U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 19336 / August 15, 2005

Accounting and Auditing Enforcement
Release No. 2292 / August 15, 2005

FORMER CHAIRMAN OF FIRST AMERICAN HEALTH CONCEPTS, INC. SETTLES FRAUD CHARGES AND CONSENTS TO AN INJUNCTION

FORMER FIRST AMERICAN CHIEF FINANCIAL OFFICER CONSENTS TO A CEASE-AND-DESIST ORDER FOR ACCOUNTING VIOLATIONS

FORMER FIRST AMERICAN AUDIT ENGAGEMENT PARTNER CONSENTS TO A PERMANENT BAR FROM PRACTICING BEFORE THE COMMISSION

SECURITIES AND EXCHANGE COMMISSION v. JOHN R. BEHRMANN AND MARGARET M. EARDLEY, Civil Action No. 1:05CV01640 (JDB) (D.D.C. 2005) (filed August 15, 2005)

IN THE MATTER OF MARGARET M. EARDLEY, Securities Exchange Act of 1934 Release No. 52257 / August 15, 2005

Accounting and Auditing Enforcement
Release No. 2290 / August 15, 2005

IN THE MATTER OF JOHN V. BACK, JR., CPA, Securities Exchange Act of 1934 Release No. 52258 / August 15, 2005

Accounting and Auditing Enforcement
Release No. 2291 / August 15, 2005

The Securities and Exchange Commission today announced that it filed a settled civil action in federal district court against John Behrmann, the former Chairman of First American Health Concepts Inc., and Margaret Eardley, the company's former Chief Financial Officer. First American, an Arizona vision care company, overstated its assets and net income in reports filed with the Commission for its 1999 fiscal year and the second quarter of its 2000 fiscal year by, primarily, overstating its accounts receivable. The Commission also has issued orders in two related administrative proceedings against Eardley and John V. Back, Jr. (formerly of KPMG LLP), who was the audit engagement partner responsible for First American's fiscal year 1999 audit.

SEC COMPLAINT

The Commission's complaint alleges that in October 1998, Behrmann learned from KPMG, First American's independent auditors, that the company's accounts receivable had not been reconciled for at least a year and were out of balance with the general ledger. At about the same time, Eardley, the company's recently hired CFO, became aware of the accounting irregularity and also brought it to Behrmann's attention. Rather than address the problem, Behrmann directed Eardley to focus on other unrelated projects and Eardley complied. On October 19, 1999, Behrmann and Eardley signed First American's 1999 Form 10-KSB filed with the Commission knowing that the accounts receivable ledgers and the general ledger had not been reconciled and without regard for whether this significant accounting issue would have a material impact on the company's financial statements. The statements included with the filing, as signed by Behrmann and Eardley and filed with the Commission, overstated the company's reported receivables by $892,000 or 59 percent. But for the overstatement, the company's $693,000 reported pre-tax income for 1999 would have been a $199,000 loss.

The Commission's complaint further alleges that in early March 2000, KPMG was preparing a restatement of the company's 1999 Form 10-KSB and the first quarter 2000 Form 10-QSB and recommended that the company obtain a five-day extension to file its second quarter 2000 Form 10-QSB because the financials for the second quarter would be affected by the restatement. At a March 13, 2000 Board of Directors meeting, Behrmann recommended that the Board ignore the KPMG recommendation and file the second quarter 10-QSB "as-is." As a result, First American's second quarter 2000 Form10-QSB filed with the Commission overstated income by 46 percent.

SEC SETTLEMENT

• Behrmann, without admitting or denying the allegations in the complaint, consented to entry of a final judgment: (1) permanently enjoining him from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1 thereunder, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder; (2) permanently barring him from serving as an officer or director of a public company; and (3) ordering him to pay a civil money penalty of $75,000. Behrmann also consented, without admitting or denying the Commission's findings, to a permanent suspension from appearing or practicing before the Commission as an accountant pursuant to Rule 102(e) of the Commission's Rules of Practice in a related settled administrative proceeding to be instituted once the injunction against Behrmann is entered.
• Eardley, without admitting or denying the allegations in the complaint, consented to entry of a final judgment finding that she violated Section 13(b)(5) of the Exchange Act and ordering her to pay a civil money penalty of $25,000. In a related settled administrative proceeding, Eardley consented, without admitting or denying the Commission's findings, to entry of a Commission order to cease and desist from committing or causing any violation and any future violation of Section 13(b)(5) of the Exchange Act, and from causing any violation and any future violation of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Rules 12b-20 and 13a-1 thereunder.

In a related settled administrative proceeding, John Back, the KPMG audit engagement partner responsible for the 1999 audit of First American, consented, without admitting or denying the Commission's findings, to entry of a Commission order permanently denying him the privilege of practicing or appearing before the Commission as an accountant pursuant to Rule 102(e) of the Commission's Rules of Practice. The Commission's Order finds that Back knew, or should have known, that First American's accounts receivable balances had not been reconciled and that neither Back, nor anyone he supervised, performed the work necessary to reconcile the balances in accordance with generally accepted auditing standards ("GAAS"). The Order finds that Back falsely represented that KPMG's audit had been performed in accordance with GAAS and that First American's financials complied with generally accepted accounting principles. As a result, the Commission found that Back engaged in improper professional conduct pursuant to Rule 102(e)(1)(ii) of the Commission's Rules of Practice.

SEC Complaint in this matter

http://www.sec.gov/litigation/litreleases/lr19336.htm