UNITED STATES OF AMERICA Before the SECURITIES AND EXCHANGE COMMISSION Securities Exchange Act of 1934 Release No. 37127 / April 19, 1996 Accounting and Auditing Enforcement Release No. 774 / April 19, 1996 Administrative Proceeding File No.3-8987 _______________________________ : In the Matter of : ORDER INSTITUTING PUBLIC : PROCEEDINGS PURSUANT TO : SECTION 21C OF THE : SECURITIES EXCHANGE ACT OF CHARLES W. WALLIN, CPA : 1934 AND RULE 102(e) OF THE : COMMISSION'S RULES OF : PRACTICE, MAKING FINDINGS : AND IMPOSING SANCTIONS Respondent. : : _______________________________ I. The Securities and Exchange Commission ("Commission") deems it appropriate and in the public interest to institute public administrative proceedings against Charles W. Wallin ("Wallin") pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act") and Rule 102(e)(1)(ii) & (iii)-[1]- of the -[1]- Rule 102(e)(1) of the Commission's Rules of Practice, 17 C.F.R.  201.102(e)(1), provides in relevant part that: The Commission may censure a person or deny, temporarily or permanently, the privilege of appearing or practicing before it in any way to any person who is found by the Commission after notice and opportunity for hearing in the matter . . . (ii) to be lacking in character or integrity or to have engaged in unethical or improper professional conduct, or (iii) to have willfully violated, or willfully aided and abetted the violation of any provision of the Federal securities laws or the rules and regulations thereunder. ==========================================START OF PAGE 2====== Commission's Rules of Practice. Accordingly, IT IS HEREBY ORDERED that these proceedings be, and hereby are, instituted. II. In anticipation of the institution of these administrative proceedings, Wallin has submitted an Offer of Settlement, which the Commission has determined to accept. Solely for the purpose of these proceedings, and any other proceeding brought by or on behalf of the Commission or to which the Commission is a party, and prior to a hearing pursuant to the Commission's Rules of Practice, Wallin consents, without admitting or denying the findings or conclusions set forth herein, except as to jurisdiction, which he admits, to the issuance of this Order Instituting Public Proceedings Pursuant to Section 21C of the Exchange Act and Rule 102(e) of the Commission's Rules of Practice, Making Findings and Imposing Sanctions ("Order"), the entry of the findings contained herein, and the imposition of the sanctions set forth below. III. On the basis of this Order and the Respondent's Offer of Settlement, the Commission finds the following:-[2]- A. FACTS 1. Respondent Wallin was, at all relevant times, the treasurer, chief financial officer ("CFO"), in charge of accounting operations at Outdoor Sports Headquarters, Inc. ("OSHI") and a certified public accountant ("CPA"), registered in the state of Ohio. Wallin resigned from OSHI in 1991 and his CPA license is not current. 2. Related Entities Centuri, Inc. ("Centuri") is a Florida corporation with its principal executive offices located in Binghamton, New York. Centuri's common stock is registered with the Commission under Section 12(g) of the Exchange Act, and at the time of the events discussed in this Order, trades in Centuri's common stock were reported on the National Association of Securities Dealers Automated Quotation System ("NASDAQ"). Centuri filed for Chapter 11 bankruptcy protection on July 2, 1991, and was granted such -[2]- The Commission's findings herein are not binding upon any other person or entity in this or any other proceeding. ==========================================START OF PAGE 3====== protection on September 13, 1991. Centuri's reorganization plan was approved in November 1993. OSHI was, at all relevant times, a wholly owned subsidiary of Centuri and engaged in the wholesale distribution of outdoor sporting goods. OSHI was Centuri's largest subsidiary in 1989 and 1990. In 1989, OSHI accounted for 90% of Centuri's consolidated net sales. At all relevant times, OSHI's principal executive offices were located in Dayton, Ohio. OSHI filed for Chapter 11 bankruptcy protection at the same time as Centuri. OSHI's plan of reorganization was approved in June 1992. 