Rosoff, Brater, and Chugerman, 7.Towers conducted the business of the Funding Corporations, which had no employees of their own. Bondholders were informed that Towers would (a) locate healthcare providers in need of financing; (b) enter into contracts with these providers to purchase their claims for patient services payable by insurance companies and other third-party obligors (i.e., Healthcare Receivables); (c) sell the purchased Healthcare Receivables to the Funding Corporations; and (d) perform all collection and record-keeping services related to the Healthcare Receivables. Thus Towers received cash from the Funding Corporations and third-party payors, allocated Healthcare Receivables among the Funding Corporations, controlled record-keeping and data- processing relating to the Funding Corporations, and prepared financial statements for the Funding Corporations, among other things. 8.By virtue of their control of the Funding Corporations and their activities, Towers officers were able to divert funds from the Funding Corporations, and use them in ways not permitted by indentures and other contracts ("Governing Agreements") designed to protect the Bondholders' investments. According to the Governing Agreements and representations to Bondholders, Towers was supposed to purchase qualifying Healthcare Receivables from the healthcare providers, using monies provided by the Funding Corporations, on the following terms: at the time of the purchase, Towers was to make an initial payment of 50% of the agreed-upon value of the Healthcare Receivables. Thus for each $1 of Bondholder funds paid, the Funding Corporation was to purchase $2 of qualified Healthcare Receivables. When the receivable was collected (i.e., a third-party obligor such as an insurance company paid the amount owed), the Funding Corporations would pay the remainder of the purchase price to Towers. Towers in turn would remit this sum, less the Funding Corporations' 5% fee, to healthcare providers. The Funding Corporations were obligated to Towers for a 2% origination fee (based on the realized value of receivables) and a monthly servicing fee of 1/12 of 2% of the stated value of purchased receivables. The agreements specified that no more than 10% of the purchased receivables could have service dates over 90 days old. Towers officers, who were also officers of the Funding Corporations, caused the Funding Corporations to make disbursements to Towers for purposes other than the purchase of Healthcare Receivables, in violation of the Governing Agreements, as discussed in detail in the next section. Towers regularly used a portion of the Funding Corporations' cash to pay Towers' ongoing expenses, and commingled it with the cash Towers had raised from its own promissory note program. 9.As part of their fraudulent scheme, Towers officers, including at least Hoffenberg, Rosoff and Chugerman, failed to disclose or misrepresented to Danish and other members of the audit team the actual use of the Funding Corporations' cash, and certain other violations of the Governing Agreements. In addition, Towers officers, including at least Chugerman, induced certain third parties, i.e., healthcare providers, to collude with Towers in undermining part of the audit confirmation process. See  32 infra. UNDER-COLLATERALIZED LOANS TO TUSTIN AND NORTH DETROIT 10.Towers made very sizable loans to at least two financially distressed healthcare providers, Tustin Health Group, Inc. ("Tustin") and North Detroit General Hospital ("North Detroit"), instead of purchasing receivables from them on the terms required by the Governing Agreements. Towers charged Tustin and North Detroit monthly interest based on the outstanding loan balances. The amounts of cash disbursed to Tustin and North Detroit far exceeded their ability to repay the loans. Healthcare Receivables and other assets obtained from these borrowers as security for the loans had a value far less than the amounts of the loans. 11.Tustin: Tustin operated an acute-care psychiatric hospital in California formerly owned by a public company, Healthcare International Inc. ("Healthcare Inc."). In July 1990, Tustin entered into purchase and lease agreements with Healthcare Inc. Pursuant to these agreements, Tustin acquired the facility's operating assets and leased a building from Healthcare Inc. Tustin's president personally guaranteed Tustin's lease payments to Healthcare Inc., which were also secured by an interest in real estate he owned. 