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U.S. Securities and Exchange Commission

UNITED STATES OF AMERICA
before the
SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934
Release No. 47474 / March 7, 2003

ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1734 / March 7, 2003

ADMINISTRATIVE PROCEEDING
File No. 3-11058


 

 

BARBARA L. BERRY, CPA,

Respondent.

 

 


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ORDER INSTITUTING PUBLIC ADMINISTRATIVE AND CEASE- AND-DESIST PROCEEDINGS, PURSUANT TO SECTION 21C OF THE SECURITIES EXCHANGE ACT OF 1934 AND RULE 102(e) OF THE COMMISSION'S RULES OF PRACTICE, MAKING FINDINGS, AND IMPOSING REMEDIAL SANCTIONS AND A CEASE-AND- DESIST ORDER

I.

The Securities and Exchange Commission ("Commission") deems it appropriate that public administrative and cease-and-desist proceedings be, and hereby are, instituted against Barbara L. Berry, CPA ("Respondent" or "Berry") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(1)(iii) of the Commission's Rules of Practice.1

II.

In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer") which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over her and the subject matter of these proceedings. Respondent consents to the entry of this Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Section 21C of the Securities Exchange Act of 1934 and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions and a Cease-and-Desist Order ("Order"), as set forth below.

III.

On the basis of this Order and Respondent's Offer, the Commission finds2 that:

Respondent

1. Barbara L. Berry was for all relevant periods herein and currently is a certified public accountant licensed in Arizona. On November 1, 1996, Berry was appointed as a director, the chief financial officer and treasurer of Hexagon Consolidated Companies of America, Inc. ("HCCA"). On May 5, 1997, Berry resigned as a director, and on May 20, 1997, Berry tendered her resignation as HCCA's CFO and treasurer; however, at the request of HCCA's chief executive officer, she continued in these capacities until late-August 1997. Berry continued as an outside accounting consultant to HCCA until January 7, 1998. Berry, 42 years old, is a resident of Scottsdale, Arizona.

Other Relevant Entity

2. HCCA is a Nevada corporation located in Reno, Nevada. HCCA's common stock is registered pursuant to Section 12(g) of the Exchange Act. Its common stock was quoted on the OTC Bulletin Board until it was designated ineligible to be quoted on February 24, 2000, for failing to comply with the NASD's "eligible securities" criteria (Rule 6530).

3. The U.S. District Court for the Middle District of Tennessee enjoined HCCA's predecessor from violating Sections 5 and 17(a) of the Securities Act of 1933 ("Securities Act") and Section 10(b) and Rule 10b-5 of the Exchange Act in January 1989. In March 1994, the Commissioner of Commerce and Insurance for Tennessee ordered two predecessors of HCCA to cease and desist violating various state securities laws, including its anti-fraud provisions. In December 1994, the State of South Carolina ordered two of HCCA's predecessors to cease and desist violating various state securities laws, including its anti-fraud provisions.

Improper Accounting: Recognition of Arizona Ore Inventory

4. On or about August 24, 1995, HCCA issued 100 million shares of stock to acquire a company whose only significant asset was a sublease. HCCA claimed that the sublease provided ownership to 500,000 tons of ore inventory located in Arizona. HCCA recorded the ore as an asset on its books and valued it at $200 million. This valuation was a departure from generally accepted accounting principles ("GAAP"). HCCA never owned the ore. Moreover, the ore consisted of waste tailings and there was no reasonable basis to believe that minerals could be economically extracted from such ore. HCCA should have recorded and valued this asset at zero in order to conform with GAAP.

5. Berry participated in recording this transaction as an asset on HCCA's books. Recording this asset as set forth above materially misstated the financial statements that appeared in, inter alia, HCCA's March 1997 and June 1997 reports on Form 10-QSB, and in the August 1997 amendment to HCCA's Form 10-SB.

Improper Accounting: Recognition of California Mining Claims

6. On or about February 6, 1997, HCCA acquired 17 mining claims, located in California, in exchange for 375 million shares of HCCA stock. HCCA acquired the claims from a company managed by HCCA's chief executive officer. This related company acquired the claims in 1996 in exchange for HCCA stock worth approximately $275,000. HCCA recorded the claims it acquired from the related company at $69,375,000. This valuation was a departure from GAAP. There was no reasonable basis to believe that any economically recoverable mineral reserves existed at the site. Indeed, evidence existed showing that there were no economically recoverable reserves located on this property. HCCA should have recorded and valued this asset at zero in order to conform with GAAP.

7. Berry participated in recording this transaction as an asset on HCCA's books. Recording this asset as set forth above materially misstated the financial statements that appeared in, inter alia, HCCA's March 1997 and June 1997 reports on Form 10-QSB.

Improper Accounting: Recognition of Advertising Credits

8. On or about June 26, 1996, HCCA purportedly acquired $100 million of television advertising credits in exchange for 40 million shares of HCCA stock. HCCA recorded and valued these credits at $50 million, or 50% of their face value. However, the credits were of no use to HCCA and had no apparent market for resale or trade purposes. Recording these credits in excess of the seller's historical cost basis of zero was a departure from GAAP.

9. Berry participated in recording the advertising credits as an asset on HCCA's books. Recording this asset as set forth above materially misstated the financial statements that appeared in, inter alia, HCCA's December 1996 Form 10-SB and December 1996 Form 10-KSB. Berry signed the December 1996 Form 10-KSB.

