U.S. SECURITIES AND EXCHANGE COMMISSION

Litigation Release No. 17250 / November 29, 2001

Accounting and Auditing Enforcement Release No. 1475 / November 29, 2001

SEC v. Maurice B. Newman and Richard A. Gerhart, Civil Action No. SA CV 00-948-GLT (C.D. Cal)

The Securities and Exchange Commission announced that on November 5, 2001, the Honorable Gary L. Taylor, United States District Judge for the Central District of California, granted summary judgment against Richard A. Gerhart, in a financial fraud case that was filed by the Commission last year. Gerhart, the former CFO of Sirena Apparel Group, Inc., was charged with fraud and other provisions of the federal securities laws. In addition to the entry of a judgment of permanent injunction, Gerhart was ordered to pay a $100,000 penalty and prohibited from serving as an officer and director of any company registered with the Commission or that is required to file reports with the Commission.

The Commission alleged in its complaint that, to meet revenue and earnings projections for Sirena, a publicly traded company, Sirena's former CEO, Maurice Newman, and Gerhart caused Sirena to report false financial information in an earnings press release and a quarterly report for the third quarter ended March 31, 1999. The complaint further alleged that Gerhart ordered Sirena personnel to manipulate the company's accounting software to show artificial earnings and made misrepresentations to Sirena's auditors regarding those earnings. On September 20, 2000, Gerhart and Newman were criminally indicted for the same fraud. Earlier this year, both Gerhart and Newman pled guilty to the securities fraud and conspiracy charges in the criminal indictment.

In the Commission's civil case, Judge Taylor concluded that Gerhart violated the antifraud provisions (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder), the books and records provision (Rule 13b2-1 of the Exchange Act), the knowing circumvention of internal controls provision (Section 13(b)(5) of the Exchange Act) and lying-to-an-accountant provision (Rule 13b2-2 of the Exchange Act), as well as aiding and abetting violations of the reporting provision (Section 13(a) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder) and the recordkeeping provision (Section 13(b)(2)(A) of the Exchange Act). Judge Taylor specifically found that Gerhart admitted to falsifying the books and records of Sirena, to conspiring with others to inflate the company's revenues, directing company personnel to manipulate the company's computer system to improperly recognize revenue on the sales of merchandise after a quarter closed, and to creating false shipping documents for the company's outside accountants in an effort to hide the fraud.

Gerhart's co-defendant, Newman, previously settled with the Commission, consenting to a permanent injunction, without admitting or denying the allegations in the Commission's complaint, and agreeing to pay a civil penalty in the amount of $30,000.