UNITED STATES OF AMERICA
|In the Matter of
Premier Laser Systems, Inc.
MAKING FINDINGS AND IMPOSING
The Securities and Exchange Commission (the "Commission") deems it appropriate to institute a cease-and-desist proceeding pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Premier Laser Systems, Inc. ("Premier").
In anticipation of the institution of the cease-and-desist proceeding, Premier has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceedings brought by or on behalf of the Commission or to which the Commission is a party, and without admitting or denying the Commission's findings, except the Commission's jurisdiction over it and over the subject matter of this proceeding, which are admitted, Premier consents to the entry of this Order Instituting Cease-And-Desist Proceeding, Making Findings And Imposing Cease-And-Desist Order ("Order").
ACCORDINGLY, IT IS ORDERED that a cease-and-desist proceeding pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act be, and hereby is, instituted.
On the basis of this Order and the Offer submitted by Premier, the Commission finds that:
Premier is a California corporation with executive offices in Irvine, California. During the relevant period, Premier developed, manufactured and marketed several lines of medical lasers, fiber optic devices and associated products for dental, ophthalmic and surgical applications. On March 11, 2000, Premier filed for Chapter 11 bankruptcy protection. Premier's common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on NASDAQ until April 3, 2000, when it was delisted.
1. Fictitious Customer Order Form Prepared
On December 23, 1997, Premier signed a non-binding letter of intent with Henry Schein, Inc. ("Schein"), pursuant to which Schein agreed to market Premier's dental lasers. The next day, Premier's now-deceased Executive Vice President and acting Vice President of Sales and Marketing (hereinafter referred to as the "Executive Vice President") solicited a laser purchase from Schein. Schein declined the invitation to place an order, however. Nevertheless, sometime during the last week of December 1997, Premier's Executive Vice President directed his staff to prepare a Customer Order Form reflecting Schein's proposed purchase of 100 lasers from Premier. Certain portions of the form inexplicably remained blank, while others apparently were filled in at a later date. Specifically, the space designated for the "Purchaser's Signature" was not signed. Moreover, the Customer Order Form bore an "Order Date" of "12/24/98" rather than 12/24/97. Finally, the "Processor's Signature" block (which would have been completed when the sale was recorded on Premier's books) was dated "9 Jan 98."
2. Lasers Moved to a Warehouse
After Christmas 1997, Premier's Executive Vice President issued orders to ship the lasers that had been designated for Schein to a warehouse. Pursuant to these instructions, Premier arranged for the lasers to be stored at its domestic freight forwarder (hereinafter referred to as the "Freight Forwarder"). On December 29, 1997, the Freight Forwarder moved a truckload of inventory, consisting of 50 boxes of lasers and carts, to its warehouse. The next day, the Freight Forwarder picked up an additional 42 boxes of "Schein" inventory from Premier. Yet, Premier was unable to ship all the lasers designated for Schein to the Freight Forwarder before the year-end. Although Premier requested a third shipment, consisting of 56 boxes of cargo, on December 31, 1997, the Freight Forwarder's records indicate that the order was not picked up until January 9, 1998. Premier also shipped another 39 boxes of inventory designated for Schein to the Freight Forwarder on March 11, 1998. In total, Premier stored 187 boxes of cargo at the Freight Forwarder's warehouse in an attempt to fill Schein's purported order. Although the Freight Forwarder was told that the lasers would only be stored at its facility for a few days, the inventory was never forwarded to Schein, no invoice was mailed, and ultimately the lasers were returned to Premier in August 1998.
3. Revenue Improperly Recognized in the Third Quarter
In January 1998, Premier's Chief Financial Officer (hereinafter referred to as the "CFO") received a Customer Order Form ostensibly documenting Schein's $2.4 million purchase. Even though the order was the largest Premier had ever received and resulted in the company's first-ever quarterly profit, the CFO did not look at the Customer Order Form closely. Consequently, he failed to notice that the Customer Order Form was not signed by the purported customer, was dated "12/24/98" (rather than 12/24/97), and had not been recorded on Premier's books until January 9, 1998.
