UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION SECURITIES EXCHANGE ACT OF 1934 Release No. 39843 / April 9, 1998 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 1023 / April 9, 1998 ADMINISTRATIVE PROCEEDING File No. 3-9573 _________________________ In the Matter of : : ORDER INSTITUTING PROCEEDINGS Lee Pharmaceuticals : PURSUANT TO SECTION 21C OF THE Henry L. Lee, Jr. : SECURITIES EXCHANGE ACT OF 1934 Ronald G. Lee : AND RULE 102(e) OF THE Michael L. Agresti, CPA : COMMISSION'S RULES OF : PRACTICE, MAKING FINDINGS : AND IMPOSING SANCTIONS AND Respondents. : CEASE-AND-DESIST ORDER _________________________: I. The Securities and Exchange Commission (the "Commission") deems it appropriate that public administrative proceedings be instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") against Lee Pharmaceuticals ("Lee"), Henry L. Lee, Jr. ("Henry Lee"), Ronald G. Lee ("Ron Lee"), and Michael L. Agresti ("Agresti") (collectively "Respondents"). Accordingly, IT IS HEREBY ORDERED that said proceedings be, and hereby are, instituted. The Commission also deems it appropriate that public administrative proceedings be instituted against Agresti pursuant to Rule 102(e)(1)(iii) of the Commission's Rules of Practice.[1]/ Accordingly, IT IS HEREBY ORDERED, that said proceedings be, and hereby are, instituted. II. In anticipation of the institution of these administrative proceedings, Lee, Henry Lee, Ron Lee, and Agresti have each 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 herein, except that Respondents admit the jurisdiction of the Commission over them and over the subject matter of these proceedings; and Respondents each consent to the entry of this Order Instituting 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 Sanctions and Cease-And-Desist Order ("Order") and to the entry of the findings and imposition of the sanctions as set forth below. III. On the basis of this Order and of the Offers of Settlement of Lee, Henry Lee, Ron Lee, and Agresti, the Commission makes the following findings: A.The Respondents 1.Lee Pharmaceuticals ("Lee") is a California corporation with offices in South El Monte, California that manufactures dental and cosmetic products. Its common stock is registered pursuant to Section 12(b) of the Exchange Act, and traded on the American Stock Exchange from October 1973 until January 1996 when it was delisted. Its common stock now trades in the over-the-counter market. 2.Henry L. Lee, Jr. ("Henry Lee"), age 70, was Lee's Chairman of the Board from 1971 through April 1995, is presently a director, and provides consulting services. 3.Ronald G. Lee ("Ron Lee"), age 44, is Henry Lee's son, has worked for Lee since 1975, became Lee's President and Chief Executive Officer ("CEO") in October 1987 and became Chairman of the Board in April 1995. 4.Michael L. Agresti ("Agresti"), age 55, has worked for Lee since 1974, became Vice President of Finance and Chief Financial Officer ("CFO") in 1987, and has an inactive California Certified Public Accountant ("CPA") license that he may reactivate by satisfying continuing professional education requirements. B.The Facts 1.Background In 1987, Lee first learned of high levels of contamination in its soil and groundwater. The California Regional Water Quality Control Board ("Water Board") then ordered Lee, both in 1988 and in 1989, to investigate the contamination on its property, but Lee replied that Lee did not cause any contamination.[2]/ Lee's consultants then performed tests, and confirmed Lee's contamination to Henry Lee in a 1989 letter and two 1990 reports. But Lee still failed to complete its investigation of its contamination and, from 1991 through 1996, utilized its Commission filings to mislead investors about the nature and extent of Lee's environmental responsibilities and liabilities. 2.Lee's False Statements And Omissions In Its Periodic Reports Lee, in periodic reports from fiscal 1991 through fiscal 1996 (Lee's fiscal year runs from October 1 through September 30), made material omissions and misstatements about its contamination. Henry Lee, Ron Lee, and Agresti signed and/or reviewed Lee's 1991 and 1992 Forms 10-K, and 1993 through 1996 Forms 10-KSB. Henry Lee prepared the environmental disclosures in the text and the notes to the financial statements of Lee's 1991 through 1994 periodic reports. a.Lee's 1991 Form 10-K By the time Lee filed its 1991 Form 10-K, on December 30, 1991, in spite of the events occurring from 1987 through 1990 and additional information Lee obtained about its environmental obligations during 1991, Lee materially understated its environmental responsibilities. For example, upon learning that Lee was not investigating its contamination, in March 1991, the United States Environmental Protection Agency ("EPA") sent Henry Lee a "General Notice" designating Lee as a Potentially Responsible Party ("PRP") for San Gabriel Superfund Site investigation and cleanup costs.