SEC v. World-Wide Coin Investments Ltd.

567 F.Supp. 724 (1983)


D is engaged primarily in the wholesale and retail sale of rare coins, precious metals, gold and silver coins, bullion, and, until 1979, in the retail sale of camera equipment. Sales are transacted at the Atlanta office and at many major coin shows held in the United States. D's common stock is registered with the SEC. Prior to July 1979, the company's assets totaled over $2,000,000, and it had over 40 employees. In August 1981, the time of the filing of this lawsuit, the company's assets amounted to less than $500,000, and it had only three employees. On November 5, 1979, Kanes, Benator wrote a letter to Hale (D), the current CEO of D, following a routine, required evaluation of D's system of internal controls, expressing grave concern over certain accounting procedures and lack of internal controls. The audit disclosed serious flaws such as one employee was posting the cash receipts journal, the disbursements journal, the general ledger, and the accounts receivable subsidiary ledger, filing all sales invoices, making bank deposits, reconciling bank statements, and issuing disbursement checks. Numerous transactions recorded on the company books by general entries were not properly explained nor accompanied by readily available documentation. The accounting records, in general, were not properly filed nor available for proper inspection. The accounting and other staff familiar with the company's procedures were not available to assist the auditors at the requested or even at a prearranged time. Hale (D) did nothing to remedy the situation, and the criticisms of Kanes, Benator were virtually ignored. Kanes, Benator was dismissed as D's auditor following this 1979 audit, and May, Zima & Co. was selected as the replacement on May 6, 1980. D's problems increased in 1980, mostly resulting from its chaotic bookkeeping practices and total disregard for an adequate internal control system. May, Zima & Co., D's independent auditor for its 1980 10K report, declined to give an opinion with respect to the company's 1980 financial statements. These serious lack of safeguards in D caused P to bring suit against D for violation of §13(b) of the Foreign Corrupt Practices Act (FCPA). P sought a permanent injunction against D as well as an order for a full accounting and disclosure of wrongfully received benefits.