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U.S. Securities and Exchange Commission

Before the

Release No. 44817 / September 19, 2001

Release No. 1452 / September 19, 2001

File No. 3-10580

In the Matter of






The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest that public administrative proceedings be, and hereby are, instituted against Harlan & Boettger, LLP, William C. Boettger ("Boettger) and P. Robert Wilkinson ("Wilkinson"), certified public accountants, pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice.1


In anticipation of the institution of the administrative proceedings, the respondents have submitted Offers of Settlement which the Commission has determined to accept. Solely for the purposes of this proceeding and any other proceeding brought by or on behalf of the Commission or in which the Commission is a party, and without admitting or denying the Commission's findings contained herein, except that they admit the jurisdiction of the Commission over them and over the subject matter of this proceeding, Harlan & Boettger, Boettger and Wilkinson consent to the entry of this Order and the findings and imposition of remedial sanctions set forth below.


On the basis of this Order and the respondents' Offers of Settlement, the Commission makes the following findings:2


  1. Harlan & Boettger, LLP is an accounting firm located in San Diego, California. Harlan & Boettger was the independent accountant for Madera International, Inc. ("Madera") from February 1995 until March 1999 and for EMB Corporation ("EMB") from December 1995 until May 1998. From the period of the events described in this Order to the present, Boettger and Wilkinson were the only Harlan & Boettger partners engaged in the audit of public companies.

  2. William C. Boettger is a certified public accountant licensed in California and has been a partner with Harlan & Boettger since its inception in January 1987. Boettger was responsible for conducting the fiscal 1996, 1997 and 1998 audits of Madera and the 1996 and 1997 audits of EMB.

  3. P. Robert Wilkinson is a certified public accountant licensed in California, and has been a partner with Harlan & Boettger since February 1995. Prior to merging with Harlan & Boettger in February 1995, Wilkinson was a sole practitioner. Wilkinson was primarily responsible for conducting the fiscal 1994 and 1995 audits of Madera and was the reviewing partner for the fiscal 1996, 1997 and 1998 Madera audits. Wilkinson also was the reviewing partner for the 1996 and 1997 audits of EMB.


  1. Madera International, Inc. was at all times relevant to this proceeding a Nevada corporation headquartered in Coral Gables, Florida, engaged in the timber business. Its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and traded on the Electronic Bulletin Board operated by the National Association of Securities Dealers ("NASD").

  2. EMB Corporation was at all times relevant to this proceeding a Hawaii corporation headquartered in Costa Mesa, California, engaged in the mortgage origination business. Its common stock is registered with the Commission pursuant to Section 12(g) of the Exchange Act and trades on the Electronic Bulletin Board operated by the NASD.


1. The Timber Properties

a. The Nicaraguan Properties

On January 16, 1994, Madera entered into a "contract of sale" with Importaciones Y Exportaciones, Sociedad Anonima ("Imexsa"), a Nicaragua corporation, for the purchase of 988,400 acres of timberland in Nicaragua. The consideration provided by Madera was a $5 million convertible note. On January 20, 1994, the note was converted into 10,200,000 shares of Madera common stock.

The transaction was initially recorded as an investment in timber producing property at the contract price of $5 million. However, by means of a March 31, 1994 year-end journal entry, Madera management increased the value of the property to $12 million based upon "a study made of the property by an authority in Nicaragua" and "the trading value of the Company's stock which began May 12, 1994." Generally Accepted Accounting Principles ("GAAP") require that a long-lived asset, such as property, be recorded and carried at its original cost unless there is an impairment in value, in which case the asset should be written down to a new carrying amount which is less than the remaining cost. Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of . Under no circumstances does GAAP permit a long-lived asset to be written-up in value on a company's books. Moreover, even if it were proper to increase the carrying value of the property above its cost, the trading value of Madera's stock almost three months after the transaction was irrelevant to such a revaluation.3