[3]/ Lee, however, did not disclose in its 1991 Form 10-K that it was not performing its investigation, and that it was a PRP. Further, when Lee still failed to perform its investigation and cleanup, the Water Board issued a "Cleanup Order" in August 1991, finding that Lee had delayed its investigation, and again ordered Lee to investigate and clean up its contamination. Lee filed monthly reports with the Water Board, and in October 1991, Henry Lee received from an environmental consultant a $465,200 estimate for Lee's environmental investigation and cleanup costs. However, Lee still did not complete its investigation or clean up its contamination. Management believed the $465,200 estimate was unreliable. Nevertheless, Lee was obligated to obtain, disclose, and accrue as appropriate a reasonable estimate of Lee's environmental liabilities and cleanup costs. Lee failed to disclose the $465,200 estimate, and falsely reported in its 1991 Form 10-K that it was conducting further tests. Moreover, by September 1991, Henry Lee had received copies of consultants' reports that confirmed contamination on Lee's property, and Ron Lee and Agresti also understood that Lee's property was contaminated. Lee, nevertheless, falsely reported in its 1991 Form 10-K that Lee had "some potential contamination," but that the environmental tests were "inconclusive." b.Lee's 1992 Form 10-K In its 1992 Form 10-K, filed on January 13, 1993, Lee continued to materially understate the seriousness of its environmental obligations. First, Lee represented that it was not a PRP even though Henry Lee, Ron Lee and Agresti knew that the EPA had designated Lee as potentially liable for Superfund site contamination in March 1991. Further, without any basis, Lee also falsely stated in its 1992 Form 10-K that the EPA had announced that contamination was sufficiently low that the EPA was not currently requiring a cleanup. Henry Lee, Ron Lee, and Agresti knew, however, that the EPA had not excused Lee's cleanup obligations, and that the EPA had announced that it would continue to investigate and require cleanups of contaminated properties, including Lee's. Lee also falsely stated in its 1992 Form 10-K that it had no information about the cleanup costs for its property, even though in May 1992, Henry Lee, in a letter to Lee's insurance carrier, estimated Lee's environmental investigation and cleanup costs at $700,000. Lee also failed to disclose that it was still not performing its environmental investigation as required by the Water Board, and, instead, stated in its 1992 Form 10-K that "testing has not been completed and the extent of any contamination has not been determined." Yet, Henry Lee knew that Lee was not completing its environmental investigation, and he sent letters to the Water Board throughout 1992, claiming that Lee lacked the time or money for added environmental work. Ron Lee knew that although Lee claimed it could not afford environmental work, it was able to purchase the assets of another company during 1992 for $233,000 cash. c.Lee's 1993 Form 10-KSB Even though Lee apparently released more chemicals onto its property during 1993, Lee continued to make material false statements and omissions about its environmental contamination and investigation and cleanup obligations. During 1993, the EPA was so concerned about Lee's failure to perform its investigation, that it had its own consultant perform the investigation. The EPA's tests established that Lee's contamination originated on Lee's property, although the EPA did not provide Lee with the test results prior to the time Lee filed its 1993 Form 10-KSB on January 21, 1994. Also, during 1993, Henry Lee continued to tell the Water Board that Lee lacked the funds to perform any environmental work, even though Lee used hundreds of thousands of dollars in cash to reduce debts to Henry Lee and Lee family members. Also during 1993, Lee added to its contamination problems and was cited by the County of Los Angeles for improperly storing about 100 containers of chemicals and hazardous waste, some in corroding or unsealed containers, and was cited by the State of California for a chemical discharge from Lee's property. In its 1993 Form 10-KSB Lee falsely: claimed that it had complied with governmental provisions relative to protection of the environment; did not disclose that it was still not complying with the Water Board's Cleanup Order; continued to deny that it had any information about its cleanup costs; continued to deny that it had been designated a PRP for San Gabriel Valley Superfund Site investigation and cleanup costs; and stated again, without basis, that the EPA was not requiring any cleanup. d.Lee's 1994 Form 10-KSB By the time Lee filed its 1994 Form 10-KSB, on December 22, 1994, Henry Lee had received the EPA's 1993 test results showing that Lee's contamination originated on Lee's property. Lee, however, continued to fail to disclose the test results; falsely claimed that it did not cause any contamination; and falsely claimed that financial hardship was keeping it from completing its environmental work. Despite Lee's continued claims of financial hardship, Lee continued making material payments for asset acquisitions. Furthermore, Lee omitted to state in its 1994 Form 10-KSB that it was not performing the environmental work ordered by the Water Board. Further, Lee falsely reported that Lee was in compliance with provisions regarding protection of the environment. In its 1994 Form 10-KSB, Lee also