"Part 12" Of 8K
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approximately 39.6 million shares, which purported to be issued to 93 different
consultants in exchange for services that SOE valued at $54.5 million.
HUTTOE PROCURES A MATERIALLY FALSE
AND MISLEADING ACCOUNTANT'S REPORT
51. On or about September 21, 1996, Huttoe hired Merle S. Finkel,
who held himself out as affiliated with M.S. Finkel, to provide an unqualified
audit opinion for SOE's fiscal year 1996, which ended February 29, 1996.
52. That same day, September 21, 1996, Finkel signed an
unqualified Auditor's Opinion for inclusion in the Company's Form 10KSB filed
with the Commission.
53. As was known or recklessly disregarded by Huttoe and SOE, the
Auditor's Opinion was materially false and misleading in its entirety.
54. In fact, Finkel had made no attempt to contact anyone from
SOE's real auditors, WPC, or to obtain that firm's workpapers.
55. Finkel never discussed the company or its books, records and
accounts with the SOE personnel responsible for managing the SOE's bank
accounts and keeping SOE's records.
HUTTOE ALTERS SOE'S BOOKS
56. Prior to September 21, 1996, an entry in the company's books,
records and accounts contained an entry for a liability described as "note
payable shareholders." This entry related to the shares issued to SOE
investors pursuant to the so-called "private placement," but which were now
purportedly registered under Forms S-8.
57. Under Huttoe's direction, SOE knowingly or recklessly
falsified the books to convert that liability into a note payable to Huttoe.
In fact, no such note existed.
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58. This alteration deliberately concealed the fact that the "note
payable" was connected to the "private placement," which also involved the
distribution of unregistered SOE shares to investors.
59. Huttoe knowingly or recklessly caused the falsification of the
contract in which SOE purported to hire Merle S. Finkel, so as to give the
false impression that Finkel had been hired on September 13, 1996, rather than
the same day his unqualified audit opinion was rendered.
HUTTOE CONCEALS HIS TRADES BY
FAILING TO FILE REQUIRED DISCLOSURE REPORTS
60. Huttoe failed to file Forms 3, 4, and/or 5, although required
to do so, to publicly disclose his trading in SOE stock, and the massive
changes in his beneficial ownership of SOE stock.
SOE FILES MATERIALLY FALSE AND MISLEADING
PUBLIC DISCLOSURE AND REGISTRATION REPORTS
SOE FILES A MATERIALLY FALSE AND MISLEADING FORM 10-KSB
61. On or about September 23, 1996, SOE, under the direction of
Huttoe, filed its annual report on Form 10-KSB with the Commission. The
statement was materially false and misleading.
a. The statement's financials incorporate the fictitious
"note payable" to Huttoe;
b. The statement incorporates the materially false and
misleading Auditor's Opinion;
c. The discussion of liquidity and capital resources in
the
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Managements' Discussion and Analysis section stated that SOE's "primary sources
of cash are from royalty income, development fees and services and support
revenues and the sales of video teleconferencing product," when in fact they
were not SOE's primary source of cash for 1996. Those sources in the aggregate
generated less than $200,000 of revenue in 1996, an amount dwarfed by SOE's
selling, general and administrative expenses, which exceeded $900,000.
d. The statement includes a false projection
specifically ordered included by Huttoe, that "sales are projected to
substantially increase over the next twelve months," and that "[p]rojections of
$41 million in gross revenues appear to be within the Company's grasp," when
there was no reasonable basis for these projections; and
e. The statement fails to disclose that shares
purportedly registered on Forms S-8 were issued to Huttoe's nominees, that
those nominees had not provided services to SOE, that Huttoe was selling
company stock through those nominees, and that Huttoe was selling stock for his
own profit. |