12.In July 1990, Tustin entered into a Healthcare Purchase Contract with Towers, modified substantially by a letter that committed Towers to advance $1 million upon closing and $600,000 per week to Tustin, without regard to the purchase of Healthcare Receivables. Tustin was never able to generate sufficient revenues to meet its expenses or repay the loans from Towers, which were funded by the Funding Corporations. From July 1990 through November 1991, Tustin reported a cumulative loss of $15.3 million, on revenue of $3.3 million. Tustin defaulted on its lease agreement with Healthcare Inc., which then sought to enforce Tustin's president's personal guarantee and foreclose on the real estate securing the payments. By March 1992, Tustin's debt to Towers had increased to $20 million. As additional security for that debt, Tustin conveyed to Towers a security interest in the same real estate that was already subject to Healthcare's lien (and foreclosure action), namely Tustin's facility, and other real and personal property belonging to Tustin's president. 13.On March 9, 1992, Towers entered into an "Amended and Restated Healthcare Finance Contract," with Tustin whereby Towers made "revolving loans" to Tustin at the monthly interest rate of 2%. As collateral for its loans to Tustin, Towers was granted a security interest in Tustin's operating assets, as well as all of Tustin's receivables, which Towers conveyed to the Funding Corporations. As of June 30, 1992, Tustin's outstanding loan from Towers was $28.8 million, funded by Funding Corporations I and IV. Tustin did not have the financial wherewithal to repay this loan, and the collateral from Tustin and Tustin's president was worth substantially less than $28.8 million. 14.A total of $32 million in stated value of receivables collateralizing the Tustin loan were improperly reported as purchased Healthcare Receivables by Funding Corporations I, IV and V. The stated value of the Tustin receivables was lower than the amount required by the Governing Agreements, i.e., 200% of the cash advanced to Tustin, or $57.6 million. Moreover, included in the $32 million was $25 million in worthless receivables, which were added to the Funding Corporations' purchase registers after the end of the fiscal year. These worthless receivables were reflected on the financial statements of Funding Corporations I ($11.3 million) and IV ($13.7 million). In addition, although Funding Corporation V had not made any disbursements to Tustin, Funding Corporation V reported purchased Healthcare Receivables of $3.8 million from Tustin. 15.Danish failed to obtain sufficient competent evidence to support his conclusion that the financial statements properly presented the $32 million in Tustin Healthcare Receivables, without any allowance for doubtful accounts. First, Danish did not obtain sufficient competent evidence as to the contractual arrangement between Towers and Tustin. As a result, he concurred with the erroneous presentation of the Tustin asset on the financial statements as purchased Healthcare Receivables, rather than as a loan. Second, Danish failed adequately to evaluate the financial ability of Tustin to repay the $28.8 million loan from Towers. Danish knew that (a) a majority of the Tustin Healthcare Receivables were not current and had not been recorded on the Funding Corporations' books until after year end and (b) that there were no collections on the audit sample of the Tustin Healthcare Receivables year-end balance. 16.Other collateral obtained from Tustin, which purportedly ensured collectibility of the Tustin loan, had little or no value. A note to the financial statements of Funding Corporations I, IV and V asserted that the other collateral had an appraised value in excess of $40 million. Danish improperly concluded that the other collateral, such as the security interests referred to in  13 supra, had a value in excess of $40 million, without obtaining sufficient competent evidence as to their value. Danish reviewed an appraisal that related to assets that he should have realized were not the subject of the security interests. 17.North Detroit: North Detroit was an inner-city hospital in Detroit, Michigan, that had been operating at a loss since the mid-1980's, and filed under Chapter 11 of the Bankruptcy Code in July 1991, with Towers as its largest creditor. As the hospital's financial crisis worsened, Towers officers became involved with North Detroit's management, and Hoffenberg, Chugerman and Brater became members of North Detroit's board. On March 30, 1992, Towers agreed to an order entered by the bankruptcy judge overseeing North Detroit's proceeding which directed Towers to loan funds to North Detroit "to pay for goods and services and normal ongoing operating expenses of the debtor on a COD basis." The order provided that all Towers' loans to North Detroit would earn interest at 24% per year. As of June 30, 1992, North Detroit owed Towers $13.5 million, all of it provided by Funding Corporation I. 18.This $13.5 million loan to North Detroit was not reflected on the financial statements of Funding Corporation I. Instead, $32 million of receivables collateralizing the loan were improperly reflected as purchased Healthcare Receivables on the balance sheets of Funding Corporation I ($17.2 million), Funding Corporation III ($10.2 million), and Funding Corporation V ($4.6 million). At least $20.5 million of the North Detroit receivables reflected in the FY 1992 financial statements of Funding Corporations I, III and V were worthless. Moreover, although only Funding Corporation I had made disbursements to North Detroit, Funding Corporations III and V reported a total of $14.8 million in purchased Healthcare Receivables as assets. 