falsely: continued to deny that it had any information as to its cleanup costs; continued to deny that it had been designated a PRP for San Gabriel Valley Superfund Site investigation and cleanup costs; and stated again, without basis, that the EPA was not requiring any cleanup. e.Lee's 1995 and 1996 Forms 10-KSB Although Lee gained additional information in 1995 about its environmental cleanup costs, Lee continued to falsely state in its 1995 Form 10-KSB that its cleanup costs were unknown, and to falsely state in its 1996 Form 10-KSB that it lacked reliable information about its cleanup costs. In July 1995, Henry Lee learned of the EPA's $30 million estimate for South El Monte's portion of the San Gabriel Valley Superfund Site cleanup costs.4[/] Further, during 1995, Ron Lee and Agresti learned of the $465,200 estimate that Henry Lee had received in 1991. But Lee did not disclose in its 1995 and 1996 Forms 10-KSB its estimated costs for cleaning up its own property, or the $30 million estimate of the South El Monte Superfund site cleanup costs of which Lee could incur a share. Instead, in its 1995 Form 10-KSB, filed on January 12, 1996, Lee stated that its cleanup costs were "not known at this time," and in its 1996 Form 10-KSB, filed on December 27, 1996, Lee stated that it had no reliable information about its cleanup costs. 3.Lee Failed To Obtain, Accrue, And Disclose In Its Financial Statements Estimates Of Its Environmental Costs In addition to its series of textual material omissions and misstatements, Lee's financial statements, included in its periodic reports, did not comply with Generally Accepted Accounting Principles ("GAAP"). Although required in its 1991 financial statements, Lee failed to accrue as a loss an estimate of its environmental investigation and cleanup costs. Lee further failed to disclose a range of estimated environmental costs in the notes to its 1991 through 1996 financial statements. Had Lee properly accrued the $465,200 estimate, Lee's $3.9 million net loss for 1991 would have increased by 12% to $4.4 million, and Lee's reported accumulated deficit for 1991 of $2.3 million would have increased by 20% to $2.8 million.5[/] a.GAAP Requirements GAAP requires accrual of an estimated loss if, prior to issuing the financial statements, information indicates that it is "probable" that a liability has been incurred at the date of the financial statements, and the loss can be reasonably estimated. See Financial Accounting Standard ("FAS") No. 5 entitled "Accounting for Contingencies,"  8. GAAP does not permit delaying recognizing contingent liabilities until only a single amount can be reasonably estimated. Instead, management must disclose a range of estimated losses and accrue as a loss in the financial statements the minimum of the range. See Financial Accounting Standards Board Interpretation No. 14, entitled, "Reasonable Estimation of the Amount of a Loss." GAAP also provides that as more information becomes available, management should revise its reported estimates of the liability. See Accounting Principles Board Opinion No. 20 entitled, "Accounting Changes." Commission Staff Accounting Bulletin ("SAB") No. 92 entitled "Accounting and Disclosures Relating to Loss Contingencies": (a) requires recognition of a loss equal to the minimum of the range even if the upper limit of the range is uncertain; (b) advises that information necessary to support a reasonable estimate or range of loss may be available before performing a detailed investigation; and (c) admonishes that even **FOOTNOTES** [1]:/Rule 102(e) of the Commission's Rules of Practice provides in pertinent part that: "the Commission may deny, temporarily or permanently, the privilege of appearing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter...(iii) to have willfully violated, or willfully aided and abetted the violation of any provision of the federal securities laws." [2]:/As early as 1984, Lee was cited for storing improperly 80 drums of chemicals which should have been shipped offsite in a timely manner. During 1989 or 1990, Lee's second environmental consultant observed a Lee employee spilling chemicals near where high levels of contamination had previously been detected and, in 1990, a Water Board staff member reported Lee's faulty industrial waste equipment that apparently leaked hazardous chemicals into the soil. [3]:/The EPA previously placed the San Gabriel Valley on the Superfund National Priorities List of hazardous waste sites authorized by the Comprehensive Environmental Response, Compensation and Liability Act ("CERCLA"), 42 U.S.C.  9600 (1980), also known as "Superfund." [/]:/Lee's potential share of the $30 million has not been determined. Superfund PRPs are jointly and severally liable for Superfund site costs, and are responsible for negotiating among themselves the allocation of the costs based on, among other things, the outcome of the environmental investigation. [/]:/Unlike the $465,200 estimate of Lee's environmental costs that a consultant provided to Henry Lee in 1991 that was based on a detailed analysis of investigation and cleanup costs, Henry Lee's 1992 estimate of $700,000 represented the amount of environmental costs and other