The seller of the Nicaraguan property, Imexsa, did not possess title to the property but, rather, had obtained a permit for exploration and development of the property from the government of Nicaragua. On July 29, 1994, the Nicaraguan government withdrew the extraction rights to the property, thereby rendering Madera's investment worthless. Despite this, Madera continued to value the Nicaraguan property at $12 million in the financial statements included in its quarterly reports on Form 10-Q for the quarters ended September 30, 1994 and December 31, 1994.4 It was not until February 1995 that Madera wrote-off its $12 million investment in the Nicaraguan property. As discussed below, the $12 million write-off was offset at about the same time by another questionable property acquisition.

b. The Inselinca Joint Venture

In February 1994, Madera entered into a transaction with Inselinca, a Venezuelan company, to purchase a 50% ownership interest in certain Venezuelan timber concessions purportedly owned by Inselinca. The consideration paid by Madera was 1 million shares of Madera convertible preferred stock with a stated value of $3 per share. The value placed on the shares was arbitrary and unsupported since there was no market for Madera securities at that time. Moreover, Madera obtained no documentation establishing the ownership of the property by Inselinca or supporting the value placed on the timber concessions.

Madera improperly included the $3 million joint venture investment in Madera's March 31, 1994 annual report on Form 10-K and its June 30, 1994 quarterly report on Form 10-Q. The $3 million asset was written off at September 30, 1994 because, according to Madera, "[t]he Inselinca group could not demonstrate the values previously warranted to the Registrant."

c. The Brazilian Rain Forest Property

In July 1994, Madera entered into an agreement to acquire certain assets that Madera valued at $30,230,000, in exchange for 10 million shares of Madera non-trading convertible preferred stock. The primary asset purportedly acquired consisted of 478,000 acres of timber producing property located in the Brazilian rain forest, which Madera valued at $27 million. In addition, Madera acquired a sawmill it valued at $2.6 million and an inventory of cut timber it valued at $630,000. Madera recorded the transaction at the $30,230,000 value based primarily on undocumented representations by the seller concerning the value and ownership of the assets. Madera included the properties at this improper valuation in its periodic reports on Forms 10-K and 10-Q beginning with the quarter ended September 30, 1994, and continuing through its the fiscal quarter ended December 31, 1999.5

The $27 million value attributed to the rain forest property is supported only by a "transfer agreement" executed by the seller. The "transfer agreement," dated August 10, 1994, purports to transfer title to the properties from the seller to Madera and contains an "estimated value" for the property of $27 million. Madera management failed to ascertain when the properties were originally acquired by the seller and what seller's the original cost was, or to take adequate steps to determine whether the seller had clear title to the property.

Madera management learned soon after its acquisition of the timber properties that it was not economical to harvest timber from its rain forest properties because of logistical problems in harvesting the timber and transporting harvested timber out of the rain forest.6 Despite this knowledge, Madera management continued to value the property at $27 million in Madera's financial statements filed with the Commission. Madera management took no steps to write down the value of the property even though it knew that no potential income would be derived from the property.7

d. The Ralph Financial Transaction

On January 10, 1995, Madera entered into a transaction with Ralph Financial Corporation whereby Madera purportedly acquired 400,000 hectares (988,400 acres) of timber producing property in Brazil. Madera management negotiated the transaction with the president of Ralph Financial at a time when he was in prison for securities fraud. Madera issued 12 million shares of its non-trading convertible preferred stock with a stated value of $1.00 per share to Ralph Financial in exchange for the Brazilian property, which was recorded in Madera's books as a $12 million asset. This valuation was based on the stated value of the preferred stock, an arbitrary and excessive figure.8

Madera improperly valued the Brazilian property at $12 million in its March 31, 1995 annual report on Form 10-K and its quarterly reports on Form 10-Q for the quarters ended June 30, 1995 and September 30, 1995 even though Madera had no evidence that Ralph Financial ever owned the property or that, if it did, legal title to the property had been transferred from it to Madera. The $12 million asset was written off at December 31, 1995 because, according to Madera management, the representations made by Ralph Financial were not accurate and they were "unable to demonstrate the actual ownership of the properties and could not transfer proper title to Madera."

2. The Related Party Transactions

During the period in question, Madera entered into various "consulting agreements" with officers and directors of Madera and companies controlled by them. Compensation for the purported services was typically in the form of Madera common stock and occasionally in cash. None of those consulting agreements were disclosed as related party transactions in Madera's filings with the Commission.


