-------------------- BEGINNING OF PAGE #1 ------------------- SECURITIES AND EXCHANGE COMMISSION Washington, D.C. LITIGATION RELEASE NO. 14770 / January 3, 1996 ACCOUNTING AND AUDITING ENFORCEMENT Release No. 746 SECURITIES AND EXCHANGE COMMISSION v. GIANCARLO PARRETTI, Civil Action No. 1:96CV00013 (NHJ) (D.D.C.) The Securities and Exchange Commission ("Commission") announced the filing today of a Complaint against Giancarlo Parretti, formerly the Chief Executive Officer and a director of the motion picture company Pathe Communications Corp. ("Pathe") in the United States District Court for the District of Columbia. The Commission also announced that it issued cease and desist orders by consent against Florio Fiorini, formerly the Chairman of Pathe's Board of Directors, and Fernando Cappuccio, formerly Pathe's Chief Financial Officer and a director. All three enforcement actions concern materially false and misleading disclosures regarding two transactions by Pathe: its purported sale of certain theater properties in 1989; and its acquisition of MGM/UA Communications Company in 1990. The complaint in the injunctive action alleges that in December 1989 Pathe entered into a transaction in which it purported to sell and lease back certain theater properties to an entity by the name of Cinema 5 Europe N.V. for more than $200 million. The complaint alleges that transaction was a sham because Cinema 5 was not independent of Pathe, and in particular that Pathe had provided the funds to establish Cinema 5, that the managing directors of Cinema 5 were Parretti's friends and business associates, and that Cappuccio was Cinema 5's sole representative in arranging the transaction. The complaint alleges that Parretti directed that the transaction be recorded in Pathe's books and records and disclosed in periodic filings with the Commission falsely as a sale to an unrelated third party. The complaint alleges that as a result Pathe improperly recognized gains of more than $100 million on the transaction, and that its financial statements for 1989 and the first quarter of 1990 were materially overstated. The complaint further alleges that Parretti falsely represented to Pathe's independent accountant and in news releases that Cinema 5 was not affiliated with Pathe but was owned and/or controlled by a prominent Italian media magnate. The Orders issued against Fiorini and Cappuccio found that they made similar false representations to Pathe's independent accountant and others. The complaint alleges that in a second episode, Parretti and Fiorini failed to record material liabilities in Pathe's books and records when it acquired MGM/UA. The complaint alleges that the merger agreement with MGM/UA required Parretti and/or Fiorini to contribute additional equity as part of the merger financing, and required an opinion from an investment banking firm that the merged entity was solvent. The complaint alleges that when they failed to raise the required equity financing, Parretti and Fiorini borrowed more than $300 million of the required monies on a short term basis, and committed Pathe to repay the loans after the merger. The complaint also alleged that Pathe sold certain licensing rights in a transaction that raised more that $100 million in cash that could be used to finance the merger, but that obligated Pathe to repurchase the rights at the seller's option. The complaint alleged that Parretti did not record either the short term loans or the contingent liability to -------------------- BEGINNING OF PAGE #2 ------------------- repurchase the licensing rights on Pathe's books and records, or disclose them to the investment banking firm rendering the solvency opinion. The order against Fiorini similarly found that he failed to disclose those obligations to the investment banking firm. The complaint alleged that as a result of that conduct Parretti violated Section 10(b) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder. Simultaneously with the filing of the complaint, and without admitting or denying the allegations, Parretti consented to entry of a permanent injunction against future violations of those provisions. Fiorini and Cappuccio both consented to the entry of the cease and desist orders without admitting or denying the findings. The order against Fiorini finds that he violated Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-2 thereunder. The order against Cappuccio finds that he violated or caused violations of Sections 10(b), 13(a) and 13(b)(2) of the Exchange Act, and Rules 10b-5, 12b-20, 13a-1, 13a-11, 13a-13, 13b2-1 and 13b2-2 thereunder. The orders require Fiorini and Cappuccio to cease and desist from committing or causing future violations of the provisions they were found to have violated. The Commission gratefully acknowledges the significant contributions made by foreign governmental and securities authorities to its investigation of this matter. In particular, key information and documents were provided by foreign authorities in the Netherlands, France, Switzerland and Italy. The SEC obtained comprehensive assistance pursuant to the Agreement with the Kingdom of the Netherlands dated December 11, 1989. The Dutch authorities' ability to provide assistance was challenged by one of the third parties in the Netherlands from whom the SEC sought information; however, in 1992, the Dutch Commercial Court upheld the Dutch authorities' ability to compel such information on behalf of the SEC. The Dutch Economic Control Bureau also provided the SEC with assistance in the Netherlands. The SEC also obtained additional assistance, including testimony, from the Commission des Operations de Bourse of France. Additional assistance was provided by the Swiss Federal Office for Police Matters and the Commissione Nazionale per le Societa e la Borsa of Italy.