In the Matter of STEWART PARNESS

Admin. Proc. File No. 3-6695

SECURITIES AND EXCHANGE COMMISSION

SECURITIES EXCHANGE ACT OF 1934, Release No. 23507;

ACCOUNTING AND AUDITING ENFORCEMENT, Release No. 108

1986 SEC LEXIS 1051; 48 S.E.C. 529

August 5, 1986

TEXT: [**529] [*1] ORDER INSTITUTING PROCEEDINGS PURSUANT TO

SECTION 15(c)(4) OF THE SECURITIES EXCHANGE ACT OF 1934, AND
FINDINGS AND ORDER OF THE COMMISSION

The Commission deems it appropriate and in the public interest that proceedings be,
and hereby are, instituted pursuant to Section 15(c)(4) of the Securities Exchange Act of
1934 ("Exchange Act") with respect to Stewart Parness ("Parness"), to determine whether
Parness was a cause of Information Displays, Inc.'s ("IDI's") violations of Section 13(a)
and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder and
whether Parness violated Exchange Act Rule 13b2-1.

Simultaneously with the institution of these proceedings, Parness has submitted an

Offer of Settlement for purposes of disposing of the issues raised in these proceedings.
Under the terms of the Offer of Settlement, Parness, without admitting or denying any of
the matters set forth herein, consents to the issuance of this Order Instituting Proceedings
Pursuant to Section 15(c)(4) of the Securities Exchange Act of 1934, and Findings and
Order of the Commission ("Order").

The Commission has determined that it is appropriate and in the public interest to
accept the [*2] Offer of Settlement of Stewart Parness and, accordingly, issues this
Order.

I.

INTRODUCTION

A. Respondent

Stewart Parness, a certified public accountant, was IDI's Controller from January 10,
1983, until he resigned on April 4, 1984. From 1969 to 1978 Parness practiced as a public
accountant with two firms, [**530] including one national firm. From 1978 to 1983,
Parness was Controller and Chief Financial Officer of a publicly-held computer systems
manufacturer.
 B. Issuer

IDI was a New York corporation with its headquarters and principal place of business
in Armonk, New York. During all relevant times herein, IDI was a publicly-held
company whose stock was registered with the Commission pursuant to Section 12(g) of
the Exchange Act. IDI was required to file annual and quarterly reports with the
Commission pursuant to Section 13(a) of the Exchange Act. IDI is presently in
liquidation proceedings pursuant to a bankruptcy court order in the Southern District of
New York.

C. Related Actions

On August , 1986, the Commission instituted an action in the United States District
Court for the Southern District of New York seeking injunctive and other relief against
William Weksel ("Weksel"), [*3] IDI's Chief Executive Officer, President, and Board
Chairman, and Albert Bromberg ("Bromberg"), IDI's Executive Vice-President of
Operations, Treasurer and a director. The Commission complaint alleged that from the
second quarter of 1982 through the second quarter of 1983, Weksel and Bromberg caused
IDI to overstate its pretax income by over 100 percent, approximately $ 3.1 million, by
causing IDI to improperly record eleven material transactions as sales when no sales
actually took place under generally accepted accounting principles ("GAAP"). Weksel
and Bromberg caused IDI to include the fictitious sales in periodic reports filed with the
Commission and to incorporate them in stock and limited partnership offering documents
in 1982 and 1983. The complaint further alleged that beginning at least in the second
quarter of 1983, Weksel and Bromberg failed to correct certain disclosures regarding the
status of IDI's principal product when those disclosures became untrue, and made certain
additional misleading statements regarding the product. Finally, the complaint alleged
that Weksel and Bromberg sold IDI shares while in possession of material, non-public
information.

Simultaneously [*4] with the filing of the Commission's complaint, and without
admitting or denying the allegations therein, Weksel and Bromberg consented to the
District Court's entry of a Final Judgment enjoining them from future violations of
Sections 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a) and 13(b)(2)(A) of
the Exchange Act and Rules 10b-5, 12b-20, 13a-1 13b2-1 and 13a-13 thereunder and
ordering them to disgorge a total of $ 311,000.

[**531] II.

BACKGROUND

A. Description of IDI's Business

Prior to entering bankruptcy in May, 1984, IDI was in the business of designing,
manufacturing, marketing, and servicing computer based interactive graphics systems
that were used to automate the design and drafting process for architects, illustrators, and
engineers. IDI's systems included computer hardware and applications software.

By 1981, IDI's principal product, the System 150 computer introduced in 1977, was
becoming technologically obsolete. During 1981, IDI embarked on development of a
successor product, the CADalyst, which it planned to introduce in late 1982 or early
1983.

