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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. 44711 / August 16, 2001

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1434 / August 16, 2001

ADMINISTRATIVE PROCEEDING
File No. 3-10559


In the Matter of

Leslie D. Crone, CPA

Respondent


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ORDER INSTITUTING PROCEEDINGS,
MAKING FINDINGS, AND IMPOSING
REMEDIAL SANCTIONS PURSUANT TO
RULE 102(e) OF THE COMMISSION'S
RULES OF PRACTICE

I.

The Securities and Exchange Commission deems it appropriate to institute public administrative proceedings pursuant to Rule 102(e)1 of the Commission's Rules of Practice against Respondent Leslie D. Crone, CPA ("Crone").

II.

In anticipation of the institution of these administrative proceedings, Respondent has submitted an Offer of Settlement, 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, and without admitting or denying the findings set forth below, except that he admits the Commission's finding that a Final Judgment of Permanent Injunction and Other Equitable Relief has been entered against him as set forth in Paragraph III.C below and admits the Commission's jurisdiction over him and over the subject matter of these proceedings, Respondent consents to the entry of this Order Instituting Proceedings, Making Findings, and Imposing Remedial Sanctions Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").

III. FINDINGS

The Commission makes the following findings:

A. Crone, 48, of Carrollton, Texas, became the chief financial officer ("CFO") of MAX Internet Communications, Inc. ("MAX") in May 1998, a position he held through January 2001. Crone has been a licensed CPA since 1975, and currently is licensed as a CPA in Texas.

B. MAX is a Nevada corporation based in Dallas, Texas whose stock is registered with the Commission under Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"). During the relevant period, MAX common stock traded first on the National Association of Securities Dealers OTC Bulletin Board and then on the Nasdaq. Nasdaq subsequently delisted MAX common stock.

C. On August 1, 2001, the Commission filed a complaint against Crone and others in the United States District Court for the Northern District of Texas, Dallas Division ("District Court"), SEC v. Larry Biggs, Jr., et al, Civ. No. 3-01CV1474D, (N.D. Tex.). Solely for the purpose of settling these proceedings, Crone consented to the entry of a Final Judgment of Permanent Injunction and Other Equitable Relief ("Final Judgment") against him, without admitting or denying the allegations of the complaint, except as to subject matter jurisdiction, which he admitted. On August 2, 2001, the District Court entered the Final Judgment, which permanently enjoins Crone from violating or aiding and abetting violations of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13b2-1 and 13b2-2 thereunder; and orders Crone to pay a civil penalty of $20,000.

D. The Commission's complaint alleges that while Crone was MAX's CFO, he participated in misconduct by which MAX grossly overstated revenues reported in financial statements filed with the Commission for the quarters ended September 30, 1999 ("September Quarter") and December 31, 1999 ("December Quarter").2 Specifically, the complaint alleges that Crone and others inflated MAX's sales for those quarters by 98% by recording sales not recognizable under Generally Accepted Accounting Principles ("GAAP"). For example, MAX recognized $2.6 million in total sales for the September Quarter. Of that amount, $1.5 million related to an alleged sale to a Brazilian company, through MAX's Brazilian subsidiary ("MAX Brazil"). The complaint alleges that Crone knew that no portion of that sale was delivered to the ultimate customer until late October 1999 - well after the September Quarter had ended - but nevertheless caused MAX to record the sale in its September Quarter financial statements.

E. The complaint further alleges that an additional $1 million of reported September Quarter sales, purportedly to two United States computer product distributors, were not recognizable because the distributors had complete rights of return and had no obligation to pay for the goods until they were sold to third parties. Furthermore, MAX guaranteed one of these distributors that it would provide customers for up to half of its inventory of MAX's product. Under GAAP, a sale with a right of return cannot be recognized if, among other things, (i) the buyer has not paid the seller and has no obligation to pay until the product is resold, or (ii) the seller has "significant obligations for future performance to directly bring about resale of the product by the buyer." SFAS No. 48, ¶ 6(b, e). MAX's purported sales to the United States distributors plainly failed these criteria, facts the Commission's complaint alleges Crone knew by September 30, 1999. Yet Crone caused MAX to record these transactions as sales in its September Quarter financial statements.

F. Additionally, the complaint alleges that, during the December Quarter, Crone caused MAX to overstate reported sales by 99%. MAX reported sales in this quarter of $10.77 million, comprised almost entirely of two alleged South American sales. The larger of these, purportedly to the Brazilian government, made up approximately 60% of reported December Quarter sales. However, MAX never delivered the goods for these sales to the Brazilian government. Instead, they merely were parked at MAX Brazil (or stuck in Brazilian customs), which Crone knew in January 2000.

G. Almost all of the remainder of MAX's reported December Quarter sales was comprised of a purported sale to a Chilean company. MAX's Dallas-based shipping agent picked up the goods for this transaction from MAX's Dallas warehouse on December 29, 1999. But MAX's president directed the shipping agent to hold the goods until the customer paid for them. Thus, on December 31, 1999, the goods were still sitting in the shipping agent's Dallas warehouse. In fact, they never left the warehouse, since the Chilean company never paid for them. The complaint alleges that Crone knew these facts as early as January 4, 2000, but nevertheless caused MAX to record this transaction as a sale in the December Quarter.

H. The complaint alleges that these misstatements, which Crone intentionally caused MAX to make, prompted an increase in MAX's stock price from approximately $4 in November 1999 to more than $20 in February 2000, and also allowed MAX to obtain a listing on the Nasdaq.

I. Crone signed MAX's Form 10-Q for the September Quarter, filed November 12, 1999, which contains the misstated September Quarter financial statements. He also signed the December Quarter 10-Q, filed February 22, 2000, which contains the misstated December Quarter financial statements. He also reviewed or approved press releases MAX issued in connection with these filings.

J. The complaint further alleges that Crone misled and failed to disclose all material facts regarding these transactions to MAX's auditors, and caused MAX to keep inaccurate books and records and an inadequate system of internal controls.

IV.

In view of the foregoing, the Commission deems it appropriate to accept Crone's Offer and to impose the sanctions agreed to therein.

Accordingly, IT IS HEREBY ORDERED, effective immediately, that:

A. Crone is suspended from appearing or practicing before the Commission as an accountant.

B. After three years from the date of this Order, Crone may request that the Commission consider his reinstatement by submitting an application (attention: Office of the Chief Accountant) to resume appearing or practicing before the Commission as:

1. a preparer or reviewer, or a person responsible for the preparation or review, of any public company's financial statements that are filed with the Commission. Such an application must satisfy the Commission that Crone's work in his practice before the Commission will be reviewed either by the independent audit committee of the public company for which he works or in some other acceptable manner, as long as he practices before the Commission in this capacity; and/or

2. an independent accountant. Such an application must satisfy the Commission that: (a) Crone, or the firm with which he is associated, is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); (b) Crone, 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) as long as Crone appears or practices before the Commission as an independent accountant he will remain either a member of the SEC Practice Section or associated with a member firm of the SEC Practice Section, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education.

C. The Commission's review of an application by Crone to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Crone character, integrity, professional conduct, or qualifications to appear or practice before the Commission.

By the Commission.

Jonathan G. Katz
Secretary


Footnotes

1 Rule 102(e)(3)(i), in relevant part, provides that the Commission may suspend from appearing or practicing before it any accountant who by name has been permanently enjoined, by a court of competent jurisdiction in an action brought by the Commission, from violating any provision of the federal securities laws or the rules and regulations thereunder [17 C.F.R. 201.102(e)(3)(i)].
2 MAX's fiscal year ends on June 30.

http://www.sec.gov/litigation/admin/34-44711.htm


Modified: 08/16/2001