Improper Accounting: Recognition of Real Estate

10. From August 1997 through December 1999, HCCA reported in various filings that it owned certain real estate. HCCA recorded and valued these assets at approximately $49 million. Reporting these assets with any value was a departure from GAAP because the acquisitions were never consummated.

11. Berry participated in recording the real estate as an asset on HCCA's books. Recording this asset as set forth above materially misstated the financial statements that appeared in, inter alia, HCCA's March 1997 and June 1997 reports on Form 10-QSB, and in the August 1997 amendment to HCCA's Form 10-SB.

Improper Accounting: Recognition of Notes Receivable

12. From 1996 through 1999, HCCA reported that it held two note receivables. The first note obligated a Mexican corporation to pay HCCA $215,000 plus interest, and the second note obligated two individuals to pay HCCA $45,000 plus interest. HCCA recorded and valued these notes at $260,000. Recording these notes as such was a departure from GAAP because HCCA lacked a reasonable basis for believing that the notes were collectible; in fact, HCCA never collected a single payment on the notes and HCCA lacked any system to evaluate the collectibility of the notes. Although both notes were in default at the time HCCA filed its Form 10-SB in December 1996, HCCA continued to report these notes at their full value in subsequent reports rather than assigning a value of zero.

13. Berry participated in recording these assets on HCCA's books, notwithstanding their default status. Recording these note receivables as set forth above materially misstated the financial statements that appeared in, inter alia, HCCA's December 1996 Form 10-SB and December 1997 amendment thereto, December 1996 Form 10-KSB, and in the March 1997 and June 1997 reports on Form 10-QSB.

Violations

14. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder prohibit a person, in connection with the purchase or sale of a security, from making an untrue statement of a material fact or from omitting to state a material fact necessary to make statements made, in light of the circumstances under which they were made, not misleading. To violate Section 10(b) or Rule 10b-5, a defendant must act with scienter, Aaron v. SEC, 446 U.S. 680, 695, 701-02 (1980), which the Supreme Court has defined as "a mental state embracing intent to deceive, manipulate, or defraud," Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976).

15. Berry willfully violated Section 10(b) and Rule 10b-5 when she participated in the preparation of numerous false and misleading annual and quarterly reports and registration statements filed with the Commission because she knew, or was reckless not knowing, that the asset values on HCCA's financial statements contained in these filings were materially overstated and not in conformity with GAAP. In addition, Berry signed the 1996 Form 10-KSB as HCCA's chief financial officer and as a director. Thus, Berry willfully violated violations of Section 10(b) and Rule 10b-5.

16. Section 13(a) of the Exchange Act and Rules 13a-1 and 13a-13 thereunder require issuers with securities registered under Section 12 of the Exchange Act to file quarterly and annual reports with the Commission and to keep this information current. Rule 12b-20 under the Exchange Act requires that such reports contain, in addition to disclosures expressly required by statute and rules, such other information as is necessary to ensure that the statements made in those reports are not, under the circumstances, materially misleading. The obligation to file such reports embodies the requirement that they be true and correct. See, e.g., SEC v. Savoy Indus., Inc., 587 F.2d 1149, 1165 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979).

17. Berry willfully aided and abetted and caused HCCA's violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder through her participation in preparing false and misleading quarterly and annual reports which she caused HCCA to file with the Commission. The quarterly and annual reports, which were filed with the Commission from December 1996 through November 1997, overstated HCCA's assets from 119% to 95,920%.

18. Section 13(b)(2)(A) of the Exchange Act requires Section 12 registrants to make and keep books, records, and accounts that accurately and fairly reflect the transactions and dispositions of their assets. Section 13(b)(2)(B) of the Exchange Act requires Section 12 registrants to devise and maintain internal accounting controls sufficient to allow the preparation of financial statements in conformity with GAAP. Section 13(b)(5) of the Exchange Act provides that no person shall knowingly falsify any such book, record, or account or circumvent internal accounting controls. Rule 13b2-1 also prohibits the falsification of any book, record, or account subject to Section 13(b)(2)(A).

19. Berry willfully violated Section 13(b)(5) and Rule 13b2-1 and willfully aided and abetted and caused HCCA's violations of Sections 13(b)(2)(A) and 13(b)(2)(B) when she participated in overstating the value of the mining, real estate, advertising credit, and notes receivable assets on HCCA's books and in its records, and when she failed to implement internal accounting controls to allow HCCA to prepare its financial statements in conformity with GAAP.

20. Based on the foregoing, the Commission finds that Berry (a) willfully violated Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereunder; and (b) willfully aided and abetted and caused HCCA's violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act, and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder.

IV.

In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Berry's Offer.

Accordingly, IT IS HERBY ORDERED effective immediately, that:

A. Berry shall cease and desist from committing or causing any violations and any future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereunder; and from causing any violations and any future violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 promulgated thereunder.

B. Berry is denied the privilege of appearing or practicing before the Commission as an accountant.

By the Commission.

Jonathan G. Katz
Secretary

Footnotes

1 Rule 102(e)(1)(iii) provides, in relevant part, that:

The Commission may deny, temporarily or permanently, the privilege of appearing or practicing before it any person who is found...to have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules or regulations thereunder.

2 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.

 

http://www.sec.gov/litigation/admin/34-47474.htm


Modified: 03/10/2003