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SEC-RPT-Panel / raw /aaer /2004 /AAER-1982.txt
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SEC.gov | Margaret M. Gardner
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Margaret M. Gardner
Margaret M. Gardner
SECURITIES EXCHANGE ACT OF 1934
Release No. 49510 / March 31, 2004
ACCOUNTING AND AUDITING ENFORCEMENT
Release No. 1982 / March 31, 2004
ADMINISTRATIVE PROCEEDING
File No. 3-11452
In the Matter of
MARGARET M. GARDNER,
Respondent.
: : : : : : : : : :
ORDER INSTITUTING CEASE-
AND-DESIST PROCEEDINGS, MAKING
FINDINGS, AND IMPOSING A
CEASE-AND-DESIST ORDER PURSUANT
TO SECTION 21C OF THE
SECURITIES EXCHANGE ACT OF 1934 I.
The Securities and Exchange Commission ("Commission") deems it appropriate that cease-and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities Exchange Act of 1934 ("Exchange Act"), against Margaret M. Gardner ("Respondent" or "Gardner").
II.
In anticipation of the institution of these proceedings, Respondent has submitted an Offer of Settlement (the "Offer"), which the Commission has determined to accept. Solely for the purpose of these proceedings and any other proceedings brought by or on behalf of the Commission, or to which the Commission is a party, and without admitting or denying the findings herein, except as to the Commission's jurisdiction over her and the subject matter of these proceedings, which are admitted, Respondent consents to the entry of this Order Instituting Cease-and-Desist Proceedings, Making Findings, and Imposing a Cease-and-Desist Order Pursuant to Section 21C of the Securities Exchange Act of 1934 ("Order"), as set forth below.
III.
On the basis of this Order and Respondent's Offer, the Commission finds 1 that:
1. Gardner, age 65, is a resident of Denver, Colorado. Gardner, who has never been a certified public accountant, has worked as an accountant for Michael Johnson & Co., LLC ("Johnson & Co.") since February 1998.
2. As an employee of Johnson & Co., Gardner participated in the audit of the financial statements for Winners Internet Network, Inc. ("Winners"), now known as American Television and Film Company ("American"), for the years ended December 31, 1997 and 1998, and participated in the compilation of financial statements for the ten months ended October 31, 1998 and October 31, 1999, which were included in a Form 10-SB registration of securities of a small business issuer filed by Winners with the Commission on December 23, 1999.
3. Gardner also participated in the preparation and audit of Winners' December 31, 1999 financial statements, which were included in a current report on Form 8-K filed by Winners with the Commission on May 15, 2000; and participated in the preparation and review of certain of Winners' financial statements for the quarters ended March 31, June 30 and September 30, 2000, versions of which were included in Forms 10-QSB and 10-QSB/A filed by Winners with the Commission on November 21 and 22, 2000 and December 6, 2000, respectively, under the name of Winners' wholly owned subsidiary, Glennaire Financial Services, Inc.
4. Winners, a former Nevada corporation with offices in St. Augustine, Florida and the country of Liechtenstein, offered online processing of Internet gaming and other financial transactions using its proprietary processing software between 1999 and June 2002. Thereafter, Winners had no operations.
5. In December 1999, Winners filed a general form of registration of securities of a small business issuer with the Commission on Form 10-SB, which Winners withdrew before it became effective. In May 2000, Winners' common stock became registered with the Commission pursuant to Section 12(g) of the Exchange Act, when Winners acquired Glennaire Financial Services, Inc., a corporation whose common stock was registered with the Commission pursuant to Section 12(g) of the Exchange Act, effective September 1999. On February 26, 2004, Winners terminated the registration of its common stock by filing a Form 15 with the Commission. Therefore, from May 2000 to at least February 26, 2004, Winners, now American, was required to file periodic reports with the Commission. American's stock is listed in the electronic quotation service operated by The Pink Sheets LLC.
6. Once its operations began in 1999, Winners maintained incomplete and inaccurate books and records for its European operations that encompassed accounts including its software asset, receivables, revenues, and the majority of its expenses and liabilities. In connection with the preparation of the financial statements identified in Paragraph 3, Gardner knowingly made false entries to certain of Winners' accounts.
