UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 36877 / February 23, 1996 Accounting and Auditing Enforcement Release No. 762 / February 23, 1996 Administrative Proceeding File No. 3-8959 ---------------------------- : : ORDER INSTITUTING PUBLIC : PROCEEDINGS PURSUANT TO In the Matter of : SECTION 21C OF THE SECURITIES : EXCHANGE ACT OF 1934 AND DIAGNOSTEK, INC., : RULE 102(e) OF THE COMMISSION'S JOSEPH SANGINITI, and : RULES OF PRACTICE, MAKING DENNIS EVANS, CPA, : FINDINGS AND IMPOSING SANCTIONS : Respondents. : : : ---------------------------- I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Diagnostek, Inc. ("Diagnostek"), Joseph Sanginiti ("Sanginiti"), and Dennis Evans ("Evans") (collectively, "Respondents"). The Commission also deems it appropriate and in the public interest to institute public administrative proceedings pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice, 17 C.F.R.  201.102(e)(1)(ii),1 against Evans. 1 Rule 102(e)(1) of the Commission's Rules of Practice, 17 C.F.R.  201.102(e)(1), provides in pertinent part that: The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice of and opportunity for hearing in the matter . . . (ii) to be lacking in character or integrity or to have engaged in unethical or improper professional conduct. . . . ==========================================START OF PAGE 2====== II. In anticipation of the institution of these proceedings, Respondents have submitted Offers of Settlement ("Offers") to the Commission, 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 without admitting or denying the findings contained herein, Respondents consent to the issuance of this Order Instituting Public Proceedings, Making Findings, and Imposing Sanctions ("Order") and to the entry of the findings and the imposition of the remedial sanctions set forth below. Accordingly, IT IS ORDERED that (i) proceedings pursuant to Section 21C of the Exchange Act be, and hereby are, instituted against Respondents; and (ii) proceedings pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice be, and hereby are, instituted against Evans. III. On the basis of this Order and Respondents' Offers, the Commission makes the following findings: A. RESPONDENTS 1. Diagnostek is a Delaware corporation with headquarters in Albuquerque, New Mexico. Diagnostek dispenses prescription drugs by mail to participants in health care plans and provides pharmacy management services to hospitals and nursing homes. Diagnostek's revenue is derived largely from the sales of mail- order pharmaceuticals by a major subsidiary, Health Care Services ("HCS"). During the period relevant to this proceeding, Diagnostek's common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act and was listed on the New York Stock Exchange ("NYSE"). 2. Sanginiti, age 38, was the controller for HCS from 1989 until approximately May or June 1992. After that time, Sanginiti became vice president of operations at HCS's Bensalem, Pennsylvania facility. From June 1992 through June 1993, however, Sanginiti occasionally performed certain of the functions of the controller of HCS, including collection of receivables and inventory reconciliation. 3. Evans, age 37, was Diagnostek's chief financial officer from October 1988 to June 1992. Evans is a certified public accountant licensed in the state of New Mexico. ==========================================START OF PAGE 3====== B. SUMMARY This case involves violations of the antifraud, reporting, record-keeping and internal control provisions of the federal securities laws. Specifically, Diagnostek knowingly or recklessly overstated three accounts receivable in financial statements included in its Form 10-K for its fiscal year ended March 31, 1992 ("1992 10-K"), which in turn caused net income before taxes to be overstated by at least $2.5 million or 14 percent. Diagnostek also overstated certain assets in the financial statements included in its Form 10-Q for the quarter ended June 30, 1992 ("June 10-Q"), causing net income before taxes to be overstated by at least $1.3 million or 28 percent. Of the $1.3 million, at least $845,000 was at least recklessly overstated. All of the overstatements related to HCS matters. Sanginiti knowingly or recklessly caused HCS to make the entries that caused Diagnostek's net income to be overstated. Evans was a cause of Diagnostek's reporting, record-keeping and internal control violations relating to the financial statements contained in the 1992 10-K, due to acts and omissions which he knew or should have known would contribute to those violations. C. THE 1992 10-K 1. Co-Payments Receivable a. Through HCS, Diagnostek contracts with large corporations, health maintenance organizations, labor unions, and