associated expenses Henry Lee was asserting in an insurance claim, and was unsupported by any detailed calculations. when the registrant has not determined the specific strategy for cleanup, estimates of costs of various alternative cleanup strategies for a site may be available or reasonably estimable. See SAB Topic 5Y,  11 and 12. b.Lee Failed To Comply With GAAP When Lee filed its 1991 Form 10-K including its 1991 financial statements, it had not met the GAAP criteria that obligated Lee to estimate, disclose, and accrue environmental losses. First, the August 1991 Cleanup Order showed that at the date of Lee's 1991 financial statements (September 30, 1991), it was probable that Lee had incurred an environmental liability. Second, Lee could have reasonably estimated a range of loss. Lee's own environmental consultant believed that, with the environmental test results Lee had by November 1990, Lee could have estimated a range of investigation and cleanup costs. Further, as early as 1991 and 1992, Henry Lee had estimates of Lee's environmental liabilities from $465,200 to $700,000. Accordingly, GAAP required Lee to accrue an estimate of its environmental liabilities in its 1991 financial statements, and from 1991 forward, to disclose a range of estimated environmental investigation and cleanup costs. c.Henry Lee And Agresti Knew Of Environmental Disclosure Obligations Henry Lee and Agresti knew that Lee was obligated to estimate, disclose, and accrue its environmental costs. Agresti was familiar with the contingent liability disclosure requirements under GAAP described in FAS No. 5, and by 1991 knew of Lee's contamination, and that Lee was obligated to obtain, disclose, and accrue related estimates. By 1991, Henry Lee had the $465,200 estimate, and should have had Lee accrue the estimate in its 1991 financial statements. By 1992, Henry Lee had estimated Lee's environmental costs at $700,000, and Lee's 1992 and 1993 periodic reports should have disclosed this estimate. By the time Lee filed its 1994 Form 10-KSB, without disclosing or accruing Lee's estimated environmental liabilities, and by the time Lee filed its 1995 and 1996 Forms 10-KSB without disclosing that Lee could incur at least a share of the $30 million estimate of the Superfund sitecleanup costs, or the estimated cleanup costs for its property, Henry Lee and Agresti knew, or were reckless in not knowing, that such estimates must be reported.6[/] **FOOTNOTES** [/]:/At November 1994, each had a GAAP update that described, among other things, requirements of FAS No. 5 and SAB No. 92 that required reporting such estimates. But, Agresti relied on Henry Lee to bring environmental liabilities to his attention, and he did not establish any internal accounting controls over environmental matters. 4.Henry Lee Withheld Information From Lee's Auditors Henry Lee withheld the estimates of Lee's environmental investigation and cleanup costs from Lee's auditors from 1991 through 1994. Henry Lee falsely told Lee's auditors that Lee could not estimate its environmental costs, and failed to inform any of the auditors about the $700,000 estimate. Further, Lee's auditors for years 1991 through 1994 claimed that they were unaware of Lee's $465,200 estimate. C.Applicable Law 1.Antifraud: Section 10(b) of the Exchange Act and Rule 10b-5 Thereunder Lee, Henry Lee, and Ron Lee violated, and Agresti willfully violated, Section 10(b) of the Exchange Act and Rule 10b-5 thereunder by filing with the Commission periodic reports that misrepresented and/or omitted to disclose material information about Lee's environmental contamination, investigation and cleanup responsibilities, and liabilities. Section 10(b) of the Exchange Act and Rule 10b-5 thereunder make it unlawful for any person, directly or indirectly, in connection with the purchase or sale of a security, to make an untrue statement of material fact, omit to state a material fact, use any device, scheme or artifice to defraud, or engage in any act, practice or course of business which operates or would operate as a fraud or deceit upon any person. Generally, information is material if there is a substantial likelihood that a reasonable investor would consider it important to an investment decision. See Basic Inc. v. Levinson, 485 U.S. 224, 231-32 (1988); TSC Indus., Inc. v. Northway, Inc., 426 U.S. 438, 449 (1976). Scienter is required to establish a violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder. See Aaron v. SEC, 446 U.S. 680, 701-02 (1980). The Supreme Court has defined scienter as "a mental state embracing intent to deceive, manipulate or defraud." Ernst & Ernst v. Hochfelder, 425 U.S. 185, 194 n.12 (1976). The Ninth Circuit has expressly held that recklessness satisfies the scienter requirement. Hollinger v. Titan Capital Corp., 914 F.2d 1564, 1569 (9th Cir. 1990) (en banc), cert. denied, 499 U.S. 976 (1991). Henry Lee drafted, and Ron Lee and Agresti reviewed, environmental disclosures for Lee's 1991 through 1994 periodic reports, and Henry Lee, Ron Lee, and Agresti signed and/or reviewed, and caused Lee to file, Lee's 1995 and 1996 Forms 10- KSB. Each of these reports omitted material facts and made materially false statements about Lee's