19.Danish failed to obtain sufficient competent evidence to support his conclusion that the financial statements properly presented the $32 million of North Detroit Healthcare Receivables, without any allowance for doubtful accounts. First, Danish did not obtain sufficient competent evidence as to the contractual arrangement between Towers and North Detroit. As a result, he concurred with the erroneous presentation of the North Detroit asset on the financial statements as purchased Healthcare Receivables, rather than as a loan. Second, Danish did not obtain sufficient competent evidence supporting North Detroit's financial ability to repay the $13.5 million loan from Towers. Danish knew that North Detroit was in bankruptcy but did not determine North Detroit's ability to repay the loan. Third, Danish did not obtain sufficient competent evidence to support his conclusion that the collateral from North Detroit, namely Healthcare Receivables, had a value of $32 million. Danish knew that (a) $20.5 million in North Detroit receivables had not been submitted to third-party payors (e.g., insurance companies) by October 30, 1992, four months after year end, (b) the majority of these unsubmitted claims reflected Medicare or Medicaid as the obligor, which both reject untimely claims, and (c) total collections on North Detroit receivables (including receivables acquired after year end) during the three- month period following year end were less than $1 million. $22 MILLION RECEIVABLE FROM TOWERS 20.The Funding Corporations' FY 1992 balance sheets improperly included a $22 million loan to Towers at face value, without any allowance for doubtful accounts. This loan from the Funding Corporations to their parent was made in violation of provisions in the indentures restricting the use of proceeds from the bond offerings. The financial statements included a footnote disclosing that cash had been paid to Towers "in advance" of the purchase of any Healthcare Receivables, in violation of the Governing Agreements, and that Towers had undertaken to apply these monies in accordance with the Governing Agreements. Towers, however, did not have the financial wherewithal to repay the $22 million loan because Towers was operating a Ponzi scheme, and had liabilities far in excess of its assets. 21.Danish failed to obtain sufficient competent evidence to support his conclusion that the financial statements properly presented the $22 million receivable from Towers without any allowance for doubtful accounts. In agreeing with this treatment, Danish relied in part on his erroneous conclusion that the receivable from Towers could be offset against larger amounts due to Towers. He also improperly relied in part on draft financial statements for Towers' fiscal year ended on June 30, 1992. Danish knew, or should have known, that Towers' financial statements were not prepared in accordance with GAAP. See example in  35, infra. Finally, while the Funding Corporations' footnote stated that Towers had represented that the $22 million would be applied to the purchase of Healthcare Receivables, as required by the Governing Agreements, Danish did not determine whether these monies had been so applied after year end. OTHER CONDUCT 22.Confirming Existence and Collectibility of Healthcare Receivables: Danish failed to design and require the audit staff to perform procedures that would adequately confirm the existence and collectibility of the $300 million in Healthcare Receivables reflected on the Funding Corporations' year-end balance sheets. The audit staff, under his guidance and supervision, did not confirm the existence of the Healthcare Receivables with the supposed obligors, namely insurance companies and other third- party payors such as Medicare or Medicaid. In the prior year's audits, existence was confirmed with obligors on a sample basis, and the confirmation process had yielded certain negative results. Danish did not assign adequate significance to these negative results from the FY 1991 audits. For the FY 1992 audits, he chose an alternative procedure, which was to confirm the existence of a sample of Healthcare Receivables with the healthcare providers that had purportedly sold them to Towers. This alternative procedure for testing existence was inadequate. Similarly, the audits did not contain any effective procedure for testing the collectibility of the $300 million in reported Healthcare Receivables. For example, with the exception of Tustin (see supra at  15), no procedure was planned or performed to examine actual collections on the year-end balance. 23.In planning the FY 1992 audits, Danish initially considered an additional procedure, namely visits to the largest healthcare providers. After discussing the additional procedure with Towers management, and internally within the Firm, Danish dropped the proposed procedure. 