UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 36382 / October 17, 1995 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 732 / October 17, 1995 ADMINISTRATIVE PROCEEDING File No. 3-8867 --------------------------------------- : ORDER INSTITUTING PROCEEDINGS In the Matter of : AND OPINION AND ORDER : PURSUANT TO RULE 102(e) GARY E. STERN, CPA : OF THE COMMISSION'S RULES OF : PRACTICE Respondent. : : --------------------------------------- I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Gary E. Stern, CPA ("Stern") pursuant to Rule 102(e)(1) of the Commission's Rules of Practice.1 Accordingly, IT IS HEREBY ORDERED that these proceedings be, and hereby are, instituted. II. In anticipation of the institution of this administrative proceeding, Stern has submitted an Offer of Settlement which the Commission has determined to accept. Solely for the purpose of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, Stern ------------------ BEGINNING OF PAGE #1 ------------------- Rule 102(e)(1) of the Commission's Rules of Practice, 17 C.F.R. Section 201.102(e), provides in pertinent part: The Commission may censure a person or 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. consents, without admitting or denying any findings set forth herein, except as to jurisdiction, which he admits, to the issuance of this Order Instituting Proceedings and Opinion and Order Pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice and Opinion and Order of the Commission ("Order") and to the entry of the findings and imposition of the remedial sanctions as set forth below. III. On the basis of this Order and Stern's Offer of Settlement, the Commission finds that:-[2]- A. Stern, 42 years old, has been licensed as a certified public accountant in Florida since 1982. Since 1991, he has been a sole practitioner CPA. B. Met Capital Corporation ("Met"), a Delaware corporation located in Boca Raton, Florida, became registered with the Commission under Section 12(g) of the Securities Exchange Act of 1934 in 1988. C. On July 15, 1992, Stern signed his name to an unqualified audit report on Met's consolidated financial statements as of December 31, 1991. This report and the financial statements were included in the Form 10-K filed with the Commission on July 16, 1992. D. Stern's unqualified audit report stated that he conducted the audit in accordance with generally accepted auditing standards ("GAAS") and that the financial statements presented Met's financial condition and results of operations in conformity with generally accepted accounting principles ("GAAP"). E. Stern's unqualified report stated that another auditor had furnished a report to him on a consolidated subsidiary whose assets constituted 53% of Met's assets. In fact, no such report existed. Accordingly, Stern violated Section 543 of the Codification of Statements on Auditing Standards ("AU") promulgated by the American Institute of Certified Public Accountants. F. Stern also failed to comply with AU Section 560, Subsequent Events, by failing to require Met to disclose that Met had suffered over $1,000,000 in losses resulting from the foreclosure on or sale of buildings and equipment. --------- FOOTNOTES --------- 2 The findings herein are made pursuant to Stern's Offer of Settlement and are not binding on any other person or entity named as a respondent in this or any other proceeding. 2 G. In November 1992, Stern withdrew the report described above and, on December 4, 1992, issued another unqualified audit report on Met's consolidated financial statements as of December 31, 1991. This report and the financial statements were included in a Form 10-K A filed with the Commission on December 11, 1992. H. Stern's unqualified audit report of December 4, 1992 also stated that he conducted the audit in accordance with GAAS and that the financial statements presented Met's financial condition and results of operations in conformity with GAAP. I. The value of Met's major asset, Land Held For Development, which had been acquired from a related party under common control, was not presented in accordance with GAAP because it was not valued at predecessor cost as required by GAAP and Stern failed to gather sufficient competent evidential matter in support of the value assigned, in violation of AU Section 326. J. Accordingly, for the reasons set forth above, Stern engaged in improper professional conduct, within the meaning of Rule 102(e)(1)(ii) of the Commission's Rules of Practice. IV. Based on the foregoing, the Commission deems it appropriate and in the public interest to accept Stern's Offer of Settlement. Accordingly, IT IS ORDERED that: 1. Effective immediately, Stern be, and hereby is, denied the privilege of appearing or practicing before the Commission. 2. Three years after the date of this Opinion and Order, Stern may apply to the Commission and request that he be permitted to resume appearing or practicing before the Commission as: a. a preparer or reviewer of financial statements required to be filed with the Commission or a person responsible for the preparation or review of financial statements required to be filed with the Commission provided that, in Stern's practice before the Commission, his work will be reviewed by the independent audit committee of the company or in some other manner acceptable to the staff of the Commission; b. an independent public accountant upon submission of an application to the Office of the Chief Accountant of the Commission containing a showing satisfactory to the Commission that: i) Stern, or any firm with which he is or 3 becomes associated in any capacity, is and will remain a member of the SEC Practice Section of the American Institute of Certified Public Accountants Division for CPA Firms ("SEC Practice Section"); ii) Stern, or any firm with which he is or becomes associated, has received an unqualified report relating to his or its most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and iii) Stern 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 as an independent public accountant. 3. The Commission's review of any request or application by Stern to resume appearing or practicing before the Commission may include consideration of, in addition to the matter referred to above, any other matters relating to Stern's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. By the Commission. Jonathan G. Katz Secretary 4