SECURITIES AND EXCHANGE COMMISSION Washington, D.C. LITIGATION RELEASE NO. 15286 / March 12, 1997 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 896 / March 12, 1997 SECURITIES AND EXCHANGE COMMISSION v. MERLE S. FINKEL, Civil Action No. 97-00505 (EGS)(D.D.C.) UNITED STATES v. MERLE S. FINKEL, CR-S-97-45-PMP (D.C. Nev.) The Securities and Exchange Commission ("Commission") announced the filing today of a Complaint against Merle S. Finkel ("Finkel") in the United States District Court for the District of Columbia. The Complaint alleges that on at least 13 occasions, Finkel, a certified public accountant, practicing as M.S. Finkel & Co., issued materially false or inaccurate audit reports on the financial statements of three publicly traded companies: (1) Systems of Excellence, Inc. ("SOE"); (2) Twenty First Century Health, Inc. ("TFCH"); and (3) Combined Companies International Corp. ("CCIC"). The Complaint seeks a permanent injunction restraining and enjoining Finkel from violations of the antifraud provisions of the federal securities laws, and from aiding and abetting violations of the reporting provisions of the Securities Exchange Act of 1934 ("Exchange Act"). The Complaint alleges that, with respect to each of the three issuers, Finkel's audit reports falsely state that he conducted audits of the financial statements of these companies in accordance with Generally Accepted Auditing Standards ("GAAS") and falsely represent that the financial statements were fairly presented in conformity with Generally Accepted Accounting Principles ("GAAP"). In fact, the Complaint further alleges, Finkel did not perform the audits in accordance with GAAS. According to the Complaint, Finkel was engaged as the independent auditor for SOE, TFCH, and CCIC at the direction of a Las Vegas stock promoter who controls TFCH and CCIC. The Complaint alleges that with respect to the two companies controlled by the Las Vegas promoter -- TFCH and CCIC -- Finkel knew that the financial statements he certified were materially false and misleading. The Complaint also alleges that Finkel knew that his false audit reports would be included by his clients in periodic reports and an amended registration statement on Form 10, and incorporated by reference in 18 registration statements on Form S-8, all of which were filed with the Commission. Finkel recently withdrew all of the audit reports he issued for these three companies. The Commission also announced that today before the United States District Court for the District of Nevada, Finkel pleaded ==========================================START OF PAGE 2====== guilty to a one-count criminal information charging him with conspiracy to commit securities fraud and bank fraud. Finkel's plea was in connection with a securities fraud and bank fraud scheme involving the creation of false financial reports on behalf of TFCH, CCIC, and EMS Products International Corporation, which occurred between August 1992 and January 1995. Simultaneously with the filing of the Commission's Complaint, Finkel, without admitting or denying the allegations of the Complaint, consented to the entry of: 1) a permanent injunction restraining and enjoining him from violations of Section 17(a) of the Securities Act of 1933, and Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and from aiding and abetting violations of Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder; and 2) a Commission order pursuant to Rule 102(e) of the Commission's Rules of Practice denying him the privilege of appearing or practicing before the Commission as an accountant. The Commission previously has taken action with respect to Systems of Excellence, Inc., located in McLean, Virginia, and Twenty First Century Health, Inc., located in Las Vegas, Nevada. On October 7, 1996, the Commission issued an Order suspending trading in SOE securities for ten days. See Securities Exchange Act Rel. No. 37791 (October 7, 1996). On November 7, 1996, the Commission filed a Complaint and Applications for a Temporary Restraining Order, Preliminary Injunction and other emergency relief against SOE, Charles O. Huttoe, SOE's Chairman and CEO, and others in the United States District Court for the District of Columbia. See SEC v. Huttoe, et al., Lit. Rel. 15153 (November 7, 1996), Lit. Rel. 15185 (December 12, 1996), and Lit. Rel. 15237 (January 31, 1997). With respect to Twenty First Century Health, Inc., on February 10, 1997, the Commission issued an Order suspending trading in TFCH securities for ten days because of questions raised as to the adequacy and accuracy of publicly-disseminated information concerning, among other things, TFCH's financial condition and the existence, effectiveness, and marketability of a medical device for testing blood sugar, and the size of the market for that device. See Securities Exchange Act Rel. No. 38260 (February 10, 1997). On February 27, 1997, the Commission again issued an Order suspending trading in TFCH securities for another ten days based on new events and circumstances, including, among other things, the accuracy and reliability of certain press releases issued by TFCH since the first trading suspension was ordered. See Securities Exchange Act Rel. No. 38345 (February 27, 1997). That Order Of Suspension Of Trading expires tonight at 11:59 p.m. EST. The Commission cautions broker-dealers, shareholders, and prospective purchasers that they should carefully consider the ==========================================START OF PAGE 3====== information in the Commission's Orders Of Suspension Of Trading concerning TFCH, along with all other currently available information and any information subsequently issued by TFCH. Further, brokers and dealers should be alert to the fact that, pursuant to Rule 15c2-11 under the Exchange Act, at the termination of the trading suspension, no quotation may be entered unless and until they have strictly complied with all of the provisions of the rule. If any broker or dealer has any questions as to whether or not he has complied with the rule, he should not enter any quotation but immediately contact the staff of the Securities and Exchange Commission in Washington, D.C. If any broker or dealer is uncertain as to what is required by Rule 15c2-11, he should refrain from entering quotations relating to TFCH's securities until such time as he has familiarized himself with the rule and is certain that all of its provisions have been met. If any broker or dealer enters any quotation which is in violation of the rule, the Commission will consider the need for prompt enforcement action. The Commission is cooperating with separate investigations in this matter carried on by the United States Attorney's Offices for the District of Nevada and the Eastern District of Virginia, and the Criminal Investigation Division of the Internal Revenue Service. The Commission's investigation in this matter is continuing.