SECURITIES EXCHANGE ACT OF 1934
Release No. 42047 / October 21, 1999
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1196 / October 21, 1999
File No. 3-10085
______________________ : : In the Matter of : ORDER INSTITUTING PUBLIC : PROCEEDINGS AND OPINION STEPHEN J.KESH, CPA, : AND ORDER PURSUANT TO RULE : 102(e) OF THE COMMISSION'S Respondent : RULES OF PRACTICE : ______________________:
The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Stephen J. Kesh ("Kesh"), a certified public accountant, pursuant to Rule 102(e)(3) of the Commission's Rule of Practice.1
In anticipation of the institution of these public administrative proceedings, Kesh has submitted an Offer of Settlement which the Commission has determined to accept. Solely for the purposes of these proceedings and any other proceedings brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the findings, except that he admits to the Commission's finding that a Final Judgment of Permanent Injunction ("Final Judgment") has been entered against him as set forth in Section III.C., and admits the jurisdiction of the Commission over him and over the subject matter of this proceeding, Kesh consents to the entry of this Order Instituting Public Proceedings and Opinion and Order Pursuant to Rule 102(e) of the Commission's Rules of Practice ("Order").
On the basis of this Order and Kesh's Offer of Settlement, the Commission makes the following findings:2
A. Kesh, age 56, is and has been a certified public accountant licensed to practice in New York since 1968. He was the principal financial and accounting officer of Model Imperial, Inc. ("Model Imperial"). Kesh has practiced before the Commission within the meaning of Rule 102(f) of the Commission's Rules of Practice in connection with the preparation of Model Imperial's financial statements and other documents.
B. Model Imperial was at all times relevant to this proceeding a Florida corporation headquartered in Boca Raton, Florida. Its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and was traded on the National Association of Securities Dealers Automated Quotation System until April 10, 1996, when it was delisted. On July 18, 1996, Model Imperial filed for protection under Chapter 11 of the Bankruptcy Code. In September 1997, a reorganization plan was approved by the Bankruptcy Court whereby a privately-held company contributed funds pursuant to an agreement with Model Imperial's secured and unsecured creditors in exchange for 90 percent of Model Imperial's stock.
C. On September 28, 1999, the Commission filed a complaint against Kesh and others in Securities and Exchange Commission v. Harold M. Ickovics, et al. ("SEC v. Ickovics"), D.C., Civil Action No. 99-CV-2563. On September 15, 1999, Kesh consented to the entry of a Final Judgment against him in SEC v. Ickovics, without admitting or denying the allegations in the complaint, except as to jurisdiction, to which Kesh admitted. On September 30, 1999, the United States District Court for the District of Columbia entered the Final Judgment, which permanently enjoins Kesh from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 promulgated thereunder, and further enjoins him from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder.
D.. The Commission's complaint in SEC v. Ickovics alleges, among other things, that during 1994 and 1995, Kesh caused Model Imperial, Inc., a wholesale distributor of fragrances and cosmetics to improperly record a $1.3 million gain from a barter transaction which had no economic substance; record sales revenue from consignment transactions for which the revenue was wholly contingent on subsequent sales; record as purchases customers' returns of consigned merchandise in order to disguise the true nature of the transactions; and create false receivables to inflate amounts available to the company under a revolving credit agreement; and overstate gross profits on retail sales. These practices resulted in the filing of false and misleading quarterly and annual reports with the Commission from the first quarter of 1994 through the third quarter of 1995. The complaint also alleges that Kesh made materially false and misleading statements to Model Imperial's accountants in connection with the audits of Model Imperial's financial statements for fiscal years 1994 and 1995.
Based on the foregoing, the Commission deems it appropriate and in the public interest to accept the Offer of Settlement submitted by Kesh and accordingly,
IT IS HEREBY ORDERED, effectively immediately, that:
A. Kesh is denied the privilege of appearing or practicing before the Commission as an accountant.
By the Commission.
Jonathan G. Katz
1 Paragraph (3) of Rule 102(e) provides, in relevant part, that:
...(i) 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 or of the rules and regulations thereunder.
2 The findings herein are made pursuant to Kesh's Offer of Settlement and are not binding on any other person or entity in this or in any other proceeding.