3. Summary Wallin engaged in unethical and improper professional conduct and willfully violated certain provisions of the federal securities laws. Specifically, Wallin violated Section 10(b) of the Exchange Act and Rule 10b-5 and caused Centuri to violate Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20, by engaging in fraudulent accounting practices that resulted in materially false and misleading statements in Centuri's periodic reports filed with the Commission in 1990. Wallin violated Section 13(b)(5) of the Exchange Act and Rules 13b2-1 and 13b2-2 by knowingly failing to implement a system of internal controls at OSHI and knowingly falsifying OSHI's books, records and accounts, and by lying to Centuri's auditors. Last, Wallin caused Centuri both to keep inaccurate books and records, and to fail to devise and maintain internal controls. Wallin, therefore, caused Centuri to violate Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act. 4. Wallin Falsified OSHI's Books and Records and Caused Centuri to Make Material Misstatements in Its Periodic Filings To give the misleading impression that OSHI's financial condition and results of operations were better than they actually were, Wallin engaged directly or indirectly, in various fraudulent accounting practices at OSHI. These practices included: 1) double-booking of inventory; 2) failing to record in the proper period, and failing to record at all, liabilities related to inventory purchases, by, among other things, hiding invoices and voiding checks; 3) making entries on OSHI's books and records for which there was no support; 4) failing to accrue for certain liabilities as required under Generally Accepted Accounting Principles ("GAAP"); and 5) staging sales.-[3]- As a result of Wallin's actions, Centuri materially overstated on its books and records and in periodic reports filed with the -[3]- A staged sale occurs when certain inventory is segregated and booked as sold before it is shipped. ==========================================START OF PAGE 4====== Commission, Centuri's net income and accounts receivable and materially understated its accounts payable and certain other liabilities. Wallin knew or was reckless in not knowing that his fraudulent accounting practices would result in these material misstatements. 5. Wallin Caused Centuri To Make Material Misstatements in Its Form 10-K for 1989 Wallin knowingly or recklessly caused Centuri to make material misstatements in the financial statements included in Centuri's Form 10-K for the year 1989, filed with the Commission on March 27, 1990 ("1989 Form 10-K"). Specifically, Wallin caused Centuri to materially overstate its net income and accounts receivable, and materially understate its accounts payable and accrued liabilities. All of these misstatements resulted from Wallin's fraudulent accounting practices at OSHI. a) Wallin's Fraudulent Accounting Practices Caused Centuri to Overstate Its Net Income Centuri reported net income of $2,343,551 in its 1989 Form 10-K, when it should have reported a net loss of $5,200,543. Centuri, therefore, materially overstated its net income for 1989 by approximately $7,544,094. Centuri's misstatement of net income resulted directly from Wallin's understatement of OSHI's cost of sales and operating expenses, and overstatement of its sales. Wallin understated OSHI's cost of sales for 1989 by $5,382,259. Of this $5,382,259 understatement, $3,345,903 related to liabilities for inventory purchases that had been improperly omitted from OSHI's books. OSHI booked twice certain inventory totaling $370,064. OSHI also had no support for $122,809 of prepaid inventory it booked in 1989. On December 31, 1989, OSHI recorded $585,869 of rebates due OSHI from its vendors for which there was no support. OSHI also improperly reduced its cost of sales by recording credit memos for which there was no support ($519,694) and credit expected from vendors ($418,292). The remainder of Centuri's $5,382,259 understatement of cost of sales related to OSHI's failure to amortize its catalogue expense ($124,028), understated provision for LIFO ($68,475), invalid inventory adjustments ($38,652) and miscellaneous inventory written off ($11,881). Wallin understated OSHI's operating expenses for 1989 by $1,524,919. This understatement resulted from OSHI's failure to accrue for health and medical expenses ($495,000), vacation ($278,268), real estate taxes ($85,000) and FICA ($54,411). OSHI's remaining $279,100 understatement of nonoperating expenses for 1989 related to unbooked moving expenses, the improper ==========================================START OF PAGE 5====== statement of a bond discount at OSHI, and the accrued versus the paid amount of a sales bonus to OSHI's sales manager. Wallin overstated OSHI's sales by $928,916 for 1989. This overstatement resulted from OSHI's failure to account for cash discounts that were expected to be taken by OSHI's customers ($398,000) and Wallin's failure to record a reserve for sales returns and allowances ($247,000). The remainder of the overstatement was attributed to a $283,916 staged sale. As a result