environmental contamination and related obligations, and failed to accrue and disclose any estimated environmental liabilities as required by GAAP. The misrepresentations were material. Reasonable investors would consider it important that Lee had: (1) high levels of confirmed contamination originating on its property; (2) continually failed to comply with governmental provisions regarding protection of the environment, such as performing its investigation and cleanup; (3) been designated a PRP and had not been excused by the EPA from cleanup obligations; and (4) estimates ranging from $465,200 to $700,000 for Lee's environmental investigation and cleanup costs, and of $30 million for the South El Monte portion of the San Gabriel Valley Superfund Site where Lee's facilities were located. These facts would be important to investors because of the likelihood, under the circumstances, that Lee would be required to make material unrecoverable payments for both the Superfund site and its own property's investigation and cleanup costs. Further, Lee's financial statements included in its periodic reports were materially misleading. Lee did not prepare its financial statements in accordance with GAAP when it failed to: (1) accrue its estimated investigation and cleanup costs in its 1991 financial statements, and make adequate accruals thereafter; and (2) disclose its range of estimated investigation and cleanup costs in its 1991 through 1996 periodic reports, such as the $465,200 to $700,000 estimates of its environmental investigation and cleanup obligations. Section 4-01(a) of Regulation S-X requires that financial statements filed with the Commission comply with GAAP. Financial statements that fail to make disclosures required by Regulation S-X and GAAP are considered misleading.[4]/ Lee's financial statements were materially misleading. For example, had Lee properly accrued in its 1991 financial statements its $465,200 estimate of estimated environmental costs, Lee's $3.9 million net loss for 1991 would have increased by 12% to $4.4 million, and Lee's reported accumulated deficit for 1991 of $2.3 million would have increased by 20% to $2.8 million. Lee, Henry Lee, Ron Lee, and Agresti acted with scienter by repeatedly failing to assure that Lee disclosed truthfully material facts that each knew about Lee's environmental contamination and liabilities.[5]/ Henry Lee acted with the highest degree of scienter. He was involved in the day-to-day management of Lee's environmental responsibilities and knew best of all of Lee's serious environmental contamination, and its responsibilities to investigate and clean up the contamination and disclose in its filings with the Commission these responsibilities and related liabilities. He directed Lee's environmental investigation, received copies of environmental investigation reports and environmental literature regarding financial accrual and disclosure obligations, received reports, notices and correspondence from the federal and state environmental agencies, obtained and made estimates of Lee's environmental liabilities, and received a memorandum describing the estimated $30 million of Superfund site cleanup costs to which Lee could be required to contribute. In spite of Henry Lee's knowledge of Lee's environmental contamination, investigation and cleanup responsibilities, and reporting obligations, Henry Lee prepared materially misleading environmental disclosures included in Lee's 1991 through 1994 periodic reports that materially misstated the seriousness of Lee's environmental obligations, and made materially false statements about Lee's PRP status and Superfund site cleanup obligations. Further, in the 1995 and 1996 environmental disclosures in reports that Henry Lee signed and/or reviewed, Lee still failed to disclose its known environmental cleanup estimates. Finally, none of the financial statements, in the 1991 through 1996 periodic reports signed and/or reviewed by Henry Lee, appropriately disclosed or accrued Lee's estimated environmental liabilities. Given Henry Lee's in-depth knowledge of Lee's environmental contamination and obligations, the danger that Lee's omissions and misrepresentations about its environmental liabilities and responsibilities would mislead investors was so obvious that Henry Lee must have been aware of it. Ron Lee also acted with scienter. Ron Lee knew of, but repeatedly failed to require Lee to disclose, Lee's severe contamination, and its corresponding environmental responsibilities. Ron Lee knew that: Lee's property was contaminated; Lee did not perform its environmental investigation; Lee had received its General Notice from the EPA notifying it of its Superfund liability; and Lee had not been excused from performing its cleanup. Ron Lee, however, reviewed the environmental disclosure in Lee's 1991 through 1996 periodic reports that falsely stated some or all of the following: that Lee's property had only potential contamination; that Lee had complied with all governmental provisions relating to protection of the environment; that Lee was not a PRP; and that the EPA was not requiring a cleanup. Moreover, by the time Lee filed its 1995 and 1996 Forms 10-KSB, Ron Lee knew of the $465,200 