UNITED STATES SECURITIES AND EXCHANGE COMMISSION

     LITIGATION RELEASE NO. 15527 / October 6, 1997

     ACCOUNTING AND AUDITING ENFORCEMENT
     RELEASE NO. 977 / October 6, 1997 

     Securities and Exchange Commission v. James G. Hanley, 
     Civil Action No. 1:97CV02307(SS) (D.D.C.)

          The SEC today filed a civil action in the United States District Court
     for the District of Columbia seeking a permanent injunction and a civil
     money penalty of $25,000 against James G. Hanley of Newport Beach,
     California.  Hanley was formerly the Vice-President of Operations of
     Pinnacle Micro, Inc., an Irvine, California-based manufacturer of optical
     disk drives.  The Complaint alleges that certain Pinnacle employees
     including Hanley engaged in certain improper accounting practices that
     violated generally accepted accounting principles (GAAP) and caused
     Pinnacle materially to overstate its sales and earnings reported in
     financial statements contained in certain annual and quarterly reports
     filed with the SEC.  

          Specifically, the Complaint alleges that, on April 18, 1995, Pinnacle
     amended its annual report to restate its financial statements for the
     quarter and year ended December 31, 1993.  Pinnacle reduced fourth quarter
     net income from $652,000 to a loss of ($804,000) and year-end net income
     from $2.6 million to $1.6 million.  The restatements were due principally
     to Pinnacle improperly recording revenue in its year ended December 31,
     1993 from products shipped after the close of the year-end (post-period
     shipments).

          The Complaint alleges that, in order for Pinnacle to meet its year-end
     sales targets, Hanley circumvented Pinnacle's system of internal accounting
     controls or caused certain of the company's financial books and records to
     be falsified in that he supervised the shipping department s improper post-
     period shipments.  The Complaint alleges that, in order for Pinnacle to
     improperly recognize revenue for post-period shipments, the shipping
     department, among other things, predated packing lists, shipping records,
     and invoices to conceal that the shipments actually occurred after the end
     of the reporting period.

          In addition, the Complaint alleges that Hanley, among others,
     participated in Pinnacle s inconsistent accounting for sales of certain
     electronic chips in order to meet Pinnacle s sales target in the third
     quarter ended September 30, 1993.  The Complaint further alleges that
     Hanley failed to disclose to Pinnacle's independent auditor both Pinnacle's
     improper post-period shipments and inconsistent recording of revenue from
     the electronic chips sales. 

          Hanley, without admitting or denying the allegations of the Complaint,
     consented to the entry of a Final Judgment permanently enjoining him from
     violating Section 13(b)(5) of the Securities and Exchange Act of 1934

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     (Exchange Act) and Rules 13b2-1 and 13b2-2 thereunder and ordering him to
     pay a $25,000 civil money penalty.

          In a related administrative proceeding, the SEC also entered a cease-
     and-desist order against Pinnacle, Scott A. Blum, formerly the Executive
     Vice-President of Sales, and Lilia Craig, formerly the Vice-President of
     Finance.  The cease-and-desist order finds that Pinnacle (a) improperly
     recorded revenue from post-period shipments after the close of its December
     31, 1993 financial reporting period; (b) inconsistently accounted for sales
     of the electronic chips in its third quarter ended September 30, 1993; and
     (c) capitalized certain non-recurring engineering expenditures that should
     have been charged to expense as research and development costs in its third
     quarter ended September 30, 1995. The order also finds that Blum caused the
     improper post-period shipments, in that Blum was aware of Pinnacle s post-
     period shipments and failed to take any steps to terminate the practice. 
     The order also finds that Blum suggested the use of, and failed to inform
     Pinnacle s independent auditor about, the inconsistent accounting for sales
     of the electronic chips.  Lastly, the order finds that Craig failed to
     inform Pinnacle s independent auditor about Pinnacle s post-period
     shipments. 

          Without admitting or denying the allegations in the order, Pinnacle
     consented to cease and desist from 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 thereunder; Blum consented to cease and desist from causing
     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 thereunder, and Blum and Craig both
     consented to cease and desist from violations of Exchange Act Rule 13b2-2.
     [Release No. 34-39194; AAER 975]
























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