government entities (all referred to as "plan sponsors") to provide prescription drugs to the plan sponsors' employees and former employees ("customers"). The plan sponsors pay Diagnostek most of the price of prescription drugs and the customers pay a "co-payment" to Diagnostek for each prescription that they request. b. During the relevant period, from on or about March 31, 1991 through March 31, 1992, Diagnostek recorded the co-payment portion of sales on a cash basis, based on amounts of co-payments actually received. c. At March 31, 1991, HCS accrued as revenue for the first time the portion of sales that HCS customers were expected to pay and simultaneously recorded in a newly-created general ledger account, entitled "co-payments receivable," the amount of $458,000. Thereafter, HCS continued to record co-payment revenue monthly on a cash basis. HCS did not accrue any additional co- payment sales or add to the co-payments receivable balance in the quarters ended June 30, 1991 or September 30, 1991. d. However, at or about December 31, 1991, HCS accrued sales and adjusted the co-payments receivable balance upward in ==========================================START OF PAGE 4====== the amount of $407,000. Again, at or about March 31, 1992, HCS accrued sales and adjusted the co-payments receivable balance upward by $517,000, which brought the co-payments receivable balance at that date to $1.382 million. e. As HCS controller, Sanginiti caused HCS to record the accruals and adjustments described in Paragraphs III.C.1.c. and d. above. Evans approved these accruals and adjustments based on information provided to him by Sanginiti. f. Diagnostek's financial statements included in the 1992 10-K incorporated the co-payments receivable balance of $1.382 million. g. Diagnostek and Sanginiti knew or recklessly disregarded that there was no reasonable basis for the $1.382 million carried on Diagnostek's books as co-payments receivable. Specifically, (i) Diagnostek is unable to produce any of the summary computer reports that it asserts were the basis for booking the co- payments receivable; (ii) Sanginiti did not test the accuracy of the computer reports by reconciling them to any other information, even though Diagnostek had previously been experiencing significant problems with the reliability of the co- payment computer system; and (iii) during the relevant period, Diagnostek did not attempt to test the co-payments receivable balance against the system's detail records of co-payments owed by individual customers. h. Subsequently, in or about October 1992, Diagnostek generated a report which in detail aged the amounts receivable from customers as of March 31, 1992. This report showed only $550,000 in detail which, when compared to the $1.38 million receivable on the books, left a shortfall of $830,000, which Diagnostek wrote off as of September 30, 1992. i. The co-payments receivable balance incorporated in Diagnostek's financial statements for the fiscal year ended March 31, 1992 was overstated by as much as $830,000. As a result, Diagnostek overstated its net income before taxes by the same amount. 2. EPI Receivables a. In July 1990, Diagnostek acquired EPI, which was a mail service pharmacy similar to HCS. b. By March 31, 1992, Sanginiti determined that, because of insufficient customer records, Diagnostek would not be able to collect $600,000 of the pre-acquisition receivables due from EPI clients. Sanginiti informed Evans that these receivables were uncollectible. Nonetheless, Diagnostek continued to carry the uncollectible EPI receivables on its books at March 31, 1992. ==========================================START OF PAGE 5====== The receivable also remained on Diagnostek's books at June 30, 1992. c. Diagnostek failed to write off the $600,000 when it became apparent that it was uncollectible. As a result, Diagnostek's financial statements included in its 1992 10-K overstated net income before taxes by $600,000. Diagnostek, Evans, and Sanginiti knew or recklessly disregarded that Diagnostek was continuing to report these uncollectible receivables as assets. 