UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 40106 / June 22, 1998 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 1047 / June 22, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9628 ______________________________ : ORDER INSTITUTING PUBLIC In the Matter of : ADMINISTRATIVE PROCEEDING : PURSUANT TO RULE 102(e) OF THE PAUL R. SAFRONCHIK, CPA : COMMISSION'S RULES OF PRACTICE, : MAKING FINDINGS AND IMPOSING Respondent. : REMEDIAL SANCTION ______________________________: I. The Securities and Exchange Commission (the "Commission") deems it appropriate and in the public interest that a public administrative proceeding be, and it hereby is, instituted pursuant to Rules 102(e)(1)<(1)> and 102(e)(3)2<(1)> of the Commission's Rules of <(1)>/ Rule 102(e)(1) provides, in pertinent part, that: "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 and opportunity for hearing in the matter: . . . (iii) To have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder." <(1)>/ Rule 102(e)(3)(i) provides, in pertinent part, that: "The Commission, with due regard to the public interest and without preliminary hearing, may, by order, temporarily suspend from appearing or practicing before it any . . . accountant . . . who has been by name: (continued...) ======END OF PAGE 1====== Practice [17 C.F.R.  201.102(e)(1) and (3)] against Paul R. Safronchik, also known as Pablo Reuben Safronchik, ("Safronchik"). II. In anticipation of the institution of this proceeding, Safronchik has submitted an Offer of Settlement ("Offer"), 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 to which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except that he admits the jurisdiction of the Commission over him and over the subject matter of this proceeding, and that a Final Judgment Of Permanent Injunction And Other Relief has been entered against him as set forth in paragraph III.C. below, Safronchik consents to the entry of this Order Instituting Public Administrative Proceeding Pursuant To Rule 102(e) Of The Commission's Rules Of Practice, Making Findings And Imposing Remedial Sanction ("Order") set forth below. Accordingly, IT IS ORDERED that a proceeding pursuant to Rules 102(e)(1) and 102(e)(3) of the Commission's Rules of Practice be, and hereby is, instituted. III. On the basis of this Order and the Offer, the Commission finds that: A. THE RESPONDENT Safronchik, age 37, resides in Aurora, Oregon, and is a certified public accountant in California and Oregon. He was chairman of the board of directors and chief executive officer of Home Theater Products International, Inc. ("HTPI") and its predecessor, Home Theater Products, Inc. ("Home Theater Products"), from July 1990 until his resignation on October 23, 1995. On or about December 11, 1996, Safronchik pled guilty in the United States District Court for the Central District of California to conspiracy, and bank and securities fraud as a result of his falsification of HTPI's books and records and overstatement of HTPI's sales and income in reports filed with the Commission. United States v. Pablo Reuben Safronchik, aka Paul R. Safronchik, SA CR 96-141-GLT. B. RELATED ENTITY <(1)>(...continued) (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 or aiding and abetting the violation of any provision of the federal securities laws or of the rules and regulations thereunder. . . ." ======END OF PAGE 2====== HTPI is a Delaware corporation incorporated on February 15, 1994, with headquarters in Anaheim, California. HTPI formerly manufactured loudspeakers and home theater systems, which it sold to rent-to-own and other electronic retailers. Its predecessor, Home Theater Products, was co-founded by Safronchik in July 1990. Home Theater Products became a public company, HTPI, in August 1993. HTPI's common stock is registered with the Commission pursuant to Section 12(g) of the Securities Exchange Act of 1934 ("Exchange Act"). HTPI's common stock was quoted on the NASDAQ National Market System from April 7, 1994 until it was delisted on September 25, 1995, following the withdrawal of audit reports for fiscal years ended June 30, 1992 through June 30, 1994. On April 3, 1996, HTPI filed a voluntary petition for relief under Chapter 11 of the Bankruptcy Code. HTPI has since sold most of its assets and filed a Chapter 11 liquidation plan. In re Home Theater Products International, Inc., Case No. SA 96-13745-JR (C.D. Cal). C. THE COMMISSION'S INJUNCTIVE ACTION On May 13, 1998, the Commission filed an action against Safronchik in the United States District Court for the Central District of California alleging violations of Sections 5(a), 5(c) and 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and alleging violations as a control person under Section 20(a) of the Exchange Act of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder, seeking a permanent injunction, disgorgement, prejudgment interest, civil penalties and an officer and director bar. Simultaneously with the filing of the Complaint, Safronchik consented, without admitting or denying the allegations in the