7. The financial statements of Winners referred to in paragraphs 2 and 3 above materially overstated Winners' software asset by between $75,000 and $300,000, resulting in an overstatement of total assets by between 3% and 191%, by improperly capitalizing purported demonstration software costs in Winners' software asset account.
8. Winners' December 31, 1999 financial statements, which Gardner participated in preparing and purporting to audit and that were filed with the Commission in Winners' Form 8-K current report, materially overstated Winners' software asset by approximately $421,000 by improperly capitalizing operating expenses in the software asset account. This resulted in an overstatement of total assets by 416%.
9. Winners' December 31, 1999 financial statements also materially overstated Winners' licensing and processing revenues by approximately $372,000, resulting in an overstatement of total revenues by 83%, and accounts receivable by approximately $533,000, resulting in an overstatement of total assets by 528%, and understated expenses by $161,000, resulting in a 16% understatement of total expenses, by improperly: (a) recording licensing fees; (b) recognizing receivables from licensing fees Winners had little or no chance of collecting; and (c) recognizing revenue and receivables that had not been realized or earned by Winners. These overstatements enabled Winners to report net income of $5,067 instead of a net loss of over $501,000.
10. Financial statements for the initial three quarters of calendar year 2000 were included in Forms 10-QSB and 10-QSB/A filed by Winners with the Commission in November and December 2000. These financial statements improperly recognized a $1 million software asset from a transaction that lacked economic substance, resulting in an overstatement of total assets by between 73% and 2,550%.
11. Johnson & Co. issued audit reports accompanying Winners' year-end financial statements for 1997 and 1998 that contained a going concern qualification and an unqualified audit report for 1999. These reports falsely stated that the financial statements were presented fairly in all material respects in conformity with Generally Accepted Accounting Principles ("GAAP") and that the audits of these financial statements were conducted in accordance with Generally Accepted Auditing Standards ("GAAS"). These statements were false, since portions of the underlying financial statements were not presented in conformity with GAAP, which, in turn, rendered false the statements that the audits were conducted in accordance with GAAS, since the failure to address a deviation from GAAP in an audit report is a violation of GAAS. In addition, Johnson & Co.'s audit of Winners' 1999 financial statements was not in accordance with GAAS because, among other things, by participating in both the preparation and audit of these financial statements, Gardner failed to maintain her independence from Winners.
12. Gardner acted recklessly by participating in preparing, compiling, reviewing and auditing Winners' financial statements, which contained the false statements described in Paragraphs 6 through 11.
13. As a result of the conduct described above, Gardner: (a) violated and, with respect to Johnson & Co.'s audit reports, caused violations of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, which prohibit fraudulent conduct in connection with the purchase or sale of securities; (b) violated Section 13(b)(5) of the Exchange Act, which, among other things, prohibits any person from knowingly falsifying any book, record or account subject to Section 13(b)(2) of the Exchange Act; (c) violated Rule 13b2-1, which prohibits any person from directly or indirectly falsifying or causing to be falsified, any book record or account subject to Section 13(b)(2)(A) of the Exchange Act; (d) caused Winners' violations of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 thereunder, which require every issuer of a security registered pursuant to Section 12 of the Exchange Act to file with the Commission, in accordance with such rules and regulations as the Commission may prescribe as necessary or appropriate for the proper protection of investors and to insure fair dealing in the security, such quarterly and current reports as the Commission may prescribe; and (e) caused Winners' violations of Section 13(b)(2)(A) of the Exchange Act, which requires public companies to make and keep books and records which accurately and fairly reflect its transactions and dispositions of assets.
IV.
In view of the foregoing, the Commission deems it appropriate to impose the sanctions agreed to in Respondent Gardner's Offer.
Accordingly, it is hereby ORDERED that Respondent Gardner cease and desist from committing or causing any violations and any future violations of Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1 promulgated thereunder, and from causing any violations and any future violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-11 and 13a-13 promulgated thereunder.
By the Commission.
Jonathan G. Katz
Secretary
Endnotes
1 The findings herein are made pursuant to Respondent's Offer of Settlement and are not binding on any other person or entity in this or any other proceeding.
 
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