of the foregoing, Wallin caused Centuri to overstate its net income by $7,544,094. b) Wallin's Fraudulent Accounting Practices Caused Centuri to Materially Understate Its Accounts Payable and Accrued Liabilities As a result of Wallin's actions, Centuri materially understated its accounts payable liability by $4,869,758 of the amount it reported in its 1989 10-K and understated its accrued liabilities by $910,817 of the amount reported. Centuri understated accounts payable because Wallin recorded inventory in the wrong period and made improper journal entries to reduce accounts payable. OSHI received and recorded $3,345,903 in inventory as an asset in 1989, but Wallin did not record the corresponding accounts payable liability or pay OSHI's vendors for the inventory until 1990. In some instances, Wallin booked inventory and failed to record the accounts payable liability altogether. The balance of Centuri's $4,869,758 accounts payable understatement in 1989 by $1,523,855, was due to OSHI's improper journal entries to reduce the accounts payable liability. For example, Wallin reduced OSHI's accounts payable by fabricating items called "Free Goods, Rebates and DM's due." These items were goods, rebates and credits allegedly owed OSHI by vendors based on the volume of OSHI's 1989 and 1990 respective inventory purchases. Wallin also caused Centuri to materially understate its accrued liabilities by $912,679 of the amount it reported in its 1989 Form 10-K. Centuri's understatement resulted from OSHI's failure to properly accrue for employee vacation, FICA, incurred but not recorded medical expenses and real estate taxes. ==========================================START OF PAGE 6====== c) Wallin's Fraudulent Accounting Practices Caused Centuri to Materially Overstate Its Accounts Receivable Asset As a result of Wallin's fraudulent accounting practices, Centuri overstated its accounts receivable asset by $1,208,016 of the amount it reported in its 1989 Form 10-K. Centuri's overstatement was a direct result of a staged sale by Wallin, OSHI's failure to accrue for cash discounts and returns and allowances, and miscellaneous inaccurate entries to OSHI's accounts receivable. 6. Wallin Caused Centuri to Make Material Misstatements in Its Forms 10-Q for the First Three Quarters of 1990 Wallin continued into 1990 the fraudulent accounting practices at OSHI described above, and other practices of similar purport and object. These practices led to Centuri's material understatement of its respective net losses in its Forms 10-Q for the first three quarters of 1990. In the first quarter of 1990, Centuri reported a net loss of $1,382,000 when it should have reported a loss of $2,503,302. In its Form 10-Q for the second quarter of 1990, Centuri reported a net loss of $2,245,000 when it should have reported a loss of $5,104,850. In its Form 10-Q for the third quarter of 1990, Centuri reported a net loss of $486,000 when it should have reported a loss of $3,078,124. Accordingly, Centuri Forms 10-Q for the first three quarters of 1990 were materially misleading. 7. Wallin Caused Centuri to Fail to Maintain Accurate Books and Records in 1989 and 1990 Wallin's fraudulent accounting practices at OSHI caused Centuri to fail to maintain accurate books and records in 1989 and 1990. In OSHI's books and records, Wallin directly or indirectly recorded assets for which there was no support, failed to record certain accounts payable liabilities in the proper reporting period, and in some instances, failed to record certain accounts payable liabilities altogether. Further, Wallin failed to record, in OSHI's books and records, asset reserves and certain liabilities as required by GAAP. OSHI also staged sales, which caused its books, records and accounts to reflect inaccurately its transactions and the disposition of its assets. Additionally, when Wallin voided checks that had been drawn to pay accounts payable, he caused OSHI to reinstate the funds to its cash balance, but failed to reinstate the corresponding accounts payable liability. Wallin's accounting practices caused OSHI to maintain inaccurate books and records and led to Centuri's material misstatements of net income, liabilities and assets, described above in Parts III.A.4 and III.A.6. 8. Wallin Caused Centuri to Fail to Devise ==========================================START OF PAGE 7====== and Maintain Internal Controls at OSHI Wallin, OSHI's CFO, treasurer and head of accounting, was responsible for devising and maintaining a system of internal controls at OSHI. Wallin, however, failed to devise or maintain such controls. OSHI's internal controls had what Generally Accepted Accounting Standards ("GAAS") characterizes as "material weaknesses."