IDI's 1982 sales of the System 150 were lower than IDI's internal, beginning-of-year
projections. For 1982, [*5] IDI reported pretax income of approximately $1.4 million on
revenues in excess of $12 million, including approximately $8.3 million in sales and $
3.5 million in pretax income from research conducted for affiliated partnerships.

IDI ceased production of the System 150 by year-end 1982, and introduced the
CADalyst in January, 1983. Production of the CADalyst signaled a major change in the
company's business, requiring increased manufacturing capacity, warehouse space and
inventory. IDI planned to obtain working capital for this endeavor primarily by engaging
in a $14 million public offering of its stock in the first quarter of 1983.

By at least the second quarter of 1983, IDI learned that the CADalyst did not meet
design specifications, often breaking down or computing at slower speeds than expected.
As a result of the CADalyst's problems, several customers cancelled orders or returned
equipment which had been taken for evaluation. Sales throughout 1983 were lower than
IDI had projected internally.For the first three quarters of 1983, IDI reported pretax
income of $ 360,000 on revenues in excess of $12 million, including approximately $8.5
million in sales and $ 3 million from research [*6] contracts.

III.

THE CONDUCT OF STEWART PARNESS

Stewart Parness participated in improper accounting practices that occurred at IDI

while he was IDI's Controller from January, 1983 to April, 1984. Parness, a certified
public accountant since 1972, was knowledgable about GAAP, and about the disclosure
and accounting requirements for financial reporting by public companies.

As Controller at IDI, Parness, in conjunction with his direct supervisors, IDI's Chief
Executive Officer ("CEO") and Executive Vice President for Operations ("EVP"), was
responsible for the preparation of IDI's financial statements on a consolidated basis. He
[**532] reviewed and signed IDI's 1982 annual report on Form 10-K and its first, second
and third quarter 1983 quarterly reports on Forms 10-Q, each of which was filed with the
Commission. He also participated in the preparation of IDI's 1983 annual report on Form
10-K which was filed in incomplete form, in part because of the misstatements included
in prior Forms 10-Q.
 During the first two quarters of 1983, Parness participated with the CEO and EVP in
falsely inflating IDI's pretax income. While Parness did not devise or direct any of IDI's
improper practices, [*7] Parness was a cause of IDI's improperly recording six
transactions each of which was material to income in the quarter in which it was first
reported. In addition, Parness was a cause of IDI 's failure to reverse or provide an
allowance for doubtful accounts for two transactions that IDI improperly recorded in
1982. As a result of the improper accounting for these eight transactions, IDI overstated
its aggregate pretax income for the first two quarters of 1983 by approximately $2.3
million. Had these transactions been properly accounted for, IDI would have experienced
a loss in both quarters and for the year ending December 31, 1983. Parness prepared,
reviewed and/or signed the periodic reports in which these overstatements were reported.

With reference to each of the transactions, Parness (1) knew or recklessly disregarded
facts which precluded IDI's recording the transaction as a sale under GAAP; (2) recorded
the transaction as a sale without a sufficient basis to do so; and/or (3) knew or recklessly
disregarded facts which precluded IDI from maintaining accounts receivable for the
transaction without providing an allowance for doubtful accounts. Had he made
reasonable inquiries [*8] into the terms and conditions of the transactions, he would have
learned that they could not be recorded as sales and that no revenue could be recognized
from them, or that the receivables were uncollectible and should have been written down
to net realizable value.

A. IDI's Internal Controls Environment Prior to and During Parness' Employment

When Parness began employment at IDI in January, 1983, there were weaknesses in
IDI's existing system of internal controls that facilitated IDI's falsification of its books
and records to reflect non-existent sales. IDI's independent accountants had repeatedly
underscored certain of the weaknesses within the system. In May, 1981, Peat, Marwick,
Mitchell & Co. ("PMM") wrote IDI 's board of directors a letter citing a "material
weakness" in IDI's internal controls system. PMM found that there was neither adequate
segregation of responsibilities nor adequate documentation supporting [**533]
significant entries in the accounting records. In addition, PMM noted that IDI's EVP was
able to override the accounting system at his discretion through, among other things, the
initiation of unapproved entries which had a material effect o the financial statements.
[*9] As an essential check on that lack of segregation, PMM recommended that IDI
should hire a controller, which it did in the summer of 1981.

IDI dismissed PMM as its independent accountants in December 1981, and retained
Ernest & Whinney ("E&W"). In the management letters issued in connection with its
1981 and 1982 fiscal year audits, E&W did not state that IDI 's system of internal
controls was inadequate, however, E&W suggested that IDI make certain changes.
E&W's management letter to IDI's board of directors issued on April 15, 1983, while
Parness was IDI Controller, noted that the accounting department should carefully
consider end-of-quarter sales to determine that all sales were recognized only after title
had passed, and that the company should obtain written confirmation of all bill and hold
sales1 on a standard form prior to recording the transactions.