3. UPS Receivable a. HCS's computer system did not treat replacement shipments in the same way as original shipments. "Replacements" included items originally shipped via any carrier and replaced for any reason. The inventory account in the general ledger was not reduced to reflect replacement shipments, resulting in a discrepancy between the inventory physically remaining and inventory as reflected in the general ledger. b. In late calendar 1991, HCS began efforts to obtain reimbursement for some or all of its shipments replaced due to loss or damage by United Parcel Service ("UPS"). Due to HCS's failure to submit claims to UPS for an extended period, UPS agreed to accept properly documented claims for a period extending back 18 months. c. Based on a summary computer report, Sanginiti caused HCS to make one journal entry, at March 31, 1992, booking a receivable of approximately $1.5 million from UPS. Evans approved the booking of this receivable based on information provided to him by Sanginiti. Diagnostek's financial statements included in the 1992 10-K incorporated the UPS receivable balance of $1.5 million. d. Diagnostek and Sanginiti knew or recklessly disregarded that there was no reasonable basis for the UPS receivable at the time of recording it. Diagnostek had not at that time submitted any of these claims to UPS, and Diagnostek did not have claims submittable to UPS totaling $1.5 million. Neither Sanginiti nor Evans performed adequate testing to verify the existence or collectibility of the UPS receivable. Reasonable testing would have shown that (i) the summary computer report used to book the receivable included all replacement shipments sent by all carriers, not just UPS shipments; (ii) the report also included shipments that were replaced for reasons other than the fault of ==========================================START OF PAGE 6====== the carrier;2 (iii) even with respect to the shipments lost or damaged by UPS, Diagnostek did not possess all of the documentation required by UPS to process the claims; and (iv) the calculation of the receivable failed to factor in UPS's policy of limiting reimbursement to $100 on uninsured shipments. e. HCS eventually collected less than $50,000 from UPS as reimbursement for lost or damaged shipments. f. HCS ultimately recorded adjustments to its reserve for bad debts and wrote down receivables in amounts totaling $1.45 million, representing the portion of the UPS receivable that could not be collected. g. By recording the UPS receivable, HCS overstated accounts receivable by $1.45 million. By not reducing its inventory account accurately in the periods in which replacement shipments occurred, HCS understated the cost of goods sold by $1.15 million and $300,000 in 1992 and 1991, respectively, causing net income before taxes to be likewise overstated in these periods. 4. Summary Concerning 1992 10-K a. The overstatements of the co-payments receivable, EPI receivables, and UPS receivable in the 1992 10-K totaled approximately $2.5 million. As a result, Diagnostek overstated its net income before taxes by the same amount, or approximately 14 percent. b. Evans left Diagnostek for other employment shortly before the 1992 10-K was filed, and therefore did not sign the 1992 10-K. Evans nonetheless participated in the preparation of financial statements to be included in the 1992 10-K and considered himself responsible for the accuracy of those financial statements. 2 These included shipments sent to the wrong address by Diagnostek, shipments in which Diagnostek initially sent the wrong medication, shipments damaged due to packaging errors by Diagnostek, and "split orders" (in which the initial shipment contained only a portion of the order, with the subsequent shipment of the balance of that order treated as a replacement by HCS's computer system). Shipments "replaced" for reasons such as these were not chargeable to UPS under any circumstances. ==========================================START OF PAGE 7====== D. THE JUNE 10-Q 1. Drug-O-Matic Inventory a. Diagnostek used a machine called the drug-o-matic ("DOM") machine which automatically counted prescription drugs, when filling prescription orders. The DOM machine functioned by processing prescription drugs contained in plastic DOM cassettes. b. Soon after March 31, 1992, Diagnostek's Chief Executive Officer instructed his staff to discontinue the then-current practice of estimating the inventory in the cassettes at quarterly inventory observation dates. Instead, physical counts were to be performed. c. When preparing HCS inventory calculations to be used in preparing Diagnostek's financial statements for the June 10-Q, however, Sanginiti included both an estimate of the value of the DOM inventory of $675,000, and the physical count of the same DOM inventory. Sanginiti thus at least recklessly double-counted the DOM inventory. d. As a result, inventory was overstated, the cost of goods sold was understated and therefore net income before taxes was overstated in Diagnostek's June 10-Q by $675,000. 