UNITED STATES OF AMERICA before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 38572 / May 2, 1997 Accounting and Auditing Enforcement Release No. 913 / May 2, 1997 Administrative Proceeding File No. 3-9305 ------------------------------------ : In the Matter of : ORDER INSTITUTING : PROCEEDINGS, AND NICHOLAS J. PACE, CPA : OPINION AND ORDER : PURSUANT TO RULE 102(e) Respondent. : OF THE COMMISSION'S : RULES OF PRACTICE : ------------------------------------ I. The Securities and Exchange Commission deems it appropriate and in the public interest that administrative proceedings be instituted pursuant to Rule 102(e)(2) and (3)-[1]- of the Commission's Rules of Practice [17 C.F.R.  201.102(e)(2) and 102(e)(3)] against Nicholas J. Pace ("Pace"), former chief ---------FOOTNOTES---------- -[1]- Rule 102(e)(2) provides in pertinent part: Any. . .person who has been convicted of a felony or a misdemeanor involving moral turpitude shall be forthwith suspended from appearing or practicing before the Commission. Rule 102(e)(3) provides in pertinent part: (i) The Commission with due regard to the public interest and without preliminary hearing, may, by order,. . . suspend from appearing or practicing before it any . . . accountant . . . who has been by name: (A) permanently enjoined by any court of competent jurisdiction, by reason of his or her misconduct in an action brought by the Commission, from violating. . . any provision of the Federal securities laws or of the rules and regulations thereunder. . . ==========================================START OF PAGE 2====== financial officer of Valley Systems, Inc. of Canal Fulton, Ohio. II. In anticipation of the institution of these proceedings, Pace 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 proceeding brought by or on behalf of the Commission, or to which the Commission is a party, Pace (i) admits the jurisdiction of the Commission over him and the subject matter of these proceedings, (ii) admits the felony conviction in the action entitled United States v. Nicholas J. Pace, Criminal No. 5:96 CR 205 (N.D. Ohio, Dowd), (iii) admits the entry of the Final Judgment as to Nicholas J. Pace in the action entitled Securities and Exchange Commission v. Nicholas J. Pace and Eugene R. Valentine, Case No. 5.95CV 1999 (N.D. Ohio, Dowd), (iv) otherwise neither admits nor denies the findings and conclusions set forth herein, and (v) 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 ("Order") [17 C.F.R.  201.102(e)]. The Commission has determined that it is appropriate and in the public interest to accept Pace's Offer and accordingly it is issuing this Order. ACCORDINGLY, IT IS ORDERED that the proceedings pursuant to Rule 102(e) of the Commission's Rules of Practice be and hereby are instituted. III. FINDINGS Based on the foregoing and the Offer submitted by Pace, the Commission finds that: A. Pace is a certified public accountant licensed by the State of Ohio. During 1991 and 1992, Pace was chief financial officer of Valley Systems, Inc. ("Valley"), a Delaware corporation with its principal offices located in Canal Fulton, Ohio. B. At all relevant times, Valley's common stock was registered pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act") [15 U.S.C.  78l(g)], and Valley filed periodic and annual reports with the Commission. Pace 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 July 3, 1996, Pace pled guilty to a one-count ==========================================START OF PAGE 3====== information charging him with violating Section 1341 of Title 18, United States Code (mail fraud). The information charged that Pace, as part of a scheme and artifice to defraud, caused false entries to be made in Valley's books and records, and reports filed with the Commission. The information further charged that Pace caused to be mailed: (1) false monthly payroll reports to Valley's workers compensation carrier; (2) false quarterly reports to a bank from which Valley borrowed money; and (3) a confirmation sent by Valley's independent auditors of false invoices Pace caused to be recorded in Valley's books and records. United States v. Nicholas J. Pace, Criminal No. 5:96 CR 205 (N.D. Ohio, Dowd). Pace was sentenced by the Court on February 28, 1997. D. On January 24, 1997, the United States District Court for the Northern District of Ohio entered a Final Judgment that: (1) permanently enjoined Pace from violating Section 17(a) of the Securities Act of 1933 [15 U.S.C.  77q(a)], Section 10(b) of the Exchange Act [15 U.S.C.  78j(b)], and Rules 10b-5, 13b2-1 and 13b2-2 [17 C.F.R.  240.10b-5, 13b2-1 and 13b2-2]; (2) ordered Pace to disgorge an amount equal to losses illegally avoided by insider trading plus prejudgment interest thereon; and (3) prohibited Pace from serving as an officer or director of any issuer having a class of securities registered pursuant to Section 12 of the Exchange Act or required to file reports pursuant to Section 15(d) of the Exchange Act. E. The Amended Complaint in the civil injunctive action, SEC v. Nicholas J. Pace and Eugene R. Valentine, Case No. 5.95 CV 1999 (N.D. Ohio, Dowd), alleged that Pace engaged in a fraudulent scheme which resulted in Valley's filing with the Commission three quarterly reports for fiscal year 1992 that materially overstated net income because: (1) certain costs were arbitrarily capitalized that should have been expensed; (2) loans from officers were recorded as revenue; and (3) workers compensation insurance expenses were materially understated. The Amended Complaint also alleged that Pace recorded $1.14 million in fictitious revenue in Valley's books and records in the fourth quarter of the fiscal year 1992 and lied to Valley's auditors during the audit of Valley's fiscal year 1992 financial statements. IV. In view of the foregoing, the Commission deems it appropriate and in the public interest to accept Pace's Offer, and, ACCORDINGLY IT IS HEREBY ORDERED, effective immediately, that Pace be, and hereby is, denied the privilege of appearing or practicing before the Commission as an accountant. ==========================================START OF PAGE 4====== By the Commission. Jonathan G. Katz Secretary