-[4]- OSHI did not maintain the segregation of duties normally found in accounting departments. Wallin had unchecked control over every facet of the accounting department with virtually exclusive control over the area of accounts payable. OSHI had virtually no system of internal controls to monitor accounts payable liability. OSHI lacked internal controls to assure that inventory received and booked as assets had the corresponding liability recorded properly. There were no controls in place to assure that, when checks were voided off the accounts payable system and cash reinstated to OSHI's cash balance, the corresponding payables were reinstated to the accounts payable system. 9. Wallin Made False Statements to Accountants Who Were in the Course of Preparing Financial Statements and Reports Required to be Filed with the Commission Not only did Wallin falsify OSHI's books and records, but he also made false statements to Centuri's auditors during their 1989 and 1990 audits of Centuri. In January 1990, Wallin prepared and signed a management representation letter to Centuri's auditors which stated, among other things, that "(a) There have been no irregularities involving management or employees who have significant roles in the system of internal controls, (b) (There have been no) irregularities involving other -[4]- Generally Accepted Accounting Standards ("GAAS") generally defines a material weakness in the internal control structure as: a condition in which the specific control procedures, or the degree of compliance with them, are not sufficient to achieve a specific control objective--that is, errors or irregularities may occur and not be detected in a timely period by employees in the normal course of performing their assigned functions. A weakness is material if the condition results in more than a relatively low risk of such errors or irregularities in amounts that would be material in relation to the financial statements. [See AU 642 of Statement of Auditing Standards No. 30, .30]. ==========================================START OF PAGE 8====== employees that could have a material effect on the financial statements. . ." B. LEGAL DISCUSSION 1. Wallin Violated Section 10(b) of the Exchange Act and Rule 10b-5 and Caused Centuri to Violate Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20 Section 10(b) of the Exchange Act and Rule 10b-5 thereunder proscribe fraud in connection with the purchase or sale of any security. One who knowingly or recklessly makes a material misstatement in a periodic or current report filed with the Commission violates Section 10(b) of the Exchange Act and Rule 10b-5. See SEC v. Falstaff Brewing Corp., 629 F.2d 62, 76 (D.C. Cir. 1980) (Forms 8-K, 10-K and 10-Q reports); SEC v. Tiffany Industries, Inc., 535 F. Supp. 1160 (E.D. Mo. 1982). The "in connection with" requirement is satisfied by the filing of such documents combined with public reliance upon those documents. SEC v. Savoy Industries, Inc., 587 F.2d 1149, 1171 (D.C. Cir. 1978). The materiality element is satisfied by showing that there is a substantial likelihood that, under all the circumstances, the misrepresented or omitted fact would have assumed actual significance in the deliberations of a reasonable investor. Basic, Inc. v. Levinson, 485 U.S. 224, 232 (1988). Information regarding financial results is generally considered material.-[5]- To establish violations of these antifraud provisions, the Commission must also prove that the respondent acted with scienter. Scienter is a mental state embracing "intent to deceive, manipulate or defraud". Ernst & Ernst v. Hochfelder, 425 U.S. 185, 193 n.12 (1976). Proof of a respondent's recklessness will generally satisfy the scienter requirement. See, e.g., SEC v. Blavin, 760 F.2d 706, 711 (6th Cir. 1985); Sirota v. Solitron Devices, 673 F.2d 566, 575 (2d Cir. 1982), cert denied, 459 U.S. 838 (1982). Proving knowing and -[5]- See, e.g., Elkind v. Liggett & Myers, Inc., 635 F.2d 156, 167 (2d Cir. 1980); SEC v. Murphy, 626 F.2d 633, 653 (9th Cir. 1980) (materiality of information concerning financial condition, solvency and profitability not subject to serious challenge); SEC v. Benson, 657 F. Supp. 1122, 1131 (S.D.N.Y. 1987) (Rule 10b-5 liability imposed where material information is contained in documents that are "clearly documents that an investor would rely upon in deciding whether to purchase securities."); Berkowitz v. Baron, 428 F. Supp. 1190 (S.D.N.Y. 1977) (inflated inventory figures and inaccuracies on corporate financial statements that allowed the entity to show a small net income as opposed to a small net loss are material