2. Plan Sponsor Refund a. In or around June 1991, Diagnostek changed its pricing procedures for prescriptions supplied to employees of one plan sponsor (the "Plan Sponsor"). The change was not entered into Diagnostek's accounting system and as a result, Diagnostek overcharged the Plan Sponsor. Diagnostek subsequently determined that it owed a refund of $170,000 to the Plan Sponsor. b. Upon sending this refund to the Plan Sponsor in June 1992, Diagnostek coded the transaction as a debit to accounts receivable, thereby increasing accounts receivable. Proper treatment would have been to record the transaction as a debit to income, thereby reducing income. Although the improper recording of this transaction was brought to Sanginiti's attention prior to the filing of the June 10-Q, he did not cause it to be corrected. c. As a result, Diagnostek knowingly or recklessly overstated accounts receivable and income in the June 10-Q by $170,000. ==========================================START OF PAGE 8====== 3. Summary Concerning June 10-Q a. The overstatement of DOM inventory and the improper recording of the Plan Sponsor refund together caused Diagnostek's net income before taxes reported in the June 10-Q to be overstated by a total of $845,000, or approximately 18 percent. E. DIAGNOSTEK'S SUBSEQUENT ADJUSTMENT AND RESTATEMENT OF ITS FINANCIAL STATEMENTS 1. On November 16, 1992, Diagnostek filed a Form 10-Q for the quarter ended September 30, 1992 ("September 10-Q"), that reflected a charge "in excess of customary levels" against income for bad debt expense. Diagnostek disclosed that this charge was incurred after a review of its accounts receivable. The September 10-Q disclosed: "This charge resulted in a decrease of operating income and net earnings of approximately $3.4 million and $2.1 million, respectively." At least $1.43 million of the $3.4 million charge related to accounts receivable that were overstated in the financial statements included in Diagnostek's 1992 10-K, including $830,000 in co-payments receivable and $600,000 in receivables from EPI as described in sections C.1. and C.2. above. 2. Also on November 16, 1992, Diagnostek restated its financial results for the quarter ended June 30, 1992, on Form 8. Thus, the June 10-Q had overstated net income before taxes for the first quarter by $1.3 million or 28 percent. The overstatements relating to DOM inventory and the Plan Sponsor refund accounted for $845,000 of this sum, or 18 percent of net income before taxes. F. LEGAL ANALYSIS 1. Violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 Thereunder a. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 require a company such as Diagnostek whose securities are registered with the Commission under Section 12 of the Exchange Act to file annual and quarterly reports with the Commission. Inherent in this requirement is that the filings be accurate; therefore, an issuer violates these provisions if it files a Form 10-K or Form 10-Q that contains materially false or misleading information. SEC v. Falstaff Brewing Corp., 629 F.2d 62, 72 (D.C. Cir. 1980); SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). Exchange Act Rule 12b-20 further requires the inclusion of any additional material information that is necessary to make required statements, in light of the circumstances under which they are made, not misleading. ==========================================START OF PAGE 9====== b. Diagnostek violated Section 13(a)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Diagnostek filed (i) a Form 10-K for its fiscal year ended March 31, 1992 and (ii) a Form 10-Q for the quarter ended June 30, 1992 that were false and misleading by overstating net income before taxes. Diagnostek overstated net income before taxes by at least $2.58 million or 14 percent in the 1992 10-K, and by at least $1.3 million or 28 percent in the June 10-Q. These overstatements were material. c. Sanginiti caused HCS to record the entries that resulted in the overstatements described above, notwithstanding that Sanginiti knew or recklessly disregarded that these entries lacked a reasonable basis. Accordingly, Sanginiti caused Diagnostek's violations of Section 13(a)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13. d. Evans approved the entries that caused the overstatements in the 1992 10-K described above. As chief financial officer, Evans had a responsibility to take sufficient steps to satisfy himself that there was a reasonable basis for these entries. See, e.g., In the Matter of John J. Cushma, Exchange Act Rel. No. 35691, Accounting and Auditing Enforcement Rel. No. 670 (May 9, 1995). Evans did not take such steps. He knew or should have known that these entries lacked a reasonable basis. Accordingly, Evans caused Diagnostek's violations of Section 13(a)(2) of the Exchange Act and Rules 12b-20 and 13a-1 with respect to the 1992 10-K. 2. Violations of Section 13(b)(2)(A) of the Exchange Act and Rule 13b2-1 Thereunder a. Section 13(b)(2)(A) of the Exchange Act requires