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U.S. Securities and Exchange Commission

SECURITIES AND EXCHANGE COMMISSION
Washington, D.C.

LITIGATION RELEASE NO. 17951 / January 27, 2003

ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1704 / January 27, 2003

SECURITIES AND EXCHANGE COMMISSION v. SOLUCORP INDUSTRIES LTD., ET AL., 99 Civ. 11965 (S.D.N.Y.) (WCC)

FORMER AUDITOR OF SOLUCORP INDUSTRIES LTD.'S
FINANCIAL STATEMENTS IS ENJOINED
Former Auditor Barred From Appearing or Practicing
Before the Commission For Two Years

On January 16, 2003, the Commission obtained a final judgment against Glenn R. Ohlhauser, a Canadian Chartered Accountant and former engagement partner on audits of the financial statements of Solucorp Industries Ltd., a Yukon Territory corporation headquartered in West Nyack, New York that engages in environmental remediation. The United States District Court for the Southern District of New York entered the final judgment against Ohlhauser. The judgment permanently enjoins Ohlhauser from violating Section 10A of the Securities Exchange Act of 1934 by, among other things, failing to take the steps required by that section on detecting or otherwise becoming aware of information, during the course of auditing a public company, that an illegal act has or may have occurred. Without admitting or denying the Commission's allegations against him, Ohlhauser consented to the entry of the final judgment.

The Commission's complaint in this case, which was filed in December 1999 and amended in October 2000 and September 2001, charged Ohlhauser with failing to take appropriate action on discovering possible illegal conduct during an audit of Solucorp's December 31, 1997 financial statements. The Complaint, which also names Solucorp and certain of its current and former officers and directors as defendants, alleges that Solucorp's management backdated a license agreement in order to cover-up Solucorp's improper recognition during the quarter ended September 30, 1997 of $500,000 in license fees, or 40% of its revenues, and to materially overstate revenues for the six-month reporting period ended December 31, 1997. (See Lit. Rel. No. 16388/December 13, 1999) The Complaint further alleges that, on being presented during the audit with the final license agreement, Ohlhauser reasonably concluded that the agreement appeared to have been backdated for improper accounting purposes. He allegedly failed, however, to take the appropriate steps under Section 10A to determine, in accordance with generally accepted auditing standards, the likelihood that an illegal act had occurred, and to disclose, or assure the disclosure of, any illegal acts that he uncovered. (See Lit. Rel. No. 16785/October 31, 2000) The illegal acts at issue here included the commission of fraud by Solucorp's president, who is alleged to have purposefully backdated the license agreement for purposes of supporting Solucorp's improper revenue recognition.

In a related proceeding, the Commission today issued an administrative order pursuant to Rule 102(e) of its Rules of Practice that denies Ohlhauser the privilege of appearing or practicing before the Commission as an accountant, with a right to apply for reinstatement after two years. In addition to finding that Ohlhauser has been permanently enjoined, as described above, the Commission finds in its Order that Ohlhauser engaged in improper professional conduct. This is based on Ohlhauser's failure to exercise professional skepticism and to gather competent evidential matter concerning the collectibility of license fees to afford a reasonable basis for the issuance of an unqualified audit report regarding Solucorp's December 31, 1997 financial statements. Ohlhauser, who admits to the Commission's finding that a final judgment was entered against him, but neither admits nor denies the second finding of improper professional conduct, consented to the entry of the administrative order against him. See In the Matter of Glenn R. Ohlhauser, C.A., Admin. Proc. No. 3-11018 (January 27, 2003).

The case is still pending against the remaining defendants, Solucorp Industries Ltd., Joseph S. Kemprowski, Peter R. Mantia, James G. Spartz, Robert Kuhn, Victor Herman, Arle Pierro and W. Bryan Fair.

 

http://www.sec.gov/litigation/litreleases/lr17951.htm


Modified: 01/27/2003