estimate of Lee's investigation and cleanup costs, but reviewed and/or signed Lee's 1995 and 1996 Forms 10-KSB that stated that Lee had no information about its cleanup costs. Agresti acted with scienter by repeatedly failing to have Lee disclose truthfully facts he knew about its environmental contamination and liabilities. Agresti knew that Lee's property was contaminated, Lee was a PRP, and the EPA had not excused Lee from its cleanup obligations. Agresti, however, signed and/or reviewed Lee's environmental disclosures in some or all of its 1991 through 1996 periodic reports that falsely stated that Lee had only potential contamination, was not a PRP, and the EPA was not requiring a cleanup. Moreover, Agresti failed to appropriately accrue or disclose any estimates of Lee's environmental liabilities. Agresti had been an active CPA and was familiar with contingent liability reporting requirements under GAAP described in FAS 5. Further, Agresti knew, or was reckless in not knowing, of the environmental liability disclosure requirements described in SAB 92 from the GAAP update that he had in November 1994. Agresti, however, failed to obtain, disclose and accrue estimates of Lee's environmental liabilities in Lee's financial statements included in its 1991 through 1996 periodic reports. By January 12, 1996, when Lee filed its 1995 Form 10-KSB, Agresti knew of Lee's $465,200 estimate of its environmental costs, yet signed Lee's 1995 and 1996 Forms 10-KSB that falsely stated that Lee's cleanup costs "were not known at this time," or that Lee lacked reliable information about its cleanup costs, and that failed to accrue in Lee's financial statements an estimate of its environmental liabilities and cleanup costs. **FOOTNOTES** [4]:/SEC Regulation  210.4-01(a) provides in pertinent part that: "(a)(1) Financial statements filed with the Commission which are not prepared in accordance with generally accepted accounting principles will be presumed to be misleading or inaccurate. . ." [5]:/For purposes of establishing scienter, Henry Lee's, Ron Lee's, and Agresti's mental states are imputed to Lee. See SEC v. Manor Nursing Centers, Inc., 458 F.2d 1082, 1096 n. 16 (2d Cir. 1972). 2.Reporting: Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 Thereunder Section 13(a) of the Exchange Act and Rule 13a-1 thereunder require issuers with securities registered pursuant to Section 12 of the Exchange Act, such as Lee, to file with the Commission annual reports on either Form 10-K or Form 10-KSB. The filings must be accurate. SEC v. Falstaff Brewing Corp., 629 F.2d 62, 72 (D.C. Cir. 1980); SEC v. Savoy Industries, Inc., 587 F.2d at 1165. Rule 12b-20 under the Exchange Act similarly requires that these reports contain any material information necessary to make the required statements made in the reports not misleading. No showing of scienter is required to establish a violation of Section 13(a) of the Exchange Act. See Savoy Indus., Inc., 587 F.2d at 1167. Lee violated Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder by filing its materially false and misleading 1991 and 1992 Forms 10-K, and 1993 through 1996 Forms 10-KSB. Lee, in some or all of its 1991 through 1996 periodic reports, made misrepresentations and omissions regarding its environmental investigation and cleanup responsibilities as discussed above.[6]/ Henry Lee and Ron Lee were a cause of, and Agresti willfully aided and abetted and caused, Lee's violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. Henry Lee, as Lee's Chairman of the Board, was ultimately responsible for assuring that Lee properly disclosed its environmental contamination, investigation and cleanup obligations, and related liabilities. Thus, Henry Lee was a cause of Lee's reporting violations by drafting disclosures for, or reviewing and/or signing, Lee's 1991 through 1996 materially false and misleading periodic reports. As Lee's CEO, Ron Lee was also responsible for assuring that Lee properly disclosed its environmental contamination, investigation and cleanup obligations, and related actual and contingent liabilities. Accordingly, Ron Lee was a cause of Lee's reporting violations by reviewing and/or signing Lee's 1991 through 1996 periodic reports that contained materially misleading information and omitted material disclosures. Moreover, as Lee's CFO, Agresti was responsible for assuring that Lee properly disclosed its environmental contamination, investigation and cleanup obligations, and reported its related actual and contingent liabilities in conformity with GAAP. In this regard, Agresti caused Lee's violations by reviewing and/or signing Lee's 1991 through 1996 periodic reports that contained materially misleading information and false financial statements, and that omitted material environmental disclosures. Agresti also willfully aided and abetted Lee's violations. An individual is liable for aiding and abetting a securities law violation where: (1) a primary violation occurred; (2) the alleged aider and abettor had knowledge of the improper activity and his role in it; and (3) the alleged aider and abettor knowingly rendered substantial assistance in the violation. See Hauser v. Farrell, 14 F.3d 1338, 1343 (9th Cir. 1994); Armstrong V. McAlpin, 699 F.2d (2nd Cir. 1983). Agresti is liable for willfully aiding and abetting Lee's violations. As discussed above, Lee violated Section 13(a) of the Exchange Act and Rule 13a-1 thereunder. Agresti, as the CFO, was responsible for reviewing Lee's disclosures and signed the periodic reports. He was familiar with contingent liability reporting requirements under GAAP, and was a CPA. Agresti also provided Lee with substantial assistance in Lee's violations of the reporting provisions by signing periodic reports on behalf of the company. 3.Record-Keeping: Section 13(b)(2)(A) Of The Exchange Act And Rule 13b2-1 Thereunder Section 13(b)(2)(A) of the Exchange Act requires every issuer that has securities registered pursuant to Section 12 of the Exchange Act, such as Lee, to "make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect the transactions . . . of the issuer." No showing of scienter is required to establish a primary violation of this section. See SEC v. World-Wide Coin Inves., Ltd., 567 F. Supp. 724, 749, 751 (N.D. Ga. 1983). Lee violated Section 13(b)(2)(A) of the Exchange Act in that its books, records and accounts inaccurately reflected Lee's transactions. Lee's 1991 through 1996 books and records failed to reflect as a loss the minimum of Lee's range of estimated environmental liabilities. Henry Lee was a cause of, and Agresti willfully aided and abetted and caused, Lee's violations of the record-keeping provisions of Section 13(b)(2)(A) of the Exchange Act. Henry Lee and Agresti failed to keep accurate books and records. Consequently, Henry Lee was a cause of, and Agresti willfully aided and abetted and caused, Lee's failure to make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflected Lee's environmental liabilities. Further, Henry Lee violated and Agresti willfully violated the record-keeping provisions of Rule 13b2-1 under the Exchange Act, which provides that "no person shall, directly or indirectly, falsify or cause to be falsified, any book, record, or account subject to Section 13(b)(2)(A)." Henry Lee, as Lee's Chairman of the Board, and Agresti, as Lee's CFO, were responsible for assuring that Lee maintained accurate records and made financial reports that fairly presented Lee's transactions. As described above, Henry Lee and Agresti, however, falsified Lee's records by improperly failing in 1991 to obtain, and have Lee accrue and disclose, estimates of its environmental liabilities. As also described above, Henry Lee failed, from 1992 through 1996, to have Lee accrue the $465,200 estimate of Lee's environmental investigation and cleanup costs he received in October 1991, and to have Lee disclose the $700,000 estimate of Lee's environmental and cleanup costs he had in May 1992. 4.Internal Controls: Section 13(b)(2)(B) Of The Exchange Act The internal control provisions of Section 13(b)(2)(B) of the Exchange Act require issuers with securities registered under Section 12 of the Exchange Act, such as Lee, to devise and maintain a system of internal accounting controls sufficient to reasonably assure, among other things, that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP. Again, scienter is not required to prove a primary violation of this section. See World-Wide Coin Inves., Ltd., 567 F. Supp. at 749, 751. Lee lacked the required internal accounting controls necessary to properly report its environmental liabilities. Agresti, as Lee's CFO, was primarily responsible for devising and implementing Lee's system of internal accounting controls. Agresti, however, did not develop internal controls for Lee's environmental liabilities that would assure that Lee would obtain estimates of its range of environmental costs, and accrue the minimum of the range as a loss in Lee's financial statements as required by GAAP. Agresti, therefore, willfully aided and abetted and caused Lee's violations of the internal control provisions of Section 13(b)(2)(B) of the Exchange Act. 5.Lying To An Accountant: Rule 13b2-2 Under The Exchange Act Rule 13b2-2 under the Exchange Act prohibits any officer or director of an issuer from omitting to state any material fact to an accountant in connection with any required audit of the issuer's financial statements or the preparation of a report required to be filed with the Commission. Henry Lee violated this rule by omitting to state to Lee's auditors material information about the $465,200 estimate of Lee's environmental investigation and cleanup costs that he received in 1991, and the $700,000 estimate he made in 1992, affecting Lee's financial statements. **FOOTNOTES** [6]:/In addition, Lee was required to, but failed to, disclose its failure to complete its investigation and cleanup as required by the Water Board Cleanup Order. SEC regulations require that management disclose the material effects that compliance with federal, state and local environmental law provisions may have upon the capital expenditures, earnings and competitive position of a company. See Item 101(b)(1)(xii) of Regulation S-K, and Item 101(b)(9) of Regulation S-B. To the extent that Lee's claim of financial hardship was just a negotiating ploy, and therefore false, Lee was facing enforcement actions compelling