While IDI appeared [*10] to take some steps to correct the weaknesses in internal
controls that PMM and E&W noted, these steps only masked the fact that serious
deficiencies continued. For example, in December 1982, Parness' predecessor as IDI
Controller resigned, leaving the EVP once again in charge of the accounting department,
with the resulting renewed potential for management override in the critical year-end
period.

When Parness began working at IDI, he knew or should have known that IDI had
created the position of controller in 1981 to allow an adequate segregation of
responsibilities within the accounting department and to prevent the EVP from overriding
the accounting system.Further, he knew that the EVP's significant involvement and
control in IDI accounting functions had occurred as recently as December, 1982. In
addition, he knew from the April, 1983, management letter that the accounting
department was not obtaining sufficient documentation for IDI's bill and hold and end-of-
quarter sales.

Knowing this, Parness still failed to heed the recommendations contained in the
management letters. He failed to implement the recommendations regarding bill and hold
and end-of-quarter sales, and he failed [*11] to provide the necessary check on the EVP's
control over IDI's accounting decisions.

[**534] B. Parness was a Cause of IDI's Improperly Recording and Reporting

Transactions in the First and Second Quarters of 1983.

In the first and second quarters of 1983, Parness was a cause of IDI's improperly
recording and reporting as sales six transactions each of which was material to pretax
income for the quarters in which it was reported. Each was improperly recorded because
the purported sale was conditional on the occurrence of one or more material future
events.2 As stated above, in each of these transactions, Parness either knew or recklessly
disregarded facts which made sales accounting improper and/or he recorded sales without
a sufficient basis to do so. Despite insufficient documentation or facts which made sales
accounting questionable, Parness accepted senior management's directives to record
sales, and failed to make his own reasonable inquiry into the terms and conditions of the
transactions.

1
A "bill and hold" transaction is generally a practice "whereby a customer agrees to purchase the goods but
the seller retains physical possession until the customer requests shipment to designated locations." In the
Matter of Arthur Andersen & Co., SEC Exchange Act Release No. 17878 (June 22, 1981).
2
Conditional sales generally cannot be recorded as revenue under GAAP. Revenue is generally recognized
when the earnings process is complete or virtually complete, and an exchange between the parties has taken
place. APB Statement No. 4 P150. [*12]
 In all six of the transactions, there were facts that should have made Parness question
whether a sale could be recorded under GAAP. For example, in IDI's normal business
practices, it did not expect payment until its equipment was physically delivered and
installed. Since all six transactions involved a purported sale of unproven, complex
equipment with which the customers had no prior experience, installing the equipment
and ensuring its proper functioning thereafter represented material contingencies. In
addition, two of the purported sales were bill and hold transactions. By definition, bill
and hold arrangements significantly departed from IDI's reported revenue recognition
policy, i.e., that revenues from equipment sales were recognized when units were shipped
and installed.

The quarterly aggregate of improperly recorded transactions in the first and second
quarters represented approximately 59 percent and 52 percent, respectively, of IDI's
quarterly sales revenues. Four of the six transactions were recorded as of the last day of
the quarter, without IDI having received any written documentation or payment.

In light of these circumstances, Parness should have inquired [*13] carefully into the
terms and conditions of the transactions, each of which are described below.

Subia, Inc.

Subia, Inc. ("Subia") is a privately held graphics arts service company. In order to
become a West Coast distributor of the CADalyst, a Subia vice-president of sales agreed
that Subia would order 20 CADalysts by December, 1984. If Subia did not purchase the
twenty [**535] machines, it would not be guaranteed distributor status by IDI. In the
first quarter of 1983, Subia ordered two CADalysts and agreed to accept an additional six
CADalysts on consignment as a first phase towards acquiring the twenty CADalysts.
Subia did not have to pay for the six units until it sold them.

At the EVP's direction, Parness caused IDI to improperly record the shipment of the six
CADalysts ordered on consignment as a $ 735,200 sale as of March 31, 1983. This
purported sale was included in IDI's reported revenue beginning with its 1983 first
quarter Form 10-Q report. The gross profit on the six machines was approximately $
494,000 and represented over 100 percent of IDI's reported 1983 first quarter pretax
income.

The recognition of revenue on the purported sale of the additional six machines was
[*14] improper because they were ordered on a no-obligation basis, conditional on Subia
finding buyers for the machines. In December, 1983, IDI reversed the sale of the six
CADalysts and Subia returned the machines to IDI.

