U.S. Securities & Exchange Commission
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U.S. Securities and Exchange Commission

Washington, D.C.

Securities Exchange Act of 1934
Release No. 45245 / January 7, 2002

Accounting and Auditing Enforcement
Release No. 1488 / January 7, 2002

Administrative Proceeding No. 3-10674


Proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e) of the Commission's Rules of Practice have been instituted against James E. Slayton.

The Division of Enforcement ("Division") and the Office of the Chief Account ("OCA") allege that Slayton willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and has willfully aided and abetted and caused violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder, and has engaged in improper professional conduct.

The Division and OCA allege that from late 1998 through early 2000, Slayton was engaged as the auditor for California Software Corporation, and that during that time, Slayton audited and issued reports on the financial statements of California Software and its predecessor company, California Software Products, Inc. ("CSPI").

The Division and OCA further allege that Slayton issued false reports which claimed that California Software's and CSPI's financial statements complied with generally accepted accounting principles ("GAAP"), when, in fact, those financial statements were materially false. Allegedly, over the course of his engagements with California Software, Slayton examined the books and records of California Software and CSPI and failed to determine that California Software and CSPI recognized revenue using a method that did not comply with GAAP. It is alleged that as a result of this improper method of revenue recognition, California Software and CSPI materially overstated revenue, earnings, assets and shareholders equity.

Finally, the Division and OCA allege Slayton represented in his audit reports that his audits of California Software's financial statements were conducted in accordance with Generally Accepted Auditing Standards when they were not. Slayton allegedly failed to comply with numerous auditing standards, including failing to properly plan and conduct audits, properly confirm accounts receivable, obtain management representation letters and supervise the audits.

A hearing will be scheduled before an administrative law judge to determine whether the allegations contained in the Order are true, to provide James E. Slayton an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate.


Modified: 01/08/2001