Premier's CFO failed yet again to fully investigate, approximately one week before Premier filed its fiscal 1998 third quarter Form 10-Q for the period ended December 31, 1997 ("3Q98"), when he questioned the Executive Vice President about the documentation supporting Schein's purported order. In response, the Executive Vice President gave Premier's CFO the letter of intent, as well as some notes. After looking at the letter of intent, the CFO concluded that Schein had agreed to purchase the lasers. He also recklessly accepted at face value the Executive Vice President's assurances that installation of the lasers was proceeding and payment would be received the following month. Thus, the CFO improperly booked the $2.4 million laser sale to Schein. As a result, Premier overstated quarterly revenue in its 3Q98 Form 10-Q by more than a third. Premier also filed four registration statements which incorporate the false and misleading Form 10-Q by reference.
4. Internal Control Deficiencies
Premier's false Form 10-Q filing was caused in part by the company's failure to maintain adequate internal controls. For example, Premier failed to adhere to written guidelines that required distributors to provide signed purchase orders documenting laser sales. Nor did it observe less stringent procedures required of non-institutional customers, which called for purchasers to sign the company's Customer Order Form. Indeed, Premier's Customer Order Forms were signed only 60-70 percent of the time. Premier's accounting department instead relied upon the Sales and Marketing Department to make sure all sales were properly documented. Consequently, Premier's Executive Vice President was able to control the entire sales process. Moreover, after sales were booked, he was responsible for collecting virtually all of Premier's outstanding accounts receivable.
The accounting staff also was inadequately supervised. Premier's CFO delegated day-to-day management of the accounting department to a staff accountant. In addition, Premier's written procedures manual was not used. Finally, Premier lacked formal procedures governing the collection of accounts receivable.
1. Antifraud Violations
Section 17(a) of the Securities Act, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder make it unlawful for any person, directly or indirectly, in the offer or sale or in connection with the purchase or sale of securities, by use of the means, instruments or instrumentalities of transportation or communication in interstate commerce, or by use of the mails or any facility of any national securities exchange, to employ devices, schemes or artifices to defraud, make untrue statements of material fact or omit to state material facts necessary in order to make the statements made, in light of the circumstances under which they were made, not misleading, obtain money or property by means of such misstatements or omissions, or engage in transactions, practices, or courses of business which operate or would operate as a fraud or deceit. Premier violated the foregoing antifraud provisions by improperly reporting approximately $2.4 million in revenue from the purported sale of lasers to Schein, as more particularly described in Sections III.B.1. through III.B.3., above.
2. Reporting Violations
Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers with securities registered pursuant to Section 12 of the Exchange Act to file quarterly reports with the Commission on Forms 10-Q. These provisions require that all such filings be accurate. Rule 12b-20 under the Exchange Act similarly requires that these reports include such further information as may be necessary to make the required statements, in light of the circumstances under which they are made, not misleading. Premier violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder by improperly reporting approximately $2.4 million in revenue from the purported sale of lasers to Schein, as more particularly described in Sections III.B.1. through III.B.3., above.
3. Books and Records Violations
Section 13(b)(2)(A) of the Exchange Act requires every issuer that has securities registered pursuant to Section 12 of the Exchange Act to "make and keep books, records, accounts, which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of assets of the issuer." Rule 13b2-1 thereunder prohibits any person from, directly or indirectly, falsifying or causing to be falsified, any book, record or account subject to Section 13(b)(2)(A). Premier violated Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 thereunder because its Executive Vice President falsified a Customer Order Form and its CFO improperly booked an approximately $2.4 million sale of lasers to Schein, as more particularly described in Sections III.B.1. through III.B.3., above.
4. Internal Control Violations
Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to reasonably assure, among other things, that transactions are recorded as necessary to permit preparation of financial statements in conformity with Generally Accepted Accounting Principles. Premier violated Section 13(b)(2)(B) of the Exchange Act because it lacked the required internal accounting controls necessary to, among other things, record accurately the purported sale of lasers to Schein, as more particularly described in Section III.B.4., above.
In view of the foregoing, the Commission deems it appropriate to accept the Offer submitted by Premier.
ACCORDINGLY, IT IS HEREBY ORDERED that Premier cease and desist from committing or causing any violation, and any future violation, of Section 17(a) of the Securities Act, Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 thereunder.
By the Commission.
Jonathan G. Katz
|Home | Previous Page||