1. Inadequate Planning, Supervision and Review

Throughout the period in question, Boettger and Wilkinson failed to properly plan and supervise the Madera audits as required by generally accepted auditing standards ("GAAS"). Codification of Statements on Auditing Standards ("AU") § 311.01.9 For the fiscal 1994 and 1995 audits conducted by Wilkinson, there is a complete lack of documentation of any planning and no written audit programs. For the fiscal 1996 to 1998 audits conducted by Boettger and reviewed by Wilkinson, audit planning documents and checklists were often incomplete, undated and unsigned.

Supervision of the audits was inadequate and included little partner involvement. For the fiscal 1998 audit, a staff accountant conducted the audit at Madera's Miami headquarters while his supervisor, an audit manager, remained at Harlan & Boettger's San Diego office. Boettger permitted the audit manager to supervise the audit "by telephone."

Harlan & Boettger's audit manager assigned to supervise and review Madera's fiscal 1997 audit was assigned to another audit by Boettger prior to completing his review. Another Harlan & Boettger audit manager was asked by Boettger to complete the review of the audit even though he had never worked on the Madera audit and had no knowledge of Madera's operations or audit issues.

2. Failure To Obtain Evidence of the Ownership and Valuation of the Timber Properties

Throughout the period, Boettger and Wilkinson failed to exercise due care and obtain sufficient competent evidential matter concerning the ownership and value of the timber properties. Codification of Statements on Auditing Standards ("AU") § 326.01. 10 They failed to perform any procedures or analysis to ensure that Madera had good title to the timber properties or that their valuations were proper. Instead, they improperly relied on unsupported management representations. There is no evidence in Harlan & Boettger's 1994 audit workpapers that any inquiry or request was made by Wilkinson for evidence of ownership of the Nicaraguan properties that were recorded by Madera. In addition, Wilkinson improperly allowed Madera to write-up the value of the Nicaraguan property from $5 million to $12 million in violation of GAAP. 11

As with the Nicaraguan property, Wilkinson accepted the arbitrary $3 million value recorded by Madera in its 1994 financial statements for the Inselinca joint venture, without performing any audit procedures regarding the valuation or to ensure that Inselinca, in fact, owned the Venezuelan timber concessions.

The fact that the value of the Nicaraguan property and the Venezuelan joint venture, a total of $15 million in previously reported assets, was written off by Madera during Madera's fiscal year ended March 31, 1995 was a major red flag and should have caused Wilkinson to question management's representations and to approach the fiscal 1995 audit with heightened skepticism. He did not.

During fiscal 1995, as previously discussed, Madera recorded assets of $39 million in its financial statements representing the acquisition of the Brazilian rain forest timber properties, ($27 million), and additional Brazilian timber properties from Ralph Financial ($12 million). With respect to the rain forest properties, Wilkinson noted in an "items needed" list dated May 30, 1995, "I need copies of the agreements, etc. and an explanation of how the value was established for the books. Provide all the documentation on this account." Wilkinson noted that he needed the same information for the Ralph Financial acquisition. In a follow-up "items needed" list dated June 2, 1995, Wilkinson noted that Madera "was going to provide us with deeds to the property in Brazil. I need to see these." With respect to the Ralph Financial acquisition, Wilkinson again requested documentation to substantiate the value and "deeds to the property". Despite the fact that Madera failed to furnish Wilkinson with the documentation he had requested concerning the ownership and value of the properties, Wilkinson issued an unqualified auditor's report on Madera's fiscal 1995 financial statements.12

During the fiscal 1996 audit, conducted by Boettger and reviewed by Wilkinson, no procedures were performed with respect to the value and ownership of the rain forest properties. The only reference to the properties contained in Harlan & Boettger's 1996 workpapers is a note which states "see 94 w/p [workpapers] for documentation". 13

For the fiscal 1997 audit, also conducted by Boettger and reviewed by Wilkinson, Harlan & Boettger noted, with respect to the rain forest properties, "consistent [with] prior year audit...waive further review...nothing has [changed] and no harvesting of any significance has occurred". No other audit procedures were performed. Harlan & Boettger did not raise any questions about the value of the property despite the knowledge that no harvesting had occurred.

