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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. 45853 / May 1, 2002

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1552 / May 1, 2002

ADMINISTRATIVE PROCEEDING
File No. 3-10774


In the Matter of

Michael A. Kolberg and
Dale E. Huizenga,

Respondent.


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ORDER INSTITUTING PUBLIC PROCEEDINGS PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934, MAKINGFINDINGS AND IMPOSING CEASE- AND-DESIST ORDER

I.

The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative proceedings be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Michael A. Kolberg ("Kolberg") and Dale E. Huizenga ("Huizenga").

In anticipation of the institution of these proceedings, Kolberg and Huizenga have submitted Offers of Settlement, which Offers 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, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. § 201.100 et seq., Respondents admit the jurisdiction of the Commission over them and the subject matter of these administrative proceedings and consent to the entry 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"), without admitting or denying the Commission's findings, except as for those contained in paragraphs III.A. and B. below, which are admitted.

II.

Accordingly, IT IS HEREBY ORDERED THAT proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted.

III.

On the basis of this Order and the Offers of Settlement by Kolberg and Huizenga, the Commission makes the following findings1:

FACTS

A. During all relevant times, Kolberg was the plant accountant for a supplier of a broad line of purified animal and human blood proteins to biopharmaceutical companies ("the Subsidiary"). The Subsidiary is located in Kankakee, Illinois and was acquired in December 1998 by an Atlanta-based supplier of specialty human antibodies and other blood-related products and services ("the Company"). The Company's securities are registered with the Commission pursuant to Section 12(g) of the Exchange Act.

B. During all relevant times, Huizenga was the Subsidiary's manager of finance and human resources and Kolberg's immediate supervisor.

C. As the plant accountant, Kolberg was responsible beginning in 1999 for providing the Company with periodic sales data for the Subsidiary and ensuring that this accounting data that he provided conformed to Generally Accepted Accounting Principles ("GAAP"). Kolberg knew that the Company would include this data in its consolidated books, records and accounts and in the financial statements that the Company filed with the Commission.

D. During 1999, Kolberg knew of a bill-and-hold arrangement that the Subsidiary had with its largest customer under which the Subsidiary recognized revenue when it sent an invoice to the customer and prior to actually shipping its product.2 Recognizing revenue from such transactions failed to comply with GAAP, as Kolberg should have realized, because the risks and rewards of ownership of the goods in question did not pass to the customer when the Subsidiary invoiced the customer for the goods. Nevertheless, Kolberg determined that such revenue recognition satisfied GAAP. Thus, during 1999, Kolberg provided the Company with monthly sales data for the Subsidiary that included improper revenue from bill-and-hold transactions.

E. In June 1999, the Company's director of accounting provided Huizenga with a copy of a new written policy regarding bill-and-hold sales and instructed Huizenga to review and implement that policy at the Subsidiary. This policy required certain conditions be met before the Company would permit bill-and-hold transactions. The transactions between the Subsidiary and its largest customer failed to satisfy several of these requirements.

F. Although Huizenga knew of the bill-and-hold arrangement between the Subsidiary and its largest customer, he never reviewed the Company's new bill-and-hold policy and made no effort to implement or enforce that policy at the Subsidiary. Consequently, Huizenga did not alert anyone at the Company that the bill-and-hold arrangement at the Subsidiary violated the Company's new policy.

G. Kolberg received and reviewed the Company's new bill-and-hold policy sometime during the third quarter of 1999. Although Kolberg should have known that the Subsidiary's bill-and-hold arrangement violated that policy, he failed to reach this conclusion. Consequently, Kolberg never alerted anyone at the Company that the bill-and-hold arrangement at the Subsidiary violated the Company's new policy.

H. On August 11, 1999, the Company filed its Form 10-Q for the second quarter of 1999 with the Commission. Therein, the Company overstated its net income by 12.7 percent, or $316,000, due to the improper recognition of revenue from the bill-and-hold arrangement at the Subsidiary.

I. On November 12, 1999 the Company filed its Form 10-Q for the third quarter of 1999 with the Commission. Therein, the Company understated its net loss by 6.3 percent, or $401,000, due to the improper recognition of revenue from the bill-and-hold arrangement at the Subsidiary.

J. On April 10, 2000, the Company publicly released its 1999 year-end financial results together with the restated results for the first three quarters of 1999. The restatements corrected, among other things, the revenue from the improper bill-and-hold sales and materially reduced the Company's net income for the second quarter of 1999 and materially increased the net loss reported for the third quarter of 1999.

VIOLATIONS OF THE FEDERAL SECURITIES LAWS

K. Section 13(a) of the Exchange Act and Rule 13a-13 thereunder require issuers of registered securities to file with the Commission quarterly reports prepared in conformity with the requirements of the Commission's rules and regulations. Courts have held that it is implicit in this requirement that the information provided be accurate and contain no material misrepresentations or omissions. See, e.g., SEC v. Savoy Industries, Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). In addition, Exchange Act Rule 12b-20 requires that these periodic reports contain all information necessary to ensure that the statements made in them are not materially misleading. No showing of scienter is necessary to establish a violation of Section 13(a) or Rules 12b-20 and 13a-13. Savoy Industries, 587 F.2d at 1167; Tenex Corp., et al., Exchange Act Rel. No. 41312 (April 20, 1999), 69 SEC Docket 1814, 1834 n. 11. A violation occurs when a materially false statement is filed. SEC v. Kalvex, Inc., 425 F. Supp. 310, 316 (S.D.N.Y. 1975).

