UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 39147 / September 30, 1997 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 968 / September 30, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9450 : In the Matter of : ORDER INSTITUTING : PROCEEDING PURSUANT TO PHILIP MCINNES, : SECTION 21C OF THE : SECURITIES EXCHANGE ACT Respondent. : OF 1934, MAKING FINDINGS : AND IMPOSING A CEASE-AND- : DESIST ORDER : I. The Securities and Exchange Commission (the "Commission") deems it appropriate that a public administrative proceeding be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Philip McInnes ("McInnes" or "Respondent"). Accordingly, IT IS HEREBY ORDERED that said proceeding be, and hereby is, instituted. II. In anticipation of the institution of this administrative proceeding McInnes has submitted an Offer of Settlement, dated December 7, 1996, which the Commission has determined to accept. Solely for the purposes of this proceeding 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 herein, except that McInnes admits the jurisdiction of the Commission over it and over the subject matter of this proceeding, McInnes consents to the entry of this Order Instituting Proceeding Pursuant to Section 21C of the Securities Exchange Act of 1934, Making Findings and Imposing a Cease-and-Desist Order ("Order") and to ======END OF PAGE 1====== the entry of the findings and imposition of the sanctions as set forth below. III. FINDINGS On the basis of this Order and of the Offer of Settlement of McInnes, the Commission makes the following findings<(1)>: A. RESPONDENT Respondent Philip McInnes ("McInnes") was, during at least the first half of 1994, the Vice President of International Sales for the Broadcast Division of IDB Communications Group, Inc. ("IDB"). B. MCINNES ASSISTED IN PREPARING FALSE DOCUMENTATION IDB was, until early 1995, a public corporation with its common stock registered with the Commission under Section 12(g) of the Exchange Act and traded on the over-the-counter market through NASDAQ. In early 1995, IDB was acquired by LDDS Communications, Inc., which has changed its name to WorldCom, Inc. ("WorldCom") and is currently a wholly-owned subsidiary of WorldCom. On April 26, 1994, IDB issued a press release announcing its first quarter 1994, for the period ending March 31, 1994, operating results, including pre-tax earnings of approximately $15 million. At the time of the press release, IDB had engaged a firm of independent accountants (the "accounting firm") to review IDB's first quarter financial statements before IDB included them in its first quarter Form 10-Q to be filed with the Commission. On May 23, 1994, IDB filed its Form 10-Q for the first quarter of 1994, reporting pre-tax earnings of approximately $15 million. On May 31, 1994, IDB filed a Form 8-K with the Commission announcing that on May 23, 1994, the same date that IDB had filed its Form 10-Q, the accounting firm had resigned. According to the Form 8-K, the accounting firm resigned because it disagreed with IDB's quarterly earnings and questioned various of IDB's accounting adjustments constituting a material portion of IDB's quarterly earnings. In one of the adjustments questioned by the accounting firm, IDB recorded an approximate $5 million gain on the sale of certain assets. McInnes knowingly participated in preparing false documents, which McInnes knew that IDB would use, and did use, to support the gain. McInnes also knew, at the time, that IDB's system of internal controls required that IDB's transactions be properly supported before they could be recorded. <(1)> The findings herein are made pursuant to Respondent McInnes' Offer of Settlement and are not binding on any other person or entity named as a respondent in this or any other proceeding. ======END OF PAGE 2====== C. APPLICABLE LAW Section 13(b)(5) of the Exchange Act provides, among other things, that no person shall knowingly circumvent a system of internal accounting controls maintained by a reporting issuer, or knowingly falsify any book, record or account maintained by such an issuer. Similarly, Exchange Act Rule 13b2-1 provides that no person shall, directly or indirectly, falsify or cause the falsification of any book, record or account of a reporting issuer. McInnes knowingly helped to prepare false documents that he knew IDB would use to support an adjustment questioned by the accounting firm. In doing so, McInnes violated Section 13(b)(5) and Rule 13b2-1 thereunder by circumventing IDB's internal controls and falsifying documents. D. CONCLUSION Accordingly, based on the foregoing, the Commission finds that McInnes violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. IV. Based on the foregoing, the Commission deems it appropriate to accept the Offer of Settlement of McInnes and accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that McInnes cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act and Rule 13b2- 1 thereunder. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 3======