misstatements). ==========================================START OF PAGE 9====== intentional misconduct does not require proof that the respondent knew that his actions were illegal, however. Rather, "knowledge means awareness of the underlying facts . . . [a] knowledge of what one is doing and the consequences of those actions suffices." SEC v. Falstaff Brewing Corp., 629 F.2d at 77. See also, Ades v. Deloitte & Touche, 799 F. Supp. 1493, 1499 (S.D.N.Y. 1992)(An inference of "recklessness" satisfying the scienter requirement may be drawn from facts demonstrating conduct that the defendant disseminated material "knowing [it was] false or that the method of preparation was so egregious as to render [the] dissemination reckless." See also Goldman v. McMahan, Brafman, Morgan & Co., 706 F. Supp. 256, 259 (S.D.N.Y. 1989) ("[a]n egregious refusal to see the obvious, or to investigate the doubtful" may give rise to an inference of recklessness). Section 13(a) of the Exchange Act requires all issuers subject to the reporting requirements of the Exchange Act to file periodic and other reports with the Commission containing such information as the Commission's rules prescribe. Rule 13a-1 requires such issuers to file annual reports with the Commission and Rule 13a-13 requires such issuers to file quarterly reports. Issuers must disclose their assets, liabilities and net income, among other things, in these reports. See Generally, Regulation S-X. Implicit in the requirements of Section 13(a) of the Exchange Act is that the information supplied be accurate. SEC v. Kalvex, 425 F. Supp. 310, 316 (S.D.N.Y. 1975). The annual and quarterly reports, filed on Forms 10-K and 10-Q, respectively, are required to contain financial statements in accordance with Regulation S-X, which in turn requires conformity with GAAP. 17 C.F.R. 210.4-01(a)(1) (1991) ("Financial statements filed with the Commission which are not prepared in accordance with generally accepted accounting principles will be presumed to be misleading or inaccurate"). Rule 12b-20 requires such reports contain any information necessary to ensure that other statements in the reports are not, under the circumstances, materially misleading. SEC v. Falstaff Brewing Corp., 629 F.2d at 71. Violations of the reporting provisions do not require a showing of scienter. SEC v. Willis, 472 F. Supp. 1250, 1268 (D.D.C. 1978) citing SEC v. Savoy Industries, Inc., 587 F.2d 1149, 1166- 67 (D.C. Cir. 1978), cert. denied, 440 U.S. 913 (1979). The Commission has determined that Wallin knowingly or recklessly caused Centuri to make material misstatements in its periodic filings. The Commission has determined that in its 1989 Form 10-K, Centuri materially overstated its net income, understated its accounts payable, understated its accrued liabilities and overstated its accounts receivable asset. In its Forms 10-Q for the first, second and third quarters of 1990, Centuri materially understated its net losses. As a result, the Commission has determined that Centuri's 1989 Form 10-K and Forms ==========================================START OF PAGE 10====== 10-Q for the first three quarters of 1990 contained material inaccuracies. The Commission has also determined that Wallin acted with scienter. Wallin intentionally or recklessly misstated OSHI's liabilities and assets and caused the overstatements of OSHI's net income. Wallin knew or was reckless in not knowing that OSHI's financial statements would be combined with and materially affect Centuri's financial statements. Accordingly, the Commission has determined that Wallin violated Section 10(b) of the Exchange Act and Rule 10b-5, and that Wallin caused Centuri to violate Section 13(a) of the Exchange Act and Rules 13a-1, 13a-13 and 12b-20. 2. Wallin Violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1 and Wallin Caused Centuri to Violate Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act Section 13(b)(2) of the Exchange Act was enacted to promote the reliability and completeness of financial information that issuers are required to file with the Commission or to disseminate to investors pursuant to the Exchange Act. SEC v. World-Wide Coin Investments, 567 F. Supp. 724, 752 (N.D. Ga. 1983). When an issuer subject to Section 13(b)(2) of the Exchange Act controls more than 50% of the voting securities of a subsidiary, the Commission expects compliance with Section 13(b)(2) of the Exchange Act by such subsidiary. Interpretive Release on Foreign Corrupt Practices Act, Exchange Act Release No. 17,500, Fed. Sec. L. Rep. (CCH) 23,632H at 17,321-14 (Jan. 29, 1981). Section 13(b)(2)(A) of the Exchange Act requires that every issuer of securities