During the fiscal 1998 audit, Madera furnished Harlan & Boettger for the first time with a so-called "appraisal" of the rain forest property dated August 22, 1997. The method used for the "appraisal" was based on "the market value of stumpage [timber] and the capitalized net worth of projected annual income from stumpage and lumber." In other words, the "appraisal" was based on the assumption that all the timber located on the property would be sold at current market prices. The report concluded that the property was worth between $33 million to $40 million. However, as Boettger knew, Madera had not harvested any timber nor earned any income from the rain forest property since Madera acquired the property in 1994.14 This fact should have caused Boettger to question the appraisal.

The appraisal report noted that one of the traditional appraisal "models" is based on "the market value of similar properties." The report, however, states that market value of similar properties was not a good indicator of value in Madera's case because the property being appraised was "unique." However, as Harlan & Boettger knew, Madera had purchased additional "prime" timberland close to its rain forest property in May 1997 for only $1.76 per acre compared to the $56.49 valuation of the rain forest property. The Harlan & Boettger auditors did not consider this fact in connection with reviewing the appraisal nor did they question why it wasn't considered by the appraiser.

Moreover, Boettger and Wilkinson failed to consider the provisions of Statement of Financial Accounting Standards No. 121, Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed Of ("FAS 121"). FAS 121 requires that long-lived assets, in this case the timber properties, be reviewed for impairment "whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable." FAS 121 cites as an example of events that indicate that the carrying amount of an asset should be assessed, "a current period operating cash flow loss combined with a history of operating or cash flow losses...." Boettger and Wilkinson knew that Madera had a history of operating losses and that the property in question was not and had not been producing any revenues or cash flow for Madera. Yet they failed to consider the requirements of FAS 121 and failed to assess whether the timber properties should be written down in value.

In October 1998, when the fiscal 1998 audit was substantially complete, Boettger, for the first time, asked Madera management to furnish him with documentation evidencing that Madera had good title to the rain forest property. In a letter dated October 30, 1998 to Harlan & Boettger, Madera's president stated, "I hereby commit to you that the property...[is] owned by Madera free and clear of any encumbrances. I further commit to you that I will cause to be supplied to your office, as soon as practicable, copies of the actual deeds... it is also my understanding that financial arrangements have been made with you so that you will be paid today as well." In a separate letter dated October 30, 1998 to Boettger, Madera management wrote, "In accordance with my commitment to you, I enclose herewith our check in the amount of $22,400 in payment against the account of Madera. It is my understanding that upon receipt of this check you will release the Madera audit of March 31, 1998 for distribution."

On November 2, 1998, Boettger received the $22,400 check from Madera.15 Also, on November 2nd, Boettger signed and sent the audit report to Madera management despite the fact that he had not received any documents evidencing that Madera had clear title to the rain forest property.

3. The Related Party Transactions

As discussed previously, during the period in question, Madera failed to disclose in its filings with the Commission the existence and terms of consulting agreements it entered into with its officers and directors, as required by GAAP. 16

Boettger and Wilkinson were aware of the relevant consulting agreements and the fact that Madera had issued stock to the "consultants" pursuant to the terms of the agreements. 17 Despite this knowledge, Boettger and Wilkinson failed to ensure that the transactions were disclosed in Madera's financial statements during the period in question. Specifically, during the fiscal 1998 audit, several of the consulting agreements with officers and directors of Madera were identified by Harlan & Boettger as related party transactions in an audit planning form. In addition, Harlan & Boettgers' audit manager assigned to the fiscal 1998 audit, noted on a comment sheet based on his review of Madera's Form 10K, "disclose consulting fees as related party transactions." Despite this knowledge, Harlan & Boettger failed to ensure that proper disclosure of the transactions was made in the notes to Madera's financial statements as required by GAAS.18


Similar to their audits of Madera, Harlan & Boettger, Wilkinson and Boettger failed to exercise due professional care and obtain sufficient competent evidential matter in their 1996 and 1997 audits of EMB Corporation. Harlan & Boettger's unqualified audit reports on EMB's financial statements were included in registration statements and annual reports filed with the Commission as well as private offering memorandums.