L. Section 13(b)(2)(A) of the Exchange Act requires issuers of securities to make and keep books, records and accounts which accurately and fairly reflect their transactions and the dispositions of their assets. Exchange Act Rule 13b2-1 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). No showing of scienter is necessary to establish a violation of Section 13(b)(2)(A) or Rule 13b2-1. SEC v. World Wide Coin Investments, Ltd., 567 F. Supp. 724, 749 (N.D.Ga.1983); Joseph E. Williams, Exchange Act Rel. No. 42412 (Feb. 10, 2000), 71 S.E.C. Docket 1770, 1776.

M. Section 13(b)(2)(B) of the Exchange Act requires issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions are executed in accordance with management's authorization and that transactions are recorded as necessary to permit the preparation of financial statements in conformity with GAAP and to maintain accountability for assets. No showing of scienter is necessary to show a violation of Section 13(b)(2)(B). SEC v. World Wide Coin Investments, Ltd., 567 F. Supp. at 751.

N. By the acts and omissions alleged in paragraphs III.C. through III.J., Kolberg violated Rule 13b2-1 of the Exchange Act. Kolberg was responsible for providing the Subsidiary's sales data to the Company. Kolberg knew that the Company would include the sales data that he provided in the Company's books, records and accounts. Kolberg also knew that the sales data he provided to the Company included revenue recognized from bill-and-hold transactions, and should have known that this revenue failed to comply with GAAP. The improper revenue from the bill-and-hold transactions caused the Company's books, records and accounts to overstate net income. Thus, Kolberg's actions caused the Company's books, records and accounts to be false.

O. By the acts and omissions alleged in paragraphs III.C. through III.J., Kolberg caused the Company to violate Section 13(b)(2)(A) of the Exchange Act. Kolberg was responsible for providing the Subsidiary's sales data to the Company. Kolberg knew that the Company would include the sales data that he provided in the Company's books, records and accounts. Kolberg also knew that the sales data he provided to the Company included revenue recognized from bill-and-hold transactions, and should have known that this revenue failed to comply with GAAP. The improper revenue from the bill-and-hold transactions caused the Company's books, records and accounts to overstate net income. Thus, Kolberg's actions caused the Company's books, records and accounts to be false.

P. By the acts and omissions alleged in paragraphs III.C. through III.J., Kolberg caused the Company to violate Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. Kolberg was responsible for providing the Subsidiary's sales data to the Company. Kolberg knew that the Company would include the sales data that he provided in the financial statements that the Company filed with the Commission. Kolberg also knew that the sales data he provided to the Company included revenue recognized from bill-and-hold transactions, and should have known that this revenue failed to comply with GAAP. The improper revenue from the bill-and-hold transactions caused the Company to materially overstate its net income in the financial statements filed with the Company's second quarter 1999 Form 10-Q and materially understate its net loss in the financial statements filed with the Company's third quarter 1999 Form 10-Q. Thus, Kolberg's actions caused the financial statements that the Company filed with second and third quarter 1999 Form 10-Qs to be materially false.

Q. By the acts and omissions alleged in paragraphs III.C. through III.J., Kolberg caused the Company to violate Section 13(b)(2)(B) of the Exchange Act. Kolberg received and reviewed the Company's new bill-and-hold policy. Although he should have known that the Subsidiary's bill-and-hold transactions violated this policy, Kolberg failed to reach this conclusion. Thus, Kolberg did not enforce the new policy at the Subsidiary or alert anyone at the Company that the bill-and-hold arrangement at the Subsidiary violated the new policy.

R. By the acts and omissions alleged in paragraphs III.C. through III.J., Huizenga caused the Company to violate Section 13(b)(2)(B) of the Exchange Act. The Company's director of accounting gave Huizenga the Company's new policy regarding bill-and-hold sales and instructed him to review it and implement it at the Subsidiary. Huizenga ignored these instructions and never reviewed or implemented this policy at the Subsidiary. Huizenga also failed to alert anyone at the Company that the bill-and-hold arrangement at the Subsidiary violated Company policy.

IV.

In view of the foregoing, the Commission deems it appropriate to accept Kolberg's and Huizenga's Offers of Settlement. In determining to accept the Offers, the Commission considered the cooperation Kolberg and Huizenga afforded the Commission staff.

ACCORDINGLY, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act that Kolberg cease and desist from committing any violation and any future violation of Rule 13b2-1 of the Exchange Act and causing any violation and any future violation of 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.

IT IS FURTHER ORDERED, pursuant to Section 21C of the Exchange Act that Huizenga cease and desist from causing any violation and any future violation of Section 13(b)(2)(B) of the Exchange Act.

By the Commission.

Jonathan G. Katz
Secretary

Footnotes

1 The findings herein are made pursuant to Kolberg's and Huizenga's Offers of Settlement and are not binding on any other person or entity named in this or any other proceeding.

2 A bill-and-hold transaction is generally a practice whereby a customer agrees to purchase goods but the seller retains physical possession until the customer requests shipment to designated locations. There are very limited circumstances under GAAP that permit a seller to recognize revenue from a bill-and-hold transaction prior to shipping the goods, none of which were applicable in this instance.

 

http://www.sec.gov/litigation/admin/34-44853.htm


Modified: 05/02/2002