it to complete its investigation and cleanup. Because such actions may have had a material impact on Lee's capital expenditures and net earnings, Lee should have disclosed in its 1992 Form 10-K and 1993 and 1994 Forms 10-KSB that it was in violation of the Water Board Cleanup Order, and was risking enforcement action. Alternatively, if Lee truly lacked the funds to comply with the Cleanup Order, Lee was required to disclose, in its Management's Discussion and Analysis Sections ("MD&A") that it was unable to generate adequate amounts of cash to meet its needs, and the steps that it had taken or proposed to take to remedy the deficiency. See Form 10-K, Item 7; Regulation S-K, Item 303(a)(2) and Instruction 5 to Paragraph 303(a)11; 17 CFR  229.303. See also Form 10-KSB, Item 6; Regulation S-B, Item 303(b); 17 CFR  228.303. 6.Willful Violations and Willful Aiding and Abetting Violations Of The Federal Securities Laws Or The Rules And Regulations Thereunder: Rule 102(e)(1)(iii) of the Commission's Rules of Practice Rule 102(e)(1)(iii) of the Commission's Rules of Practice provides, among other things, that the Commission may deny, for a period of time or permanently, the privilege of appearing or practicing before the Commission to any person who is found by the Commission to have willfully violated, or willfully aided and abetted the violation of any provision of the federal securities laws. As discussed above, among other violations, Agresti, a CPA, willfully violated the antifraud provisions when he recklessly misrepresented and omitted to state material facts about contamination detected on Lee's property and related liabilities in the company's periodic reports. Agresti also willfully violated the record-keeping provisions, and willfully aided and abetted Lee's violations of the reporting, record-keeping and internal control provisions. D.Conclusion Based on the foregoing, the Commission finds that: (1) Lee violated Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-1 thereunder; (2) Henry Lee violated Section 10(b) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and caused violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder; (3) Ron Lee violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and caused violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder; and (4) Agresti willfully violated Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and willfully aided and abetted and caused violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. IV. Based on the foregoing, the Commission deems it appropriate to accept the Offers of Settlement of Lee, Henry Lee, Ron Lee, and Agresti and accordingly, IT IS HEREBY ORDERED, pursuant to Section 21C of the Exchange Act, that Lee cease and desist from committing or causing any violation and any future violation of Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20 and 13a-1 thereunder. IT IS HEREBY FURTHER ORDERED, pursuant to Section 21C of the Exchange Act, that Henry Lee cease and desist from committing or causing any violation and any future violation of Section 10(b) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 thereunder, and from causing any violation and any future violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. IT IS HEREBY FURTHER ORDERED, pursuant to Section 21C of the Exchange Act, that Ron Lee cease and desist from committing or causing any violation and any future violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from causing any violation and any future violation of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. IT IS HEREBY FURTHER ORDERED, pursuant to Section 21C of the Exchange Act, that Agresti cease and desist from committing or causing any violation and any future violation of Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1 thereunder, and from causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder. IT IS HEREBY FURTHER ORDERED effective immediately, that: A.Agresti is denied the privilege of appearing or practicing before the Commission as an accountant. B.After three years from the date of this Order, Agresti may apply to the Commission 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 upon submission of an application satisfactory to the Commission in which Agresti undertakes that, in his practice before the Commission, his 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; 2.an independent accountant upon submission of an application containing a showing satisfactory to the Commission that: a.Agresti, 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 he appears or practices before the Commission as an independent accountant; b.Agresti 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.Agresti 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 he appears or practices before the Commission as an independent accountant. 3.The Commission's review of any request or application by Agresti to resume appearing or practicing before the Commission may include consideration of, in addition to the matters referenced above, any other matters relating to Agresti's character, integrity, professional conduct, or qualifications to appear or practice before the Commission. By the Commission. Jonathan G. Katz Secretary