SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 16536 \ May 3, 2000
ACCOUNTING AND AUDITING
SEC V. ITEX CORPORATION, TERRY L. NEAL, MICHAEL T. BAER, GRAHAM H. NORRIS, CYNTHIA PFALTZGRAFF AND JOSEPH M. MORRIS, CV 99-1361 BR (D. Ore.) (September 27, 1999)
SEC SETTLES FRAUD CASE AGAINST FORMER ITEX CORPORATION PRESIDENT AND CONTROLLER
The Securities and Exchange Commission today announced the settlement of securities fraud charges against Graham H. Norris and Cynthia Pfaltzgraff, former officers of Itex Corporation, a Portland, Oregon company engaged in the barter trade business. In its complaint, filed September 27, 1999, the Commission alleged, among other things, that Norris, as president of Itex Corporation, from September 1996 through October 1998, and Pfaltzgraff as controller of Itex from at least December 1993 through February 1998, both knowingly or recklessly participated in the material overstatement of Itex's assets, revenues and earnings in its financial statements, and failed to disclose numerous suspect and in many cases sham barter deals between Itex and various related parties. The complaint also alleged that Norris and Pfaltzgraff knowingly circumvented and failed to implement internal accounting controls and that they made and caused others to make materially false and misleading statements and omissions to Itex's auditors. The complaint alleged that Pfaltzgraff's and Norris's conduct was part of a larger scheme in which defendant Terry Neal, Itex's founder and control person, orchestrated and implemented a broad-ranging fraudulent scheme to make materially false and misleading disclosures about the company's business and to conceal numerous suspect and in many cases sham barter deals between Itex and various mysterious offshore entities related to and/or controlled by Neal.
Norris and Pfaltzgraff consented, without admitting or denying the Commission's allegations, to the entry of a final judgment permanently enjoining each of them from violating the antifraud, books and records, internal controls, and false statements to auditors provisions (Section 17(a) of the Securities Act of 1933 and Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder). Norris consented to pay a $50,000 civil penalty. No penalty was imposed on Pfaltzgraff based on her inability to pay.
Based on the injunction, the Commission entered an administrative order barring Pfaltzgraff from practicing before the Commission as an accountant, with a right to reapply after five years. In the Matter of Cynthia Pfaltzgraff, Admin. Proc. No. 3-10198 (May 3, 2000).
The Commission previously settled securities fraud actions against Itex (Lit. Rel. No. 16437), and Joseph P. Morris (Lit. Rel. No. 16430). Litigation continues against Terry Neal and Michael Baer.