SECURITIES AND EXCHANGE COMMISSION Washington, D.C. LITIGATION RELEASE NO. 15824 / July 30, 1998 ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1058 / July 30, 1998 SECURITIES AND EXCHANGE COMMISSION v. RONALD J. HOTTOVY, JIMMY DUCKWORTH, JOSEPH I. MORRIS and EUGENE A. BREITENBACH, Civil Action No. 98-S-1636 (D.Col.) (filed July 30, 1998) On July 30, 1998, the Securities and Exchange Commission filed a financial fraud action seeking permanent injunctions and monetary and other relief in the United States District Court for the District of Colorado against four former senior officers of Scientific Software-Intercomp, Inc. (SSI), a Denver, Colorado oil and gas software company -- Ronald J. Hottovy ("Hottovy"), formerly SSI's chief financial officer, who is a certified public accountant ("CPA"), Jimmy Duckworth ("Duckworth"), formerly SSI's executive vice president for sales and member of the board of directors, who is an inactive CPA, Joseph I. Morris ("Morris"), formerly SSI's corporate controller, who is a CPA, and Eugene A. Breitenbach ("Breitenbach"), formerly SSI's chief executive officer and chairman of the board of directors. The Commission's complaint alleges that during 1993, 1994 and 1995, the defendants engaged in a fraudulent scheme to materially overstate SSI's revenue and earnings by backdating contracts, booking revenue without contracts, overaccruing project revenues and providing confidential side letters modifying payment obligations. As a result of these practices, the complaint alleges that SSI reported false and misleading information in its Annual Reports for fiscal 1993 and 1994, its Quarterly Reports for the first three quarters of fiscal 1994 and the first quarter of fiscal 1995. In addition, SSI conducted an offering of 2 million shares of common stock from which it obtained more than $8 million on a registration statement that materially overstated revenue, net income and earnings per share for the 1993 fiscal year and the first quarter of 1994. The complaint further alleges that defendants misled SSI's auditors by withholding documents and creating false documents to support revenue recognition. Specifically, defendants withheld the side letters from SSI's auditors, backdated documentation and, in the first quarter of 1995, created false affidavits supporting revenue recognition. By engaging in such conduct, the complaint alleges that defendants violated Section 17(a) of the Securities Act of 1933, and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder. Simultaneous with the filing of the complaint, without admitting or denying the allegations of the complaint, Breitenbach consented to the entry of a permanent injunction prohibiting future violations of Section 17(a) of the Securities Act and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, ordering Breitenbach to disgorge $33,600 of profits predicated on the acts alleged in the complaint, plus prejudgment interest thereon of $9,961, and directing Breitenbach to pay a civil penalty of $50,000. Also on July 30, 1998, the Commssion entered two settled administrative orders. Ivor R. Ellul and Joseph R. Summa, two managers in SSI's Houston-based Pipeline and Facilities Division consented, without admitting or denying the Commission's findings, to the entry of a cease and desist order finding that Ellul and Summa caused violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder. The Commission's order finds that Ellul and Summa assisted in SSI's improper booking of revenue by, among other things, backdating contracts and executing side letters at the Pipeline and Facilities Division, where the majority of the accounting improprieties occurred. Barbara J. Cavallo, the division controller in the Houston Pipeline and Facilities Division, consented, without admitting or denying the Commission's findings, to the entry of a cease and desist order finding that Cavallo caused violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13, by, among other things, holding the Houston Pipeline and Facilities Division's books open after quarter-end at the direction of senior management, and preparing inaccurate division financial statements incorporated into SSI's public filings. Admin. Proc. Nos. 3-9659 and 3-9660.