U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 18778 / July 12, 2004
Accounting and Auditing Enforcement
Release No. 2055 / July 12, 2004
SEC v. Levine, Hughes, and Mithuen, Inc., Civ. Action No. 04-N-1422 (CBS) (District of Colorado)
On Friday, July 9, 2004, the Securities and Exchange Commission ("Commission") filed a settled civil action in the United States District Court for the District of Colorado against Levine, Hughes, and Mithuen, Inc. ("LHM), former auditor of Sport-Haley, Inc., for violations of the antifraud and periodic reporting provisions of the federal securities laws. Sport-Haley, located in Denver, Colorado, designs, markets, and contracts for the manufacture of golf apparel and outerwear under the Haley-Registered Trademark label. According to the Complaint, LHM, a certified public accounting firm audited Sport-Haley's 1998 and 1999 financial statements. The Commission asserts that LHM issue audit reports containing unqualified opinions on Sport-Haley's financial statements even though the firm knew or was reckless in not knowing the company's 1998 and 1999 financial statements materially misstated work-in-process ("WIP") inventory, improperly capitalize period costs and materially misstated losses on the sale of headwear equipment. The Commission also alleged that, after LHM learned of the investigation of Sport-Haley and had received requests from the Commission for documents relating to LHM's audit of Sport-Haley's financial statements, LHM personnel added information to the audit workpapers, improperly altered some of the original audit workpapers, disposed of some Sport-Haley documents in LHM's office, and destroyed review notes that had been created as part of LHM's review of past Sport-Haley audits.
LHM agreed to settle the charges against the firm, without admitting or denying the allegations contained in the Commission's complaint. Under the terms of the settlement, LHM consented to the entry of a final judgment ordering the firm to pay civil penalties of $50,000 but not imposing a larger civil penalty based upon LHM's sworn statement of financial condition. This action was filed in combination with the Commission's release of an Order Instituting Public Administrative and Cease-and-Desist Proceedings Pursuant to Sections 8A of the Securities Act of 1933, Section 21C of the Securities Exchange Act of 1934, and Rule 102(e) of the Commission's Rules of Practice, Making Findings, and Imposing Remedial Sanctions against LHM.