UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 38217 / January 29, 1997 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 874 / January 29, 1997 Administrative Proceeding File No. 3-9231 --------------------------------- : In the Matter of : ORDER INSTITUTING PROCEEDINGS : AND OPINION AND ORDER DAVID KEERY, CPA, : PURSUANT TO RULE 102(e) OF : THE COMMISSION'S RULES OF Respondent. : PRACTICE : --------------------------------- I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against David Keery ("Keery"), a certified public accountant, pursuant to Rule 102(e)(3)-[1]- of the Commission's Rules of Practice [17 C.F.R. 201.102(e)(3)]. In anticipation of the institution of these proceedings, Keery has submitted an Offer of Settlement ("Offer") to the Commission, which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings bought by or on behalf of the Commission, or to which ---------FOOTNOTES---------- -[1]- Rule 102(e)(3) provides in pertinent part: The Commission, with due regard to the public interest may suspend from appearing or practicing before it any accountant who has been by name permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating or aiding and abetting the violation of any provision of the Federal securities laws [15 U.S.C. 77a to 80b-20] or of the rules and regulations thereunder . . . . A person who has consented to the entry of a permanent injunction without admitting the facts set forth in the complaint shall be presumed for all purposes under this paragraph (e)(3) to have been enjoined by reason of the misconduct alleged in the complaint. ==========================================START OF PAGE 2====== the Commission is a party, Keery (i) admits the jurisdiction of the Commission over him and the subject matter of these proceedings, (ii) admits entry of the Final Judgment As To David Keery in the action entitled SEC v. Morris Dabah, et al. (S.D. N.Y., Civ. No. 9498), (iii) otherwise neither admits nor denies the findings and conclusions set forth herein, and (iv) consents to the entry of this Order Instituting Proceedings and Opinion and Order pursuant to Rule 102(e) of the Commission's Rules of Practice ("Opinion and Order") [17 C.F.R. 201.102(e)]. Accordingly, IT IS HEREBY ORDERED that proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice be and hereby are instituted. II. FINDINGS On the basis of this Opinion and Order and Keery's Offer, the Commission finds-[2]- that: A. Keery, age 62, is a certified public accountant licensed by the State of New York. Among other employment, from January 1989 until March 1993, Keery served as vice president and senior financial officer of The Gitano Group, Inc. ("Gitano"), a now-defunct Delaware corporation with its principal place of business in Manhattan, New York. B. At all relevant times, Gitano's common stock was registered pursuant to Section 12(b) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C. 78l(b)], and Gitano filed periodic and annual reports with the Commission. Keery has practiced before the Commission within the meaning of Rule 102(f) of the Commission's Rules of Practice [17 C.F.R. 201.102(f)] in connection with the preparation of financial statements and other documents filed with the Commission. C. On December 24, 1996 the United States District Court for the Southern District of New York entered a Final Judgment As To David Keery, permanently enjoining him from violations of Sections 10(b) and 13(b)(5) of the Exchange Act [15 U.S.C. 78j(b) and 78m(b)(5)] and Rules 10b-5, 13b2-1 and 13b2-2 thereunder [17 C.F.R. 240.10b-5, 240.13b2-1 and 240.13b2-2]. D. The Commission's complaint alleged that, by the second quarter of 1991, Keery knew Gitano had unrecorded losses associated with a particular transaction, that he proposed to ---------FOOTNOTES---------- -[2]- The findings herein are made pursuant to Keery's Offer of Settlement and are not binding on any other person or entity in these or any other proceedings. ==========================================START OF PAGE 3====== Gitano's chief financial officer that Gitano establish a reserve for such losses, and that the chief financial officer directed him not to do so. In addition, the complaint alleged that Keery was directed to change the due dates reflected on Gitano's accounts receivable aging reports for an uncollected receivable arising from the loss transaction. The complaint further alleged that Keery in turn arranged for the aging reports to be altered, and that Keery and the chief financial officer did not disclose to Gitano's independent accountants that they had caused the aging reports to be altered. By falsifying Gitano's books and records, the complaint alleged, Keery and the chief financial officer caused Gitano to delay recording losses from this transaction from the second quarter of 1991 until the second quarter of 1992. The Complaint alleged that Gitano disclosed a $3.3 million loss on the transaction on July 31, 1992. E. The Commission alleged in the complaint that, as a result of Keery's and the chief financial officer's falsification of the aging reports, Gitano's financial statements for the second and third quarters of 1991, and for the first quarter of 1992, were materially false, and that its Form 10-K for the year 1991 was also false. F. The complaint further alleged that Keery and the chief financial officer knowingly or recklessly caused Gitano to file with the Commission three quarterly reports which materially understated Gitano's losses, in violation of Section 10(b) of the Exchange Act [15 U.S.C. 78j(b)] and Rule 10b-5 thereunder [17 C.F.R. 240.10b-5]. By knowingly failing to record losses on the transaction, the complaint alleged, falsifying Gitano's aging reports, and causing financial statements filed with the Commission to be false, Keery and the chief financial officer violated Section 13(b)(5) of the Exchange Act [15 U.S.C. 78m(b)(5)] and Rule 13b2-1 thereunder [17 C.F.R. 240.13b2-1]. By causing materially false statements or omissions to be made to Gitano's independent accountants in connection with their audit of Gitano's financial statements or the preparation of Gitano's periodic reports, the complaint alleged, Keery and the chief financial officer also violated Rule 13b2-2 under the Exchange Act [17 C.F.R. 240.13b2-2]. ==========================================START OF PAGE 4====== III. OFFER OF SETTLEMENT Keery has submitted an Offer to the Commission in which he, prior to a hearing pursuant to the Commission's Rules of Practice, 17 C.F.R. 201.100 et seq., and without admitting or denying the findings set forth above, except that he admits the jurisdiction of the Commission with respect to the matters set forth in this Opinion and Order, consents to the issuance of the Order permanently denying him the privilege of appearing or practicing before the Commission as an accountant with a right to apply for readmission after five years from the date of the Order as is set forth in Paragraph IV.B. of the Order. Based on the foregoing, the Commission deems it appropriate and in the public interest to accept Keery's Offer and to impose the sanctions consented to therein. IV. ORDER Accordingly, IT IS HEREBY ORDERED, effective immediately, that: A. Keery is denied the privilege of appearing or practicing before the Commission as an accountant. B. Five years from the date of this Order, Keery may apply to the Commission by submitting an application to the Office of the Chief Accountant which requests that he be permitted to resume appearing or practicing before the Commission as: 1. 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 Commission upon submission of an application satisfactory to the Commission in which Keery undertakes that, in his practice before the Commission, his work will be reviewed by the independent audit committee of the company for which he works or in some other manner acceptable to the Commission; 2. an independent accountant upon submission of an application containing a showing satisfactory to the Commission that: a. Keery, or any firm with which he is or 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") as long as he appears or practices before the ==========================================START OF PAGE 5====== Commission as an independent accountant; b. Keery or the firm has received an unqualified report relating to his or the firm's most recent peer review conducted in accordance with the guidelines adopted by the SEC Practice Section; and c. Keery 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 accountant. 3. The Commision's review of any request or application by Keery to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matter relating to Keery's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. By the Commission. Jonathan G. Katz Secretary