SRO Entertainment Settles Fraud Suit

The Securities and Exchange Commission accused a small North Hollywood firm on Monday of fraudulently selling its stock to the public on the basis of a false audit report signed with the name of an accountant who was in prison at the time.

Without admitting or denying the allegations, the firm--SRO Entertainment Inc.--consented to the entry of a permanent court order prohibiting it from violating securities fraud laws.

The consent order was signed by SRO’s president, Joseph A. Garofalo, who was not a defendant himself.

Calls to Garofalo’s telephone number in North Hollywood were answered Monday by an answering service.

Garofalo last Thursday settled a separate SEC fraud case in New York in which he was named as a defendant, SEC officials said. That 1983 case involved securities of Las Vegas-based Sundance Gold Mining & Exploration Inc.

The SEC complaint concerning SRO said that in addition to the spurious Feb. 29, 1984, audit report, SRO also circulated to broker-dealers and investors a false balance sheeting showing greatly inflated values of theatrical film assets obtained in 1983.

The company then was a shell corporation with no ongoing operations or revenue, the complaint said.

Steven S. Glick, the firm’s outside accountant, did not audit the SRO balance sheet, and his signature was put on the audit report by his wife, the SEC suit said.

Recounting the circumstances, the complaint said that on March 1, 1984, Glick’s wife went to the state prison in Chino, where six days earlier Glick had begun serving a three-year prison term. He had been convicted in Orange County Superior Court of preparing false financial statements, grand theft and making a false statement in connection with the sale of securities. During his wife’s prison visit, the suit said, Glick gave her general power of attorney. She then went to his office in Encino and signed his name to the audit report, the complaint said.

SRO “knew of and participated in the (described) conduct,” the SEC suit said. To this date, the company has not publicly disclosed “its involvement in obtaining the audit report” nor that Glick did not audit its 1984 balance sheet.

The company’s stock has traded in the over-the-counter market since at least January, 1983, the suit said.

After his criminal conviction, Glick was barred permanently from practice before the SEC. His record includes another conviction in 1981 on mail and wire fraud charges in U.S. District Court in Denver and SEC injunction actions here in 1981 and in Orange County in 1982, SEC officials said.

The SEC suit in New York, which identified Garofalo as “a writer and producer involved in the television and movie industries,” said the commission had barred him in 1971 from association with any broker or dealer after he consented to settle another securities fraud suit while he was doing business as Josephson Co.