every issuer that has securities registered with the Commission pursuant to Section 12 of the Exchange Act, such as Diagnostek, "to make and keep books, records and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of its assets." b. Diagnostek violated Section 13(b)(2)(A). By misstating co-payments receivable, the UPS receivable, and EPI receivables in the financial statements in its 1992 10-K, Diagnostek failed to keep books, records and accounts that accurately reflected its assets at March 31, 1992. As chief financial officer, Evans was responsible for the accuracy of Diagnostek's books and records. See, e.g., In the Matter of William Makadok, CPA, Exchange Act Rel. No. 34645, Accounting and Auditing Enforcement Rel. No. 588 (Sept. 8, 1994). By approving the entries that resulted in these misstatements, Evans caused Diagnostek's violations with respect to the 1992 10-K. ==========================================START OF PAGE 10====== c. In addition, by misstating the DOM inventory and improperly recording the Plan Sponsor refund in its June 10-Q, Diagnostek failed to keep books, records and accounts that accurately reflected its assets at June 30, 1992. d. Rule 13b2-1 provides that "[n]o person shall, directly or indirectly, falsify or cause to be falsified, any book, record or account subject to Section 13(b)(2)(A). . . ." By recording the entries that caused the misstatements described in Paragraphs III.F.2.b. and c. above, Sanginiti caused Diagnostek's books and records to be falsified. 3. Violations of Section 13(b)(2)(B) of the Exchange Act a. Under Section 13(b)(2)(B) of the Exchange Act, Diagnostek is required to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that, among other things, transactions are recorded as necessary to permit preparation of financial statements in conformity with Generally Accepted Accounted Principles ("GAAP") and to maintain accountability for assets. b. Diagnostek violated Section 13(b)(2)(B). Diagnostek failed to have in place adequate internal controls over the recording of co-payments receivable, inventory released in the replacement process, and claims for reimbursement for items lost or damaged in shipment. By failing to establish or maintain such controls, Evans and Sanginiti caused Diagnostek's violations of Section 13(b)(2)(B). 4. Violations of Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder a. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder make it unlawful for any person, "in connection with the purchase or sale of any security," to employ any device, scheme or artifice to defraud, to make untrue statements of material fact, to omit to state a material fact necessary in order to make the statements made, in the light of the circumstances under which they were made, not misleading, or to engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person through means or instruments of interstate commerce or the mails. To be "material," a misrepresentation or omission must relate to information that a reasonable investor would consider important in evaluating the merits of an investment. Basic v. Levinson, 485 U.S. 224, 230 (1988); TSC Indus. v. Northway, Inc., 426 U.S. 438, 445 (1976). b. Scienter is required to establish a violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. Aaron v. SEC, 446 U.S. 680, 695-97 (1980). Scienter is "a mental ==========================================START OF PAGE 11====== state embracing intent to deceive, manipulate or defraud." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12. (1976). Reckless conduct satisfies the scienter requirement. Id.; IIT v. Cornfeld, 619 F.2d 909, 923 (2d Cir. 1980). c. Diagnostek violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by intentionally or recklessly overstating net income before taxes in the financial statements included in its 1992 10-K and June 10-Q. Diagnostek intentionally or recklessly overstated net income before taxes by at least $2.58 million or 14 percent in its 1992 10-K, and by at least $845,000 or 18 percent in its June 10-Q. These overstatements were material. Sanginiti violated Section 10(b) and Rule 10b-5 by making the entries that produced these overstatements. d. The conduct of Diagnostek and Sanginiti occurred in connection with the purchase or sale of securities. Diagnostek's financial statements were included in its 1992 10-K and June 10- Q, which Diagnostek released to the public. Diagnostek's stock is traded on the NYSE. See SEC v. Texas Gulf Sulphur Co., 401 F.2d 833, 860-61 (2d Cir. 1968) (holding that the "in connection with" requirement is satisfied when an issuer makes public announcements while its stock is publicly traded), cert. denied, 394 U.S. 976 (1969). e. Diagnostek and Sanginiti