registered pursuant to Section 12 of the Exchange Act make and keep books, records, and accounts, which, in reasonable detail, accurately and fairly reflect its transactions and disposition of assets. Exchange Act Rule 13b2-1 prohibits any person from, directly or indirectly, falsifying or causing the falsification of any book, record or account subject to Section 13(B)(2)(A) of the Exchange Act. Section 13(b)(2)(B) of the Exchange Act requires such issuers to devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP. See SEC v. World-Wide Coin Investments, 567 F. Supp. at 752. Under Section 13(b)(5) of the Exchange Act, it is unlawful for any person to knowingly circumvent or knowingly fail to implement a system of internal accounting controls or knowingly falsify any book, record, or account of an issuer. ==========================================START OF PAGE 11====== Wallin knowingly falsified books, records and accounts at OSHI that were subject to Section 13(b)(2)(A) of the Exchange Act. Wallin directly or indirectly recorded on OSHI's books and in its records, assets for which there was no support, and he recorded certain accounts payable liabilities in the wrong reporting period, and in some instances, failed to record such accounts payable liabilities altogether. Also, Wallin directly or indirectly failed to record asset reserves and certain liabilities at OSHI, as required by GAAP. He also staged sales at OSHI. These actions caused Centuri's books, records and accounts to reflect inaccurately its transactions and the disposition of its assets. Accordingly, the Commission has determined that Wallin violated Section 13(b)(5) of the Exchange Act and Rule 13b2-1, and that he caused Centuri to violate Section 13(b)(2)(A) of the Exchange Act. Wallin knowingly failed to establish a proper system of internal accounting controls at OSHI. Wallin was in charge of accounting operations at OSHI and was responsible for devising and maintaining a system of internal controls at OSHI. OSHI did not devise and maintain proper internal controls. OSHI did not maintain the segregation of duties normally found in accounting departments. Wallin had unchecked control over every facet of the accounting department with virtually exclusive control over the area of accounts payable. OSHI lacked internal controls to assure that inventory received and booked as assets had the corresponding liability recorded properly, and that when checks were voided off the accounts payable system and cash reinstated to OSHI's cash balance, the corresponding payables were reinstated to the accounts payable system. OSHI did not have internal controls to assure that a pulled vendor invoice was reentered into the accounts payable system. Accordingly, the Commission has determined that Wallin violated Section 13(b)(5) of the Exchange Act and caused Centuri to violate Section 13(b)(2)(B) of the Exchange Act. 3. Wallin Violated Rule 13b2-2 Rule 13b2-2 prohibits an issuer's officers and directors from making or causing to be made materially false or misleading statements or omitting to state or causing another person to omit to state any material fact to an accountant in connection with any required audit of the issuer's financial statements or the preparation of a report required to be filed with the Commission. "Officer" is defined under the Exchange Act as "a president, vice president, secretary, treasurer or principal financial officer, comptroller or principal accounting officer, and any person routinely performing corresponding functions with respect to any organization whether incorporated or unincorporated." Exchange Act Rule 3b-2 (emphasis added). Wallin functioned as OSHI's principal accounting officer. OSHI accounted for 90% of Centuri's consolidated net sales in 1989. Wallin was in charge ==========================================START OF PAGE 12====== of OSHI's accounting personnel and accounting practices and OSHI accounted for 90% of Centuri's net sales. Therefore, Wallin was an officer of Centuri for purposes of Exchange Act Rule 13b2-2. Wallin knowingly or recklessly provided Centuri's auditors with inaccurate financial information but represented the information as accurate. Centuri's auditors relied directly on Wallin for the accuracy of the information in OSHI's financial statements which were consolidated into Centuri's financial statements and periodic filings. Consequently, the Commission has determined that Wallin violated Exchange Act Rule 13b2-2. 