24.Internal Control Weaknesses: Upon completion of the FY 1991 fieldwork, Danish determined that a number of weaknesses in Towers' internal control structure constituted "reportable conditions," as defined in Codification of Statements on Auditing Standards ("AU")  325 ("Communication of Internal Control Structure Related Matters Noted in an Audit"). These weaknesses included a lack of segregation of duties among operations, the accounting process, and computer operations; the lack of a chief financial officer; and inaccurate and inadequate maintenance of financial records, such as general ledgers and purchase registers. There were no improvements in internal controls prior to the beginning of fieldwork for the FY 1992 audits. 25.Danish relied excessively on management's representations, especially those of Chugerman, whom Danish viewed as exercising too much control over Towers' and the Funding Corporations' operations. He accepted, without sufficient skepticism, explanations by Chugerman and other Towers officers as to, among other things, the low level of collections on receivables, the contractual arrangements among Towers and healthcare providers, and the reasons that Towers had recorded $25 million in Tustin receivables months after year end. 26.Anomalous Ratios of Receivables to Disbursements: Danish became aware that the purchase registers of certain of the Funding Corporations reflected Healthcare Receivables that had supposedly been purchased, even though no cash had been disbursed by such Funding Corporations. In other words, there was no correlation between the disbursement of cash by a specific Funding Corporation, and the recording of receivables on that Funding Corporation's purchase register. For example, North Detroit received disbursements only from Funding Corporation I (through Towers), yet receivables originating with North Detroit were reflected on the purchase registers of Funding Corporations I, III, and V. Thus, it appeared that Funding Corporations III and V had obtained receivables with a combined stated value of $14.6 million for no consideration. Similarly, receivables originating with Tustin were reflected on Funding Corporation V's purchase register, even though Funding Corporation V had not disbursed any cash to Tustin. 27.These anomalies should have suggested to Danish that the Governing Agreements were not being complied with in various respects, and that the receivables recorded in the purchase register of a Funding Corporation without the disbursement of any cash were not actually "purchased." Danish erroneously assumed that receivables had been purchased, but that the lack of any cash advance meant that the entire collected amount (less a fee) was owed to providers. Danish and his staff spent an inordinate amount of time addressing the problem of such apparent distortions in the due-to-provider amounts. Danish's solution--a series of adjusting journal entries that affected the "due to parent" (i.e., "due to provider") accounts of four of the Funding Corporations--was based on the erroneous theory that the Funding Corporations could loan monies to each other and were loaning monies to each other, and could and were selling receivables among themselves. Danish adopted this solution even though the law firm that drafted the Governing Agreements opined that such selling or conveying a purchased receivable was not permitted, and the existence of the supposed loans and purchases was not substantiated by any documentation. 28.Re-Aging: The Governing Agreements limited the percentage of older receivables in the Funding Corporations' portfolios, deeming it a "principal amortization event" (leading to default) if the value of Healthcare Receivables owned by any Funding Corporation which were unpaid after 90 days exceeded 10% of the Funding Corporation's Healthcare Receivables. Danish was aware that the Funding Corporations were assigning new ages to older receivables when they reached the 90-day limit. Thus the "re- aged" receivables appeared to be less than 90 days old, in order to avoid triggering a principal amortization event. The "re- aging" of old receivables was disclosed in the Funding Corporations' notes to their financial statements, along with management's justification for the practice, but the disclosure was inadequate. Adequate disclosure would have revealed that the Funding Corporations were exceeding the 10% maximum for receivables over 90 days old, and the existence of a principal amortization event. Danish should have considered the impact of the re-aging on the questions of whether a principal amortization event had occurred, and, in light of the fee structure referred to in  8, supra, whether the Funding Corporations would be able to continue as going concerns. 