SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17481 / April 22, 2002
Securities and Exchange Commission v. Byron Robert Lerner, 1:02CV00748 (D.D.C.) (April 22, 2002)
SEC Files Settled Civil Action Against Teltran CEO Byron Lerner; Teltran Consents to Cease-and-Desist Order; SEC Charges Michael Drogin, CPA With Engaging in Improper Professional Conduct
The Commission announced today the filing of a settled civil action against Byron Lerner, Chairman and Chief Executive Officer of Teltran International Group, Ltd. ("Teltran"). The Commission's complaint alleges that Lerner caused Teltran to materially overstate its reported financial results during its fiscal year ended December 31, 1999 and to make other materially false and misleading statements. Specifically, the Commission's complaint alleges that during 1999, Teltran entered into a contract to acquire Channelnet Limited, a company located in the United Kingdom. The contract was signed on July 15, 1999 and the transaction closed on August 16, 1999. Teltran, however, recorded the acquisition as of June 1, 1999, before Teltran had effective control of Channelnet. The use of the earlier effective date was not in conformity with generally accepted accounting principles and caused Teltran to materially overstate its reported revenues in its June 30 and September 30, 1999 Forms 10-Q and December 31, 1999 Form 10-K.
The complaint also alleges that during 1999, Teltran projected that it would generate $30 million in revenue and earn $.30 per share for the year. Teltran made false and misleading statements concerning its prospects for 1999 after it became known that it would not meet its projections. During 1999, Teltran also adopted analyst reports by republishing them on its Internet website. Certain reports contained baseless stock price and earnings per share projections and misleading statements concerning Teltran's chances for obtaining a listing on the American Stock Exchange. Finally, the Commission's complaint alleges that, during the relevant time period, Lerner obtained an improper benefit of approximately $78,000 by selling Teltran stock.
Lerner consented, without admitting or denying the Commission's allegations, to be permanently enjoined from violating or aiding and abetting violations of Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 12b-20, 13a-1, 13a-13 and 13b2-1 thereunder, and pay disgorgement and prejudgment interest of $87,500 and a $50,000 civil penalty.
In a separate administrative proceeding, Teltran, without admitting or denying the Commission's findings, consented to cease and desist from committing or causing any violation and any future violation of Section 17(a) of the Securities Act and Sections 10(b), 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1 and 13a-13 thereunder. (In the Matter of Teltran International Group, Ltd., Administrative Proceeding File No. 3- 10761).
The Commission also instituted public administrative proceedings pursuant to Rule 102(e) of its Rules of Practice to determine whether Michael R. Drogin, CPA, engaged in improper professional conduct in the performance of his audit of Teltran for the year ended December 31, 1999, by failing to comply with professional auditing standards. A hearing will be held before an Administrative Law Judge to determine whether the staff's allegations in the Order Instituting Public Administrative Proceedings are true, to provide Drogin an opportunity to dispute these allegations, and to determine what sanctions, if any, are appropriate. (In the Matter of Michael R. Drogin, CPA, Administrative Proceeding File No. 10762).