4. Wallin Engaged in Unethical and Improper Professional Conduct and Willfully Violated the Federal Securities Laws Under Rule 102(e) of the Commission's Rules of Practice, the Commission may deny any person the privilege of appearing and practicing before it if such person is found to have engaged in unethical or improper professional conduct or to have willfully violated any provision of the federal securities laws. 17 C.F.R.  201.2(e)(1)(ii) and (iii). Rule 2(g) defines practicing before the Commission to include, "the preparation of any statement, opinion or other paper by any . . . accountant . . . filed with the Commission in any registration statement, notification, application, report or other document, with the consent of such . . . accountant". 17 C.F.R.  201.2(g). Wallin, a CPA, practiced before the Commission in a professional capacity by assisting and supervising the preparation of materially false financial statements that were included in Centuri's periodic reports filed with the Commission. Wallin falsified OSHI's books and records and materially misstated OSHI's financial condition and results of operations. Further, Wallin, signed OSHI's management representation letter which falsely represented that OSHI's financial statements were fairly stated in conformity with GAAP. Also, as discussed in Parts III.B.1. through III.B.3. above, Wallin willfully violated Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5, 13b2-1 and 13b2-2 and engaged in unethical and improper professional conduct. IV. Based on the foregoing, the Commission finds that: A. Wallin willfully violated Section 10(b) of the Exchange Act and Rule 10b-5 thereunder in connection with the filing of Centuri's 1989 Form 10-K and Centuri's Forms 10-Q for the first three quarters of 1990; ==========================================START OF PAGE 13====== B. Wallin caused Centuri's violations of Sections 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; and C. Wallin caused Centuri's violation of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and willfully violated Section 13(b)(5) and Rules 13b2-1 and 13b2-2 thereunder. V. ORDER In view of the foregoing, it is in the public interest to impose the sanctions agreed to in the Offer. Accordingly, IT IS HEREBY ORDERED THAT: A. Wallin, pursuant to Section 21C of the Exchange Act, cease and desist from committing or causing any violation and from committing or causing any future violation, of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5, 13b2-1 and 13b2-2 promulgated thereunder and from causing any violation or causing any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 13a-1, 13a-13 and 12b- 20 thereunder; and B. Effective immediately, Wallin be and hereby is, pursuant to Rule 102(e) of the Commission's Rules of Practice, denied the privilege of appearing or practicing before the Commission. However, five years from the date of this Order, Wallin may apply to resume appearing or practicing before the Commission as: 1. a preparer or reviewer of financial statements required to be filed with the Commission or a person responsible for the preparation or review of financial statements required to be filed with the Commission provided that his work will be reviewed by the independent audit committee of the company for which he works or in some other manner acceptable to the staff of the Commission; and 2. an independent accountant upon submission of an application to the Office of the Chief Accountant of the Commission containing a showing satisfactory to the Commission that: (a) he, or any firm with which he is or becomes associated with in any capacity as an independent accountant, is a member of the SEC Practice Section of the AICPA Division for CPA Firms ("SEC Practice Section") and that he or the firm has received an unqualified report relating to his or the firm's most recent peer review conducted in ==========================================START OF PAGE 14====== accordance with the guidelines adopted by the SEC Practice Section; (b) he will remain a member of, or be associated with a member of, the SEC Practice Section as long as he appears or practices before the Commission as an independent accountant; and (c) he will comply with all applicable SEC Practice Section requirements, including all such requirements for continuing professional education, periodic peer reviews, and concurring partner reviews, as long as he appears or practices before the Commission as an independent accountant. C. The Commission's review of any request or application by Wallin to resume appearing or practicing before the Commission may include consideration of in addition to the matter referred to above, any other matters reflecting upon his character, integrity, professional conduct, or qualifications to appear or practice before the Commission. By the Commission. Jonathan G. Katz Secretary