By May 12, 1983, when IDI filed its first quarter repdort on Form 10-Q, Parness knew
that Subia had not paid for any of the six CADalysts and that without this material
transaction IDI would have shown a loss for the quarter.
Had Parness undertaken an investigation of the terms and conditions of the transaction,
he would have learned that IDI had not received any documentation reflecting a sale of
the six CADalysts, and that Subia had accepted the equipment with the understanding
that it did not have to pay for the equipment until Subia resold it.

George Lithograph

George Lithograph ("Litho") is a privately-held printing company. Litho agreed to

accept two CADalysts on a no-charge, demonstration basis. At the EVP's direction,
Parness caused IDI to improperly record this transaction as a $ 357,320 sale as of March
31, 1983.This purported sale was included in IDI's reported revenues beginning with its
1983 first quarter report on Form 10-Q.The gross profit on this [*15] transaction was
approximately $214,000 and represented approximately 54 percent of IDI's reported first
quarter pretax income.

It was improper for IDI to record this transaction as a sale because the machines were
ordered on a no-charge basis. Litho never installed the CADalyst units. They were
returned to IDI in December, 1983, in unopened boxes. IDI reversed the sale in the fourth
quarter of 1983.

In failing to question the EVP's directive to record the sale, Parness acted in reckless
disregard of the fact that Litho never submitted a written purchase order for the
equipment and that there was no other basis on which to record a sale. Further, by May
12, 1983, when IDI [**536] filed its first quarter report on Form 10-Q, Litho still had
not paid for the CADalyst.

Hughes Aircraft Company: Hughes Long Beach

Hughes Aircraft Company Support Systems at Long Beach ("Hughes Long Beach") is a
division of Hughes Aircraft Company. In the spring of 1983, Hughes Long Beach
ordered two CADalysts on a no-charge trial basis for a six month period. As directed by
the EVP, Parness caused IDI to improperly record a $ 419,750 sale of two CADalysts as
of March 31, 1983, which was included in IDI's [*16] reported revenues beginning with
its 1983 first quarter report on Form 10-Q. The gross profit on this transaction was
approximately $251,000 and represented approximately 63 percent of IDI's reported first
quarter pretax income.

It was improper to record the transaction as a sale because the machine was ordered on
a no-charge basis to enable the company to evaluate the equipment.Hughes Long Beach
never paid for the CADalyst and returned it in November, 1983. In December, 1983, IDI
reversed the sale.

By May 12, 1983, when IDI filed its first quarter report on Form 10-Q, Hughes Long
Beach had not paid for the CADalyst. Had Parness undertaken an independent
investigation into the terms and conditions of the transaction, he would have learned from
both the IDI salespeople and from Hughes' April 19 "purchase" order that the equipment
was ordered on a no-charge trial basis.

North American Corporation: PPT-10

North American Corporation ("NAC") is a leasing company with expertise in placing

computers and other electronic equipment. On June 13, 1983, NAC ordered 30 PPT-10
laser printers on a bill and hold basis from an IDI subsidiary. NAC paid IDI $ 350,000 as
a down payment on the [*17] printers.At the time of the transaction, neither IDI nor
NAC had agreements with end-users to lease the equipment, and on June 14, 1983, IDI
executed an agreement to sell or lease all the printers on behalf of NAC by December 31,
1983.

At the EVP's direction, Parness caused IDI to improperly record the transaction as a $
900,000 sale as of June 13, 1983. This purported sale was included in IDI's revenues
beginning with IDI's 1983 second quarter report on Form 10-Q. The gross profit on this
transaction was approximately $ 445,000 and represented approximately 69 percent of
IDI's reported 1983 second quarter pretax income.

It was improper to record the transaction as a sale because NAC's obligation to pay for
the printers was contingent on IDI's locating end-user lessees for the equipment. IDI
never found end-users for the [**537] printers, and NAC never paid the balance of the
purchase price on the transaction. On December 28, 1983, IDI signed a lease obligating
IDI to lease back 12 of the 30 PPT-10 printers from NAC. In March, 1984, IDI allowed
NAC to rescind its purchase of the remaining 18 PPT-10 printers, and issued a credit
memo to NAC for the unpaid balance on the 18 machines. [*18]

Parness knew that NAC did not have its own sales force and that it was never intended
that NAC market the printers itself. He also knew that the printers never left IDI's
premises. Furthermore, Parness acted in reckless disregard of the fact that the NAC
purchase order stated on its face that the balance for each unit was payable 30 days after
acceptance by the end-user. This purchase order arrived after the date as of which the
transaction was recorded, but prior to August 15, 1983, when IDI filed its second quarter
report on Form 10-Q. In light of these circumstances, