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U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17291 / December 27, 2001

Accounting and Auditing Enforcement Release No. 1480 / December 27, 2001

SECURITIES AND EXCHANGE COMMISSION V. NELSON BARBER (United States District Court for the District of Columbia, C. A. No. 1:01CV02670).

On December 27, 2001, the Securities and Exchange Commission filed a civil injunctive action in U.S. District Court against Nelson Barber, the former Chief Financial Officer of Fine Host Corporation, alleging that Barber caused Fine Host to engage in an extensive financial fraud. Fine Host, a provider of food and beverage services to sports arenas, prisons, and schools, was at that time a public company with common stock listed for trading on the Nasdaq National Market System and a market capitalization that reached approximately $390 million. When the fraud was detected, the stock lost essentially all of its value. Fine Host subsequently entered a reorganization proceeding under Chapter 11 of the U.S. Bankruptcy Code, from which it emerged as a private company.

According to the Commission's complaint:

  • The fraud predated Fine Host's June 1996 initial public offering by several years and continued through the third quarter of the fiscal year ended December 31, 1997;

  • The primary mechanism of the fraudulent scheme was the improper capitalization of millions of dollars of company expenses as assets;

  • Barber also caused Fine Host to manipulate acquisition reserve accounts, income from vendor rebates, and other items for the purpose of managing reported earnings;

  • In February 1998 Fine Host issued a restatement of its financial statements indicating that from 1992 through the third quarter of 1997, Fine Host overstated its pretax income by over $49 million. For fiscal years 1994, 1995 and 1996, Fine Host overstated its pretax income by 149%, 213%, and 197%, respectively. For the first, second, and third quarters of fiscal 1997, the Company overstated its pretax income by 324%, 320%, and 170%, respectively.

The Complaint alleges that Barber, through the conduct described above, violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Sections 10(b), and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rules 10b-5, 13b2-1, and 13b2-2, promulgated thereunder, and aided and abetted Fine Host's violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B), of the Exchange Act and Rules 13a-1 and 13a-13 thereunder.

In settlement of the Commission's claims, Barber, without admitting or denying the allegations of the Complaint, consented to the entry of a Final Judgment of the District Court: 1) permanently enjoining him from violating or aiding and abetting violations of each of the above provisions of the securities laws; 2) permanently barring him from acting as an officer or director of any public company; and 3) ordering him to pay a $20,000 civil penalty, pursuant to Section 21(d)(3) of the Exchange Act.

In related matters, the Commission issued settled administrative actions against three certified public accountants: Rachel Eckhaus, the former assistant controller of Fine Host; Jeffrey Bascik, the engagement partner for the Deloitte & Touche audits of Fine Host's financial statements for the affected periods; and Barbara Horvath, the Deloitte & Touche manager on certain of those audit engagements. Without admitting or denying the Commission's findings, each respondent consented to the entry of a Commission Order finding, among other things, that the respondent engaged in improper professional conduct for purposes of Rule 102(e)(1) of the Commission's Rules of Practice. The Order in Horvath's case censures her and the Orders in Eckhaus's and Bacsik's cases deny them both the privilege of appearing or practicing before the Commission as an accountant, with the right to request reinstatement after two years.

For further information on the related matters, see Exchange Act Release Nos. 34-45195, 34-45196, 34-45197.


*  SEC Complaint in this matter.


http://www.sec.gov/litigation/litreleases/lr17290.htm

Modified: 01/10/2002