==========================================START OF PAGE 1====== UNITED STATES SECURITIES AND EXCHANGE COMMISSION Litigation Release No. 15003 / August 6, 1996 Accounting and Auditing Enforcement Release No. 807 / August 6, 1996 SECURITIES AND EXCHANGE COMMISSION v. JERALD BEAGELMAN, FRED LYMAN, JOSEPH SANFELLIPO AND ELLIOT STUMACHER, 96 Civ. 3899 (DRH) (E.D.N.Y. August 6, 1996) The Securities and Exchange Commission announced today that it filed a civil injunctive action in the United States District Court for the Eastern District of New York charging two former senior officers and a former franchisee of Packaging Plus Services, Inc. ("Packaging Plus") with committing financial fraud by falsifying documents to inflate artificially the company's financial statements. The Commission's Complaint further alleges that Packaging Plus's former outside auditor forged, and made material misstatements in, an audit opinion that accompanied certain of Packaging Plus's financial statements in documents filed with the Commission. The Commission's Complaint also charges certain defendants with violating the corporate reporting and books and records provisions of the Securities Exchange Act of 1934 ("Exchange Act"). Named in the Complaint were: 1. Jerald Beagelman ("Beagelman") of Glen Cove, New York, age 49, who was president of Packaging Plus from January 1986 through July 1991, and served as a director of Packaging Plus from January 1986 through December 1991. During the time of the transactions and events alleged in the Complaint, Packaging Plus was a Nevada corporation with principal offices located in Plainview, New York and was engaged in the business of selling franchises for the operation of stores specializing in parcel packaging and shipping. 2. Joseph Sanfellipo ("Sanfellipo") of Del Mar, California, age 48, who served as president of Packaging Plus in August 1991. During the time of the transactions and events alleged in the Complaint, Sanfellipo was also the president of FranchiseWorks Inc., a franchise development company incorporated in California and a franchisee of Packaging Plus. 3. Fred Lyman ("Lyman") of Wantagh, New York, age 52, who was a Packaging Plus franchisee during the time of the transactions and events alleged in the Complaint. 4. Elliot Stumacher ("Stumacher") of Woodmere, New York, ==========================================START OF PAGE 2====== age 37, who was an owner of Jack Diamond & Co., an accounting firm in New York City, during the time of the transactions and events alleged in the Complaint. - 2 - The Commission's Complaint alleges that Beagelman, Lyman and Sanfellipo violated the antifraud provisions of the Exchange Act by engaging in a fraudulent scheme to overstate Packaging Plus's assets, revenue and income on its books and records and in its reports filed with the Commission and disseminated to the investing public. The Complaint alleges that Beagelman, Lyman and Sanfellipo achieved this result by executing backdated and otherwise fraudulent franchise agreements, and by, directly or indirectly, recording improperly franchise revenue and franchise receivables on Packaging Plus's books and records. As a result of the scheme, the Complaint alleges that Packaging Plus's assets, revenue and income were materially overstated on its books and records and in its financial statements for the year ended December 31, 1990 ("1990 Financial Statements"). The 1990 Financial Statements were contained in an amendment ("Form 10-K Amendment") to Packaging Plus's Annual Report on Form 10-K for its fiscal year ended December 31, 1990 ("1990 Form 10-K"). The 1990 Form 10-K was filed with the Commission on August 7, 1991. The Form 10-K Amendment was filed with the Commission on August 8, 1991. The Complaint further alleges that Beagelman and Sanfellipo made materially false and misleading statements to Arthur Bellini ("Bellini"), in connection with Bellini's audit of the 1990 Financial Statements. The Commission's Complaint also alleges that Stumacher, while owner of Jack Diamond & Co., knowingly or recklessly made materially false and misleading statements in an audit report ("1989 Audit Report") relating to Packaging Plus's financial statements for the year ended December 31, 1989 ("1989 Financial Statements"). The Complaint alleges that Stumacher, who was not a certified public accountant ("CPA"), forged the signature of Jack Diamond ("Diamond"), a CPA, to the 1989 Audit Report, and knowingly or recklessly misrepresented in the 1989 Audit Report that Diamond had conducted an audit of the 1989 Financial Statements in accordance with generally accepted auditing standards and that the 1989 Financial Statements were presented fairly in conformity with generally accepted accounting principles. The 1989 Financial Statements, accompanied by the 1989 Audit Report, were filed with the Commission on May 2, 1990, August 6, 1990, February 27, 1991 and April 15, 1991, in amendments to a Form 10 Registration Statement filed by Packaging Plus on November 7, 1989. In the Complaint, the Commission seeks a final judgment permanently enjoining (i) Beagelman from violating Sections ==========================================START OF PAGE 3====== 10(b), 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 10b-5, 12b-20, 13a-1, 13b2-1 and 13b2-2; (ii) Lyman from violating Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1; (iii) Sanfellipo from violating Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-2; and (iv) Stumacher from violating Section 10(b) of the Exchange Act and Rule 10b-5. The Commission also seeks civil penalties from Beagelman, Lyman and Sanfellipo, pursuant to Section 21(d) of the Exchange Act. Simultaneous with the filing of the Complaint, Lyman consented, without admitting or denying the allegations, to the entry of a final judgment permanently enjoining him from violating Section 10(b) of the Exchange Act and Rules 10b-5 and 13b2-1, and ordering him to pay a civil penalty of $25,000. The litigation is pending against Beagelman, Sanfellipo and Stumacher.