SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17002 / May 15, 2001

Accounting and Auditing Enforcement Release No. 1396 / May 15, 2001

SEC CHARGES FINANCIAL REPORTING FRAUD AGAINST FORMER CHAIRMAN AND PRESIDENT OF MANHATTAN BAGEL SUBSIDIARY AND THREE OTHER INDIVIDUALS WHO AIDED FRAUDULENT SCHEME

SEC V. ALLAN BOREN, ET AL., C.D. CALIF. Cv01-04377DDP(EX)

The Commission announced today that it has brought securities fraud charges against two former senior officers of I&J Bagel, Inc. ("I&J"), a wholly owned subsidiary of Manhattan Bagel, Inc. ("Manhattan Bagel" or the "Company"), which during the relevant period, manufactured and distributed bagel dough and cream cheese products to a network of 220 franchised, licensed and Company-owned bagel bakery stores operating in 15 states and Canada. The Complaint charges three other individuals, employees of purported customers of I&J, with aiding and abetting the fraudulent scheme.

The Complaint alleges that:

In 1995 and 1996, I&J's Chairman of the Board, Allan Boren ("Boren"), and its president, Eric Cano ("Cano"), orchestrated a scheme to inflate the Company's net income by recording fictitious sales, overstating franchise fee and other revenues and understating certain expenses on I&J's books. The overall effect was to overstate Manhattan Bagel's consolidated net income before taxes by 15 percent in the year ended December 31, 1995 and 23 percent in the first quarter of 1996. Boren's brother, Phillip Borini ("Borini"), implemented the fraud by (i) procuring false confirmations for the Company's auditors with respect to the fictitious sales, and (ii) making payments against the fictitious bagel sales using money provided by Boren. Corrine Davies ("Davies") and Timothy Tuttle ("Tuttle"), employees of purported customers of I&J, aided and abetted the fraudulent scheme by, among other things, falsely confirming to the Company's auditors that their employers had purchased tens of thousands of bagels and related products in 1995 that they had, in fact, never purchased.

After the close of business on June 20, 1996, Manhattan Bagel announced that it had uncovered certain accounting irregularities and that, as a result, it planned to restate net income for the first quarter of 1996 (the "June 20 Announcement"). On June 21, 1996, the price of Manhattan Bagel common stock fell approximately 35%, decreasing from $21.25 to $13.75 on record volume. Prior to the June 20 Announcement, Boren and Cano sold their Manhattan Bagel common stock at a price inflated by the fraudulent scheme. As a result, Boren and Cano directly benefited from the scheme, with Boren deriving ill-gotten gains of approximately $10 million, and Cano deriving ill-gotten gains of about $2.8 million.

The specific violations alleged against the five defendants are as follows:

(a) Boren: Section 17(a) of the Securities Act of 1933, Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 ("Exchange Act") and Rules 10b-5 and 13b2-1, and aiding and abetting liability, pursuant to Section 20(f) of the Exchange Act, for Manhattan Bagel's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13.

(b) Cano: Sections 10(b) and 13(b)(5) of the Exchange Act and Rules 10b-5 and 13b2-1, and aiding and abetting liability, pursuant to Section 20(f) of the Exchange Act, for Manhattan Bagel's violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13.

(c) Borini: Sections 10(b) of the Exchange Act and Rule 10b-5, and aiding and abetting liability, pursuant to Section 20(f) of the Exchange Act, for (i) Boren's and Cano's violations of Sections 10(b) and 13(b)(5) and Rules 10b-5 and 13b2-1, and (ii) Manhattan Bagel's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13.

(d) Davies and Tuttle: Aiding and abetting liability, pursuant to Section 20(f) of the Exchange Act, for (i) Boren's and Cano's violations of Sections 10(b) and 13(b)(5) and Rules 10b-5 and 13b2-1, and (ii) Manhattan Bagel's violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13.

The Complaint seeks civil penalties and injunctive relief against all defendants, disgorgement of ill-gotten gains plus prejudgment interest from Boren and Cano and officer and director bars against Boren and Cano. The litigation is pending in the United States District Court for the Central District of California.

The Commission acknowledges the United States Attorney's Office for the Central District of California for its assistance in this investigation.