acted with scienter. In connection with the financial statements included in the 1992 10- K, Diagnostek and Sanginiti (i) intentionally or recklessly recorded $830,000 in co-payments receivable for which there was insufficient evidence of existence or collectibility; (ii) intentionally or recklessly continued to carry the EPI receivables on its books at a time when it was clear that they were uncollectible; and (iii) intentionally or recklessly recorded a $1.5 million UPS receivable for which there was insufficient evidence of existence or collectibility. f. Further, in connection with the financial statements included in the June 10-Q, Diagnostek and Sanginiti (i) at least recklessly double-counted $675,000 in DOM inventory; and (ii) intentionally or recklessly recorded the Plan Sponsor refund improperly. IV. A. While engaged in the conduct described above, Respondents, directly and indirectly, used the means or instrumentalities of interstate commerce, or of the mails. B. Based on the foregoing, the Commission finds that ==========================================START OF PAGE 12====== Diagnostek violated Sections 10(b), 13(a), and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder. C. Based on the foregoing, the Commission finds that Sanginiti (i) violated Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder; and (ii) caused Diagnostek's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. D. Based on the foregoing, the Commission finds that Evans engaged in improper professional conduct and caused Diagnostek's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. V. In view of the foregoing, it is in the public interest to impose the sanctions specified in the Offer. Accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that: A. Diagnostek shall, effective immediately, cease and desist from committing or causing any violation, and from committing or causing any future violation, of Sections 10(b), 13(a), and 13(b)(2) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, and 13a-13 thereunder; B. Sanginiti shall, effective immediately, cease and desist from committing or causing any violations, and any future violation, of Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and causing any violations and any future violation of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1, and 13a-13 thereunder. C. Evans shall, effective immediately, cease and desist from causing any violations, and any future violation, of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. IT IS HEREBY FURTHER ORDERED, pursuant to Rule 102(e) of the Commission's Rules of Practice, effective immediately, that Evans be, and hereby is, denied the privilege of appearing or practicing before the Commission as an accountant, provided, however, that: D. after nine months from the date of this Order, Evans may resume appearing or practicing before the Commission as a preparer or reviewer, or a person responsible for the preparation or review, of financial statements of a public company to be filed with the ==========================================START OF PAGE 13====== Commission, upon submission of an application to the Office of the Chief Accountant containing a showing satisfactory to the Commission that Evans' work, in his practice before the Commission, will be reviewed by the independent audit committee of any company with which he is or becomes associated, or in some other manner acceptable to the Commission; and E. after nine months from the date of this Order, Evans may resume appearing and practicing before the Commission as an independent accountant upon submission of an application to the Office of the Chief Accountant containing a showing satisfactory to the Commission that: 1. Evans or any firm with which Evans is or becomes associated in any capacity as an auditor is a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section") and he or the firm has received an unqualified report relating to its most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and 2. Evans has undertaken to remain a member or be associated with a member of the SEC Practice Section as long as he practices before the Commission, and will comply with all applicable SEC Practice Section requirements, including all requirements for periodic peer reviews, concurring partner reviews, and continuing professional education, as long as he appears or practices before the Commission. F. The Commission's review of any application by Evans to resume appearing or practicing before the Commission may include consideration of any other matter relating to the character, integrity, professional conduct or qualifications of Evans to practice before the Commission. By the Commission. Jonathan G. Katz Secretary