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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
Before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 41923 / September 28, 1999

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1160 / September 28, 1999

ADMINISTRATIVE PROCEEDING File No. 10034

___________________________________
: ORDER INSTITUTING PUBLIC
: PROCEEDINGS PURSUANT
In the Matter of : TO SECTION 21C OF THE
: SECURITIES EXCHANGE
RICKY D. BARKLEY : ACT OF 1934, MAKING
: FINDINGS AND IMPOSING
Respondent. : CEASE-AND-DESIST
: ORDER
___________________________________ :

I.

The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") be, and they hereby are, instituted against Ricky D. Barkley ("Barkley"). Accordingly, IT IS HEREBY ORDERED that said proceedings be, and hereby are, instituted.

II.

In anticipation of the institution of these administrative proceedings, respondent Barkley has submitted an Offer of Settlement ("Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. 201.100 et seq., and without admitting or denying the findings herein, except that he admits the jurisdiction of the Commission over him and over the subject matter of these proceedings, Barkley consents to the issuance by the Commission of this Order Instituting Public Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing Cease-and-Desist Order ('Order").

III.

On the basis of this Order and of the Offer of Barkley, the Commission makes the following findings1 :

A. RESPONDENT

Barkley, of Cumming, Georgia, was Computone Corporation's ("Computone") accounting manager from June 1993 until July 28, 1994, when he left Computone. Barkley is a certified public accountant. As the accounting manager, Barkley shared responsibility with Computone's chief financial officer ("CFO") to ensure that revenues and expenses were recorded by Computone in conformity with generally accepted accounting principles ("GAAP").

B. IMPROPER ACCOUNTING PRACTICES

1. Computone's FY 1994 Second Quarter

Barkley allowed Computone, during its fiscal year ("FY") 1994 second quarter,2 to record three sales and include them as revenue in its books. Barkley knew or was reckless in not knowing that these sales had not been recorded in conformity with GAAP.

Recording these transactions as sales was not in conformity with GAAP because the customer never issued any purchase orders to Computone for these three purported transactions. Moreover, the customer never paid Computone for the products.

In part as the result of Barkley's conduct, Computone recognized these transactions as sales which caused it to overstate materially its FY 1994 second quarter reported income from continuing operations by approximately $186,459. In part, this caused Computone to report $465,000 of income from continuing operations during this quarter rather than income of approximately $261,141.

Barkley assisted in the preparation of Computone's report on Form 10-Q for its FY 1994 second quarter containing financial statements that included the above $186,459 overstatement of income.

On or about December 21, 1993, Barkley signed a management representation letter which was provided to Computone's auditors in which he stated that Computone's financial statements had been prepared in conformity with GAAP. Barkley knew or was reckless in not knowing that Computone's FY 1994 second quarter financial statements did not conform with GAAP.

2. Computone's FY 1994 Third Quarter

During Computone's FY 1994 third quarter, Barkley included as revenue a December 1993 consignment sale to a customer which lacked the ability to pay for the products. This caused Computone to record approximately $69,670 as income from this transaction. This treatment was not in conformity with GAAP because the customer was not obligated to pay Computone unless it resold the products. Barkley knew or was reckless in not knowing that the customer had issued a conditional purchase order agreeing to accept the products on consignment. Barkley also failed to make any inquiry regarding the customer's financial wherewithal or ability to pay for the product. Subsequent to this quarter, the customer returned the products to Computone.

Also, during Computone's FY 1994 third quarter, Barkley became aware that Computone recorded approximately sixty transactions as bill-and-hold sales on the last day of the quarter. This caused Computone to record approximately $189,848 as income from these transactions. In fact, such treatment was not in conformity with GAAP because the earnings process was neither complete or virtually complete nor had an exchange taken place.

Barkley was reckless in not requiring sufficient documentation to record these transactions as sales in this matter. Had he done so, he would have discovered that Computone was precluded from recording the approximately sixty transactions as bill-and-hold sales because these transactions failed to meet revenue recognition criteria established by GAAP and the Commission.

In part as the result of Barkley's conduct, Computone recognized the consignment and purported bill-and-hold transactions described above as sales which caused it to overstate materially its FY 1994 third quarter reported income from continuing operations by approximately $259,518. As a result, Computone reported $62,000 of income from continuing operations during this quarter rather than a loss of approximately $197,518.

Barkley assisted in the preparation of Computone's report on Form 10-Q for its FY 1994 third quarter containing financial statements that included the above $259,518 overstatement of income.

On or about March 17, 1994, May 6, 1994 and May 16, 1994, Barkley signed management representation letters which were provided to Computone's auditors in which he stated that Computone's financial statements had been prepared in conformity with GAAP. Barkley knew or was reckless in not knowing that Computone's FY 1994 third quarter financial statements did not conform with GAAP.

3. Computone's FY 1994 Fourth Quarter

During Computone's FY 1994 fourth quarter, Barkley knew or should have known that Computone recognized $158,961 as sales revenue from eight transactions in its books and records, although the sales had not been recorded in conformity with GAAP. The goods related to these sales were not shipped until the following quarter. Some of these goods were, at Computone's instruction, held by a freight forwarder because the customer had requested that delivery of the goods not occur until well into the following quarter. Virtually all of these transactions were recorded on the last day of this quarter.

4. Computone's FY 1995 First Quarter

During Computone's FY 1995 first quarter, Barkley became aware that Computone had installed a new cost system to record its cost of goods sold. However, Barkley failed to ensure that the system recorded Computone's costs of goods sold in conformity with GAAP.

