UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES AND EXCHANGE ACT OF 1934 Release No. 39089 / September 18, 1997 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 962 / September 18, 1997 ADMINISTRATIVE PROCEEDING File No. 3-9416 ______________________________ : In the Matter of : : ORDER INSTITUTING PROCEEDINGS David Hersh, CPA, : AND OPINION AND ORDER : PURSUANT TO RULE 102(e) OF THE Respondent. : COMMISSION'S RULES OF PRACTICE ______________________________: I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that a public administrative proceeding be, and the same hereby is, instituted pursuant to Rules 102(e)(1)(ii), 102(e)(1)(iii) and 102(e)(3)(i)(A) of the Commission's Rules of Practice<(1)> against David Hersh, CPA ("Hersh"). II. <(1)> Paragraphs (1)(ii), (1)(iii) and (3)(i)(A) of Rule 102(e) provide, in relevant part, as follows: (1) The Commission may 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 . . . improper professional conduct, or (iii) to have willfully violated . . . any provision of the Federal securities laws (15 U.S.C.  77a to 80b-20), or the rules and regulations thereunder. (3)(i) 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 (A) permanently enjoined by any court of competent jurisdiction by reason of his misconduct in an action brought by the Commission from violation . . . any provision of the Federal securities laws (15 U.S.C.  77a to 80b-20) or of the rules and regulations thereunder. In anticipation of the institution of this administrative proceeding, Hersh has submitted an Offer of Settlement ("Offer") which the Commission, after due consideration, 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 prior to a hearing pursuant to the Commission's Rules of Practice, Hersh consents to the issuance of this Order Instituting Proceedings And Opinion And Order Pursuant To Rule 102(e) Of The Commission's Rules Of Practice ("Order") and to the entry of the findings and imposition of the remedial sanctions as set forth below, provided that Hersh neither admits nor denies the findings set forth herein, except as to jurisdiction and the findings set forth in Paragraph III.E. below, which Hersh admits. III. FINDINGS On the basis of this Order and the Offer submitted by Hersh, the Commission finds that: A. Hersh is a certified public accountant and has been licensed to practice by the State of Georgia since 1986. From September 1986 to December 1993, Hersh was employed by T2 Medical, Inc. ("T2"). From February 1991 until his termination in December 1993, Hersh was Vice President, Treasurer and Chief Financial Officer of T2. B. During the time period relevant hereto, T2 was a Delaware corporation with principal executive offices located in Alpharetta, Georgia. Prior to July 8, 1994 and at all times relevant hereto, T2's common stock was registered with the Commission pursuant to Section 12(b) of the Securities and Exchange Act of 1934 ("Exchange Act") and traded on the New York Stock Exchange. C. During and with respect to the quarters ended December 31, 1992 and March 31, 1993, Hersh knowingly or recklessly participated in a fraudulent accounting scheme to overstate materially T2's net income. As part of such scheme, Hersh: 1. recorded and caused to be recorded, directly and indirectly, fictitious and other improper accounting entries on the books and records of T2 and its subsidiaries; 2. failed, and caused others to fail, properly to record certain expenses incurred by T2 and its subsidiaries; and 3. recorded and caused to be recorded other improper entries on the books and records of T2 and its subsidiaries that overstated assets, revenues and income. As a result of such conduct, T2 reported, in its reports on Form 10-Q filed with the Commission, net income of: ======END OF PAGE 2====== i. $16,660,905 for its quarter ended December 31, 1992, which was overstated by $3,970,241; and ii. $18,952,604 for its quarter ended March 31, 1993, which was overstated by $8,769,903. These materially misstated financial results were also included in a registration statement filed with the Commission on July 13, 1993. In addition, Hersh directed others at T2 to make materially false and misleading statements to accountants in connection with the preparation and review of financial statements to be included in T2's reports filed with the Commission. D. By virtue of conduct described in Paragraph C. above, Hersh: (i) willfully violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), and Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder; and (ii) willfully aided and abetted T2's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 13a-13 and 12b-20. E. On June 11, 1997, the Commission filed a complaint against Hersh and others (SEC v. Allegra, et al., 97 Civ. 4305 (SS)) alleging that Hersh engaged in the conduct described in sub-paragraph C. above. Simultaneous with the filing of the Commission's complaint and without admitting or denying the allegations in the complaint, except as to jurisdiction, Hersh consented to the entry of a Final Consent Judgment Of Permanent Injunction And Other Relief As To Defendant David Hersh ("Final Judgment"). On June 16, 1997, the United States District Court for the Southern District of New York entered the Final Judgment which, among other things, (i) permanently enjoins Hersh from violating 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; and (ii) prohibits Hersh for a period of ten years from serving or acting as an officer or director of any issuer that has a class of securities registered with the Commission pursuant to Section 12 of the Exchange Act or that is required to file reports with the Commission pursuant to Section 15(d) of the Exchange Act. F. By reason of the conduct and events set forth above, Hersh (i) willfully violated, and willfully aided and abetted T2's violations of, certain provisions of the federal securities laws; (ii) engaged in improper professional conduct within the meaning of Rule 102(e) of the Commission's Rules of Practice: and (iii) was permanently enjoined by consent from further violations of certain provisions of the federal securities laws. IV. ORDER IMPOSING SANCTIONS Based on the foregoing, the Commission deems it appropriate and in the public interest to impose the sanction specified in the Offer submitted by Hersh, and accordingly, ======END OF PAGE 3====== IT IS HEREBY ORDERED, effective immediately, that: A. Hersh is denied the privilege of appearing or practicing before the Commission as an accountant; and B. Ten years from the date of this Order, Hersh may apply to the Commission for reinstatement 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, provided that Hersh's application is satisfactory to the Commission and Hersh undertakes that, in his practice before the Commission, Hersh's 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; and 2. an independent accountant provided that Hersh's application for reinstatement contains a showing satisfactory to the Commission that: a. Hersh, 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 Hersh appears or practices before the Commission as an independent accountant; b. Hersh 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. Hersh 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 Hersh appears or practices before the Commission as an independent accountant. 3. The Commission's review of any request or application by Hersh to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Hersh's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. By the Commission. ======END OF PAGE 4====== Jonathan G. Katz Secretary ======END OF PAGE 5====== SERVICE LIST Rule 141 of the Commission's Rules of Practice provides that the Secretary or another duly authorized officer of the Commission shall serve a copy of an order instituting proceedings on each person named as a party in the order and their legal agent. The attached Order Instituting Proceedings And Opinion and Order Pursuant To Rule 102(e) Of The Commission's Rules Of Practice has been sent to the following parties and other persons entitled to notice: Hon. Brenda P. Murray Chief Administrative Law Judge Securities and Exchange Commission 450 5th Street, N.W. Mail Stop 11-6 Washington, D.C. 20549 Jonathan G. Katz, Secretary Securities and Exchange Commission 450 5th Street, N.W. Mail Stop 6-9 Washington, D.C. 20549 Securities & Exchange Commission Division of Enforcement Branch of Regional Office Assistance 450 Fifth Street, N.W. Mail Stop 8-9 Washington, D.C. 20549 Att'n: Alma Angotti Andrew J. Geist, Esq. Associate Regional Director Securities and Exchange Commission Northeast Regional Office Seven World Trade Center, 13th Floor New York, New York 10048 Att'n: George N. Stepaniuk David Hersh 8510 Sentinae Chase Drive Roswell, Georgia 30076 Tony G. Powers, Esq. Rogers & Hardin 2700 Cain Tower, Peachtree Center 229 Peachtree Street, N.E. Atlanta, Georgia 30303 Attorney for Respondent Hersh