Litigation Release No. 19835 / September 14, 2006

Accounting and Auditing Enforcement Release No. 2481 / September 14, 2006

SEC v. Diane Kayser, Case No. C-06-5635-HRL (N.D. CA filed on September 14, 2006)

SEC Charges Former CFO of Monterey, California Company With Financial Fraud

The Securities and Exchange Commission today charged Diane Kayser, the former Chief Financial Officer of Excelligence Learning Corporation, a Monterey, California-based educational product company, with falsifying the Company's financial statements. Kayser, currently of Spokane, Wash., agreed to settle the claims against her by paying a S35,000 penalty and consenting to other sanctions.

The Commission's complaint, filed in federal court in San Jose, alleges that Kayser manipulated Excelligence's accounting records in order to avoid reporting negative financial information to securities analysts and investors. According to the Commission, in February and March 2005, Kayser altered the company's records to make it appear that the company had less unpaid inventory than was actually the case. As part of the scheme, Kayser hid unpaid invoices in her office, concealing them from the company's auditors. As a result of this conduct, Kayser caused Excelligence to report operating income for the 2004 fiscal year that was fraudulently inflated by nearly 10%.

The Commission's complaint charges Kayser with violations of the antifraud provisions of the securities laws (Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 10b-5 thereunder) as well as other violations including lying to accountants (Rule 13b2-2 under the Exchange Act) and filing false certifications with the Commission (rule 13a-14 under the Exchange Act).

Simultaneously with the filing of the complaint, Kayser has agreed to settle the charges, without admitting or denying the Commission's allegations. Kayser has consented to an order requiring her to pay civil penalties of $35,000 plus post-judgment interest, and imposing a permanent injunction against future violations of the securities laws. Kayser also consented to the entry of an order barring her from serving as an officer or director of a public company for five years, and an order prohibiting her from practicing before the Commission as an accountant for five years under SEC Rule of Practice 102(e).

SEC Complaint in this matter