1. The February 29, 1996 and September 30, 1996 Audits

Boettger and Wilkinson were responsible for performing and reviewing the audit of EMB's financial statements for the five months ended February 29, 1996. Those financial statements and Harlan & Boettger's unqualified audit report were included in a Form 10-SB Registration Statement filed with the Commission and a private offering memorandum for EMB's common stock.

EMB's February 29, 1996 balance sheet included an asset described as "land held for sale" valued at $3.9 million, which accounted for 94% of EMB's total assets and all of its stockholders' equity. The land had been acquired by EMB's predecessor company, Sterling Alliance Group, Ltd. ("SAG") for 200,000 shares of SAG's common stock. SAG was a private company at the time of the transaction with no quoted market value for its stock and a minimal net worth. The land, 61 acres located in Monterey County, California, was undeveloped and purportedly contained water producing rights.

According to EMB, the $3.9 million value attributed to the land was based on an independent appraisal which was reviewed by Boettger and Wilkinson. The appraiser concluded that the market value of the land was $415,000 or $6800 per acre using the market approach based on recent sales of similar properties in the area. The appraiser also calculated a value using an income approach analysis which assumed that the property would be developed and produce revenue from the sale of its water reserves. The appraiser projected the net income from the assumed sale of water from the property for a ten year period and arrived at a value of $3.9 million, or $64,000 per acre.

Since EMB did not intend to develop the property but was simply holding the property for resale, the land should have been recorded at its appraised value of $415,000. Instead, EMB, with Boettger's and Wilkinson's concurrence, improperly valued the land at $3.9 million in its financial statements.

In connection with Boettger and Wilkinson's audit of EMB's financial statements for the fiscal year ended September 30, 1996, based on comments from the Commission's Division of Corporation Finance, the Monterey land was valued at $800,000. The reason for the decrease in value from $3.9 million to $800,000 and the basis for the $800,000 valuation was not disclosed. Those financial statements and Harlan & Boettger's unqualified audit report were included in an Annual Report on Form 10-KSB filed with the Commission.

2. The September 30, 1997 Audit

Boettger and Wilkinson were also responsible as the engagement and reviewing partners of EMB's financial statements for the year ended September 30, 1997. Those financial statements and Harlan & Boettger's unqualified audit report were included in an Annual Report on Form 10-KSB filed with the Commission.

In those financial statements, EMB reported an asset of $1,137,500 described as "Investment in joint venture" which accounted for 68% of EMB's reported stockholders' equity. The purported joint venture was to be formed between EMB and a domestic corporation. The joint venture planned to establish and operate a Dutch company to further EMB's real estate mortgage business internationally. EMB placed 1 million shares of its restricted common stock "in trust" with the principal of EMB's proposed joint venture partner. EMB recorded the value of the joint venture investment at 65% of the market value of its common stock.

As of September 30, 1997 and continuing through January 12, 1998, the date that Boettger released Harlan & Boettger's audit report, the joint venture had not been formed, no written joint venture agreement had been drafted and the Dutch operating company had not been formed.

On January 11, 1998, Boettger wrote to EMB management and questioned the propriety of reporting the joint venture investment as an asset since the joint venture was not finalized. Boettger informed EMB that without the asset, EMB's equity would be reduced to approximately $500,000 and that "[t]his now brings the possible going concern issue back since the equity is so nominal".

Despite his concerns, Boettger released his firm's audit report to EMB on January 12, 1998 and EMB filed its Form 10-K with the Commission on January 13, 1998, which included Harlan & Boettger's unqualified audit report on EMB's financial statements which improperly reported as an asset the $1,137,500 joint venture investment.


Based upon the foregoing, the Commission finds that:

A. In connection with the audits of the financial statements of Madera International, Inc. and EMB Corporation, Harlan & Boettger, Boettger and Wilkinson each engaged in improper professional conduct for purposes of Rule 102(e) of the Commission's Rules of Practice; and

B. It is appropriate and in the public interest to impose the sanctions consented to in the Offers submitted by Harlan & Boettger, Boettger and Wilkinson.

