U.S. Securities and Exchange Commission

Litigation Release No. 18702 / May 11, 2004

Accounting and Auditing Enforcement Release No. 2012 / May 11, 2004

SECURITIES AND EXCHANGE COMMISSION v. SAM LEOPOLD, RICHARD R. ROSS, PHILLIP D. TEAL, JAMES T. MONTROSE, NORMAN B. COWGILL, JAY S. OZER, AND BRADLEY J. SCHMIDT, Civil Action No. 03 CV 02491 (RMU) (D.D.C.)

FORMER AUDITORS OF STYLING TECHNOLOGY CORP. CONSENT TO ANTI-FRAUD INJUNCTIONS AND PENALTIES

FORMER AUDITORS ALSO AGREE TO SUSPENSIONS FROM APPEARING OR PRACTICING AS ACCOUNTANTS

STYLING'S EXECUTIVE VICE PRESIDENT AND A BUSINESS MANAGER ALSO ENJOINED

On May 7, 2004, the U.S. District Court for the District of Columbia entered final judgments by consent against the former audit engagement partner of Styling Technology Corporation, Jay S. Ozer, and the audit manager, Bradley J. Schmidt, and against the company's former Executive Vice President of Operations, Norman Bruce Cowgill, and Division Manager, Phillip D. Teal. Styling, now defunct, developed and marketed beauty salon products.

Without admitting or denying the allegations of the Commission's complaint, Ozer and Schmidt consented to the entry of orders permanently enjoining them from further violations of the anti-fraud and periodic reporting provisions of the federal securities laws, Section 17(a) of the Securities Act of 1933 ("Securities Act") and Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 ("Exchange Act"). Schmidt was also enjoined from violating the books and records and internal control provisions of the Exchange Act, Sections 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5), and the rules promulgated thereunder. The Court imposed civil penalties against Ozer in the amount of $50,000, and $30,000 against Schmidt. In related administrative proceedings, the Commission, on their consent, permanently suspended Ozer from appearing or practicing before the Commission as an accountant and suspended Schmidt with a right to apply for reinstatement after five years.

The District Court also entered consent judgments against Cowgill and Teal for violating the statutory provisions described above. It ordered Cowgill to pay a civil penalty of $30,000, and Teal to disgorge a $10,000 bonus he had received. The Commission did not pursue a claim for a penalty against Teal based on his cooperation in the Commission's investigation.

In its complaint filed in December 2003, the Commission alleged that the principal executive officers of Styling engaged in an extensive financial fraud over a two and one-half year period. Teal, the complaint charged, repeatedly falsified revenue by booking projected sales for the entire year in the current quarter. At year-end 1998, purported sales revenue was recognized from the shipment of millions of dollars of product between company-controlled warehouses. Cowgill, the complaint charged, knew of and approved these year-end transactions. Styling's former Chief Executive Officer and Chief Financial Officer previously settled actions against them with the Commission. See Litigation Release No. 18485 (December 3, 2003).

The complaint further alleged that in February 1999 -- one month prior to the filing of Styling's 1998 annual report -- Teal advised company officers, including Cowgill, about the fraudulent sales he had recorded. Yet the company took no steps to correct the books and records, and falsely reported revenue and income from the fraudulent transactions in public filings with the Commission.

Ozer and Schmidt, the complaint charges, recklessly failed to detect the fraudulent sales despite numerous red flags and knew, or were reckless in not knowing, that Styling's public statements concerning a $5.1 million write-off were false and misleading. The complaint alleges that Styling's auditors therefore failed to ensure that the audit was conducted in accordance with generally accepted auditing standards ("GAAS") and recklessly caused their employer Arthur Andersen LLP to render an unqualified audit report on Styling's 1998 financial statements.

http://www.sec.gov/litigation/litreleases/lr18702.htm