29.Anomalous Entries in Purchase Register: The purchase registers of the Funding Corporations, which were purportedly lists of all Healthcare Receivables owned by the Funding Corporations as of year end, typically listed, for each provider, individual patient claims. Danish's staff observed that a total of $55 million in Healthcare Receivables appeared on the purchase registers of four Funding Corporations, with only the providers identified, and no detail on individual patients. Danish accepted an explanation by Towers management that there was no detail because the receivables had been purchased at year end and there was no time and insufficient staff to input the details. The purported details on individual patients were subsequently recorded. Danish and his staff learned, however, that the subsequently recorded detail on individual patients did not agree to the provider amount. Instead there were discrepancies (in an amount not identified in the work papers) between the original provider amounts and the totals of detail on individual patients for the providers. These discrepancies were an unexpected result that should have caused Danish to question the reliability of the numbers, and the Funding Corporations' record-keeping. DANISH'S DEPARTURES FROM GAAS 30.GAAS provides that "[d]ue professional care is to be exercised in the performance of the audit and the preparation of the report." AU  150.02. Auditors are required by this standard to exercise reasonable care and diligence. AU  230.03. This standard requires that audits should be planned and performed with an attitude of professional skepticism, especially as to the honesty of a client's management. AU  316.16. As the literature explains, "Management integrity is important because management can direct subordinates to record transactions or conceal information in a manner that can materially misstate financial statements. When approaching difficult-to-substantiate assertions, the auditor should recognize the increased importance of his consideration of factors that bear on management integrity." AU  316.17. 31.Danish relied excessively on management representations, in the high-risk environment of a relatively new business without any meaningful financial controls and a large number of unex- pected findings. Based primarily on management representations, Danish improperly concurred with the Funding Corporations' reporting of the loans to Tustin and North Detroit as purchased healthcare receivables. He failed to exercise reasonable care and maintain an attitude of professional skepticism with regard to the Funding Corporations' transactions with Tustin and North Detroit. 32.The third GAAS standard of field work provides that "sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations. . ." AU  150.02. AU  326.14 defines "evidential matter" supporting the financial statements as the underlying accounting data and all corroborating information available to the auditor. By itself, however, accounting data, such as the Funding Corporations' purchase registers, cannot be considered sufficient support for financial statements. (AU  326.15) Therefore, Danish was required to obtain corroborating evidential matter from sources other than the Funding Corporations, which would support the financial statements. The collusion by Towers management with certain healthcare providers should not have prevented Danish from conducting the audits in accordance with GAAS. 33.Although Danish did seek out some evidential matter during the audits, he did not seek and obtain sufficient, competent evidence to support the absence of an allowance for doubtful accounts for the Tustin and North Detroit loans, as described in paragraphs 10 through 19, supra. Danish's conclusion that there was no need for an allowance for doubtful accounts was not supported by the audit evidence, such as the irrelevant Tustin appraisal, and was contradicted by other information known to Danish, such as the extremely poor financial condition of the providers, inadequate cash collections on Healthcare Receivables, and the Funding Corporations' practice of re-aging receivables. 34.Auditors are required by GAAS to be aware of the possibility that their clients could be committing illegal acts. AU  317.07. If information comes to the auditor's attention that suggests illegal acts that could have a material effect on the financial statements under audit, the auditor should undertake procedures to ascertain whether the illegal act occurred. AU  317.09 and 317.10. The term "illegal acts" refers to violations of laws or governmental regulations by management or employees acting on behalf of the entity. AU  317.02. 