Complaint, to a final judgment of permanent injunction ordering him to pay disgorgement in the amount of $577,500, plus prejudgment interest, and civil penalties pursuant to Section 20(d) of the Securities Act and Sections 21A(a)(2) and 21(d)(3) of the Exchange Act for violating the above provisions. On June 3, 1998, the District Court entered the permanent injunction against Safronchik, waiving payment of disgorgement, prejudgment interest and civil penalties based upon Safronchik's demonstrated inability to pay. The court also entered an order barring Safronchik from serving as an officer or director of any reporting company pursuant to Section 20(e) of the Securities Act and Section 21(d)(2) of the Exchange Act. Securities and Exchange Commission v. Paul R. Safronchik, Civil Action No. SACV-98-416-GLT (EEx)(C.D. Cal). The Commission's Complaint alleged that from at least June 1992 through September 1995, Safronchik falsified HTPI's and Home Theater Products' books and records and overstated HTPI's sales and income in reports filed with the Commission. Specifically, the Complaint alleged that by directing the controller to record fictitious sales and accounts receivable, Safronchik caused HTPI to overstate its sales and income in its books and records. As a result, HTPI falsely reported its sales and income for the years ended June 30, 1993, and June 30, 1994, on Forms 10-K, and the quarter ended March 31, 1995, on Form 10-Q. In addition, the Complaint alleged that Safronchik attempted to conceal the fraud by deceiving HTPI's ======END OF PAGE 3====== independent auditor into believing that the fictitious sales were real. Specifically, Safronchik set up mail drops throughout the United States for the purpose of receiving and returning confirmations of the fictitious accounts receivable. The independent auditor eventually uncovered the fraud in August 1995 during HTPI's annual audit. The Complaint further alleged that on September 5, 1995, the auditor confronted Safronchik with irrefutable evidence that HTPI's June 30, 1995 sales, accounts receivable and audit confirmations had been intentionally falsified. The auditor then resigned because of "significant weaknesses in [HTPI's] internal control structure" and because of "concerns relating to management integrity." Nonetheless, the Complaint alleged that on September 12, 1995, Safronchik caused HTPI to file a false and misleading Form 8-K, which stated that HTPI disagreed that the weaknesses in its internal control structure were significant and strongly disagreed that there was any legitimate basis for the auditor to question management integrity. The Complaint also alleged that on September 20, 1995, Safronchik caused HTPI to issue a false and misleading press release, which reiterated the statements in the Form 8-K. In addition to conducting the above described financial fraud, the Complaint alleged that Safronchik also engaged in insider trading by selling HTPI stock while in possession of material nonpublic information concerning HTPI's overstatement of sales and income. From May 13 through November 2, 1994, Safronchik exercised options and sold a total of 167,500 shares for a net profit of $577,500. Finally, the Complaint alleged that Safronchik participated in an unregistered offering of HTPI common stock. On or about November 4 and 5, 1993, Safronchik sold 120,000 shares of HTPI stock transferring the proceeds, $350,500, to HTPI, claiming that the transfer was a loan to the company. On April 29, 1994, HTPI issued 120,000 shares to Safronchik in exchange for cancellation of the purported loan. The Complaint alleged that the timing and sequence of these transactions indicate that Safronchik's stock sales and the subsequent loan to the company were merely a ruse to disguise an unregistered offering by HTPI. D. CONCLUSION Based on the foregoing, the Commission finds that Safronchik: 1. Willfully violated Sections 5(a), 5(c) and 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and, as a control person under Section 20(a) of the Exchange Act, willfully violated Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13, thereunder, within the meaning of Rule 102(e)(1)(iii) of the Commission's Rules of Practice; and 2. Was permanently enjoined on June 3, 1998 from future violations of Sections 5(a), 5(c) and 17(a) of the Securities Act, Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 ======END OF PAGE 4====== thereunder, and, as a control person under Section 20(a) of the Exchange Act, Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1, 13a-11 and 13a-13 thereunder, in the action entitled Securities and Exchange Commission v. Paul R. Safronchik, Civil Action No. SACV-98-416-GLT (EEx) (C.D. Cal). IV. Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer submitted by Safronchik and impose the sanction specified therein. Accordingly, IT IS HEREBY ORDERED that, effective immediately, Safronchik is denied the privilege of appearing or practicing before the Commission as an accountant. By the Commission. Jonathan G. Katz Secretary ======END OF PAGE 5======