UNITED STATES OF AMERICA
SECURITIES AND EXCHANGE COMMISSION
Securities Act of 1933
Release No. 8259 / July 29, 2003
Securities Exchange Act of 1934
Release No. 48247 / July 29, 2003
Accounting and Auditing Enforcement
Release No. 1824 / July 29, 2003
File No. 3-11194
CEASE-AND-DESIST AND RULE 102(E) PROCEEDINGS INSTITUTED AGAINST PHILIP L. PASCALE, CPA
The Securities and Exchange Commission ("Commission") has instituted public cease-and-desist proceedings pursuant to Section 8A of the Securities Act of 1933 ("Securities Act") and Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order") against Philip L. Pascale ("Pascale"), a certified public accountant, to determine: (i) whether Pascale has willfully violated Section 17(a) of the Securities Act and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and willfully aided and abetted and caused violations of Section 15(d) of the Exchange Act and Rules 15d-1 and 15d-13 thereunder, and whether Pascale engaged in improper professional conduct; and (ii) whether any order should be issued pursuant to Section 8A of the Securities Act and Section 21C of the Exchange Act or pursuant to Rule 102(e)(1)(ii) and (iii) of the Commission's Rules of Practice.
The Division of Enforcement ("Division") alleges that false and misleading financial statements included in filings with the Commission by Composite Holdings, Inc., formerly World Homes, Inc., resulted from failed audits conducted by Pascale. It is further alleged that these financial statements, covering annual and quarterly reports for the periods from June 30, 1999, through December 31, 2001, were materially false because the recorded amount for patents acquired in a merger between Composite and an entity under common control with Composite, was stepped-up and recorded at an amount materially in excess of fair value, contrary to Generally Accepted Accounting Principles ("GAAP"). Finally, the Division alleges that, even if the write-up in the basis of the patents had been appropriate under GAAP, Composite's recording of a deferred tax asset related to the patents also resulted in material overstatements of assets and equity and material misstatements of net losses. The false financial statements were also allegedly included by reference in several registration statements on Form S-8.
It is alleged that during the relevant times, Pascale provided yearly audit and quarterly review services to Composite and that he issued unqualified reports on its financial statements which were included in filings with the Commission.
A public hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide Pascale an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate.