SECURITIES AND EXCHANGE COMMISSION
SECURITIES EXCHANGE ACT OF 1934
ACCOUNTING AND AUDITING ENFORCEMENT
Administrative Proceedings File No. 3-10141
COMMISSION STAFF CHARGES THAT H.J. MEYERS & CO., INC. VIOLATED NET CAPITAL RULES
The Commission announced an Order Instituting Public Administrative Proceedings (Order) against H.J. Meyers & Co., Inc., James A. Villa and James C. Witzel. The Order alleges that from June through September 1998, H. J. Meyers & Co., Inc. (H.J. Meyers), through its President, James A. Villa (Villa), and its Chief Financial Officer (CFO), James C. Witzel (Witzel), failed to disclose net capital deficiencies ranging from $360,000 to $4.5 million. During this time period, H.J. Meyers concealed its net capital deficiencies through a series of fabricated journal entries. H.J. Meyers' net capital deficiencies were caused, in part, by the firm's failure to record a liability in connection with a $2.5 million loan received from an outside investor and paid to HJM Group (Group), H.J. Meyers' parent company. H.J. Meyers and Group were jointly and severally liable for the loan.
The Order alleges that although the loan documents were signed in June, the loan proceeds were not received until July 1998. H.J. Meyers' records, however, were improperly backdated to show that it received the cash in June. As a consequence, H.J. Meyers overstated cash by $2.25 million in June. The Order further alleges that the $2.5 million loan was never recorded as a liability on H.J. Meyers' books.
The Order alleges that H.J. Meyers and Group were to pledge 130,000 shares of stock as collateral for the loan. In June, H.J. Meyers transferred these shares to Group. In July, Group gave the shares to the investor, who placed the shares in a safe deposit box in a bank. Although these 130,000 shares remained in the safe deposit box, they erroneously reappeared as an asset on H.J. Meyers' books in July 1998. As a result of the above transactions, H.J. Meyers overstated its assets and thereby concealed net capital deficiencies in June, July and August 1998.
The Order alleges that Villa and Witzel caused and willfully aided and abetted H.J. Meyers' violations. The Order alleges that Villa was personally involved in the loan
negotiations and that he executed the various loan agreements on behalf of both H.J. Meyers and Group. Villa's execution of the $2.5 million loan agreements on behalf of H.J. Meyers caused the firm to incur a liability that resulted in a net capital deficiency. The Order also alleges that Witzel, the firm's CFO and Financial Operations Principal (FINOP) completed H.J. Meyers' monthly FOCUS reports during the time period at issue. The Order also alleges that Witzel, or others under his supervision, was responsible for backdating H.J. Meyers' books for June, the firm's failure to report the $2.5 million loan and the firm's improper inclusion of the 130,000 shares on H.J. Meyers' books after the shares had been transferred to the firm's lender.
A hearing before an administrative law judge will be scheduled to determine whether the allegations in the Order are true and to determine what remedial action, if any, is appropriate in the public interest.