In fact, Computone's internal controls were deficient and were not recording Computone's cost of goods sold in conformity with GAAP because Computone understated its cost of goods sold as a result of failing to reconcile the information being captured by the new and old cost systems. This resulted in Computone understating its cost of goods sold during its FY 1995 first quarter by approximately $81,261.

Also during Computone's FY 1995 first quarter, Barkley shared responsibility for allowing Computone to record a sale to a customer on the last day of the quarter when the customer had not ordered the goods and the goods had not been shipped. This caused Computone to record approximately $78,053 of income from this transaction. Under Computone's accounting policies, product sales were to be recognized as revenue after an order was received and the related products were shipped to a customer. Barkley knew or was reckless in not knowing that the goods had not been ordered nor shipped and as a result, this transaction was not recorded by Computone in conformity with GAAP.

In part as the result of Barkley's conduct, Computone failed to properly record the cost of goods sold and the sale described above which caused it to overstate materially its FY 1995 first quarter reported income from continuing operations by approximately $159,314. This caused Computone to report $123,000 of income from continuing operations during this quarter rather than a loss of approximately $36,314.

On July 26, 1994, Barkley signed a management representation letter, which was provided to Computone's auditors in which he stated that Computone's financial statements had been prepared in conformity with GAAP. Barkley knew or was reckless in not knowing that Computone's FY 1995 first quarter financial statements did not conform with GAAP.

On or about July 28, 1994, Barkley expressed concern to Computone's CFO that Computone's FY 1995 first quarter financial statements were materially misstated. Nevertheless, Barkley failed to tell the auditors of his concerns, despite having just signed the July 26th management representation letter vouching for the accuracy of those very financial statements.

C. VIOLATIONS OF THE FEDERAL SECURITIES LAWS

Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require certain issuers to file with the Commission quarterly reports containing financial statements prepared in conformity with the requirements of the Commission's rules and regulations. In addition, Rule 12b-20 under the Exchange Act requires that such reports contain, in addition to disclosures expressly required by statute and rules, such other information as is necessary to ensure that the statements made in those reports are not, under the circumstances, materially misleading. The requirement that an issuer file reports under Section 13(a) embodies the requirement that such reports be true and correct. SEC v. IMC International, Inc., 384 F.Supp. 889, 893 (N.D. Texas), aff'd, 505 F.2d 733 (5th Cir. 1974), cert. denied sub nom., Evans v. SEC, 420 U.S. 930 (1975). Because there is no scienter element involved in these provisions, see generally, SEC v. Wills, 472 F.Supp. 1250, 1268 (D.D.C. 1978), a violation occurs when a materially false statement is filed. SEC v. Kalvex, Inc., 425 F.Supp. 310, 316 (S.D.N.Y. 1975). Barkley caused Computone to violate Section 13(a) of the Exchange Act and Rule 13a-13 thereunder through his participation or acquiesence in the false and misleading quarterly reports filed on behalf of Computone.

Sections 13(b)(2)(A) and (B) of the Exchange Act require reporting companies to make and keep accounting records which accurately reflect their transactions and the dispositions of their assets, and to devise and maintain internal controls sufficient to allow the preparation of financial statements in conformity with GAAP. Following from these requirements, Section 13(b)(5) of the Exchange Act prohibits any person from knowingly circumventing or knowingly failing to implement a system of internal accounting controls, and from knowingly falsifying any book, record, or account, required under Section 13(b)(2). Rule 13b2-1 similarly prohibits any person from directly or indirectly falsifying or causing the falsification of any books, records or accounts required by Section 13(b)(2)(A). Barkley violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder and caused Computone to violate Sections 13(b)(2)(A) and (B) of the Exchange Act and Rule 13b2-1 thereunder through his participation or acquiesence in the various improperly accounted for transactions.

Rule 13b2-2 prohibits officers and directors of reporting companies from misleading accountants, through false statements or misleading omissions, in connection with either audits or the preparation of documents to be filed with the Commission. Barkley failed to tell or othewise inform Computone's auditors about Computone's misstated financial statements for the quarter ended July 1, 1994 after he had vouched for the accuracy of the financial statements by signing a management representation letter which he provided to the auditors. Although Barkley was not designated as an officer of Computone during his tenure, he is liable for violating Rule 13b2-2 because as the highest ranking certified public accountant in Computone's accounting department, he routinely performed the functions of a comptroller. [See Exchange Act Rule 3b-2 (Definition of "Officer") ("The term officer means a . . . comptroller . . . and any person routinely performing corresponding functions with respect to any organization . . . .")].

IV.

Based on the foregoing, the Commission finds that Barkley committed violations of Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 thereunder and caused Computone to violate Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-13 and 13b2-1 thereunder.

V.

In view of the foregoing, the Commission deems it appropriate to accept Barkley's Offer.

ACCORDINGLY, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act that Barkley 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 thereunder and causing violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.

By the Commission.

Jonathan G. Katz
Secretary


FOOTNOTES

-[1]- The findings herein are made pursuant to Barkley's Offer and are not binding on any other person or entity named in this or any other proceeding.

-[2]- Computone's fiscal year ended on the first Friday in April of each year, i.e., its fiscal year 1994 ended on Friday, April 1, 1994.

http://www.sec.gov/litigation/admin/34-41923.htm


Modified:09/28/1999