35.Danish should have been on notice of the possibility of illegal acts and undertaken sufficient procedures to determine whether illegal acts had occurred, based on the matters discussed above. Moreover, Danish was on notice that the Commission was conducting an investigation that involved Towers' method of revenue recognition and sale of unregistered promissory notes. Danish testified as a witness in that investigation. Danish also knew, or should have known, that Towers' financial statements, which were distributed to the promissory-note purchasers and were represented as conforming with GAAP, did not comport with GAAP, and were prepared by the same accountant who prepared the Funding Corporations' financial statements. These circumstances should have caused Danish to consider whether his clients and Towers were engaging in illegal acts, and also should have caused him to increase his skepticism of management representations. DANISH ENGAGED IN IMPROPER PROFESSIONAL CONDUCT 36.On the basis of Danish's departures from GAAS and the Funding Corporations' departures from GAAP described above, Danish engaged in improper professional conduct, within the meaning of Rule 102(e) of the Commission's Rules of Practice, in connection with his role as engagement partner on the FY 1992 Audits of the Funding Corporations. III. ORDER IMPOSING SANCTIONS Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the offer of settlement submitted by the respondent and accordingly, IT IS HEREBY ORDERED, effective immediately, that: A.Leslie Danish is denied the privilege of appearing or practicing before the Commission as an accountant. B.Eighteen months from the date of this order, Danish may apply to the Commission by submitting an application to the Office of the Chief Accountant which requests that he 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 Danish undertakes that, in his practice before the Commission, his work will be reviewed by the independent audit committee of the company for which he works or in some other manner acceptable to the Commission; 2.an independent accountant upon submission of an application containing a showing satisfactory to the Commission that: a. Danish, or any firm with which he 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 he appears or practices before the Commission as an independent accountant; b.Danish or the firm has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and c.Danish 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 he appears or practices before the Commission as an independent accountant. 3.The Commission's review of any request or application by Danish to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Danish's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. By the Commission. Jonathan G. Katz Secretary **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 of and opportunity for hearing in the matter . . . (ii). . . to have engaged in unethical or improper professional conduct. [2]:The findings herein are solely for the purpose of this proceeding and are not binding on any other person or entity named as a respondent or defendant in any other proceeding. [3]:The Commission brought an action against Towers and certain Towers officers in February 1993, alleging fraud in connection with Towers' massive sales of worthless promissory notes. SEC v. Towers Financial Corp. et al., 93 Civ. 744 (WK) (S.D.N.Y.). Permanent injunctions, by consent, have been entered in this and related cases against Towers' chief executive officer, Steven Hoffenberg ("Hoffenberg"), executive vice president Charles Chugerman ("Chugerman"), and outside auditor, Marvin Basson ("Basson"), who has also been permanently barred from practicing before the Commission. See In the Matter of Marvin E. Basson, CPA, AAER No. 678 (June 13, 1995). In addition, Hoffenberg, Chugerman, Basson, Michael Rosoff (Towers' chief legal officer), Arthur Ferro (Towers' chief financial officer), Mitchell Brater ("Brater") (Towers' chief operating officer) and others have been criminally charged for their participation in the Towers fraud. Hoffenberg, Chugerman, Basson and Ferro have all pleaded guilty. [4]:These figures represent the Funding Corporations' financial condition and results of operation as determined by the Chapter 11 Trustee in January 1994, and do not reflect any collections or losses experienced by the Funding Corporations after January 1994. SERVICE LIST Rule 141 of the Commission's Rules of Practice, 17 C.F.R. 201.141, provides that the Secretary, or another duly authorized officer of the Commission, shall serve a copy of an Order Instituting Proceedings on each person named as a party in the Order. The attached Order Instituting Public Proceedings Pursuant to Rule 102(e) of the Commission's Rules of Practice has been sent to the following parties and other persons entitled to notice: Hon. Brenda P. Murray Chief Administrative Law Judge Securities and Exchange Commission Stop 11-6 450 5th Street, N.W. Washington, D.C. 20549 Securities and Exchange Commission Northeast Regional Office Seven World Trade Center, 13th Floor New York, New York 10048 Attention: Dorothy Heyl Leslie Danish c/o Robert J. Jossen, Esq. Shereff, Friedman, Hoffman & Goodman, LLP 919 Third Avenue New York, New York 10022 Respondent Robert J. Jossen, Esq. Shereff, Friedman, Hoffman & Goodman, LLP 919 Third Avenue New York, New York 10022 Counsel for Respondent Richard Swanson, Esq. Reid & Priest 40 West 57th Street New York, New York 10019 Counsel for Respondent