IT IS HEREBY ORDERED, effective immediately, that:

Harlan & Boettger, Boettger and Wilkinson be, and hereby are, permanently denied the privilege of appearing or practicing before the Commission as accountants, pursuant to Rule 102(e) of the Commission's Rules of Practice.

By the Commission.

Jonathan G. Katz


1 Rule 102(e) (1) of the Commission's Rules of Practice provides, in pertinent part, that 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: "... (ii) to be lacking in character or integrity or to have engaged in unethical or improper professional conduct...."
2 The findings herein are made pursuant to the respondents' Offers of Settlement and are not binding on any other person or entity in this or in any other proceeding.
3 In January 1994, when the contract was signed, there was no available market price for Madera's common stock since it was not being traded.
4 Madera's fiscal year ends March 31.
5 Madera has made no subsequent periodic filings with the Commission.
6 According to study performed of Madera's rain forest property, harvesting (cutting) of the logs could only be done during the rainy season because no roads exist in or near the property. Extraction of the logs would be done manually and workers would have to "move the logs to the waterways using pulleys and other primitive methods."
7 The fact that the $27 million value, or $56.49 per acre value, attributed to the 478,000 acres of rain forest property was arbitrary and vastly excessive is further supported by the fact that in May 1997, Madera purchased an additional 251,000 acres "of prime timberland close to its fee owned property in Brazil" for only $441,000 or $1.76 per acre.
8 The preferred stock was convertible into 5 million shares of Madera common stock, whose bid and ask price at the time of the transaction was between 10 cents and 13 cents per share. Assuming conversion at that time, the value of the transaction would have been between $500,00 and $650,000, rather than the $12 million booked by Madera.
9 AU § 311.01 states that the first standard of audit field work requires that "the work is to be adequately planned and assistants, if any, are to be properly supervised...the auditor should consider the nature, extent, and timing of work to be performed and should prepare a written audit program (or set of written audit programs) for every audit".
10 AU § 326.01 states that the third standard of field work is that "sufficient competent evidential matter is to be obtained through inspection, observation, inquiries, and confirmations to afford a reasonable basis for an opinion regarding the financial statements under audit."
11 Wilkinson noted in the audit workpapers that Madera purchased the land for a $5 million note and "it appears the client increased value of the land to $12,000,000 from $5,000,000." Wilkinson then attempted to justify the increase based on the value of Madera's stock "even though the value of the traded stock is as of 5-12-94", three months after the transaction.
12 As discussed previously, Madera wrote off the $12 million property acquired from Ralph Financial during fiscal 1996. The $27 million rain forest property continued to be reported in Madera's financial statements in all subsequent Commission filings.
13 Harlan & Boettger's 1994 workpapers contained no documentation with reference to the rain forest properties since they were not booked until fiscal 1995.
14 Harlan & Boettger noted in its fiscal 1998 audit workpapers that Madera had purchased its timber from third party vendors during fiscal 1998.
15 In a November 2nd fax to Harlan & Boettger, Madera management wrote, "Federal Express should be walking in your door any moment now and carrying a letter and a check for you guys. Upon receipt of these please forward the audit by E Mail...so that I can incorporate it into the 10KSB narrative and have a finished document to forward to the Edgar specialist that we use".
16 Statement of Financial Accounting Standards No. 57, Related Party Disclosures, states in part, "Financial statements shall include disclosures of material related party transactions...[t]he disclosures shall include...the nature of the relationship(s) involved, a description of the transactions [and] the dollar amounts of transactions...".
17 Copies of the relevant consulting agreements were contained in Harlan & Boettgers audit files.
18 Statement on Auditing Standards No. 45, Omnibus Statement on Auditing Standards, states in part, "[t]he auditor should view related party transactions within the framework of existing pronouncements, placing primary emphasis on the adequacy of disclosure...he should then evaluate all the information available to him concerning the related party transaction...and satisfy himself on the basis of his professional judgment that it is adequately disclosed in the financial statements."


Modified: 09/20/2001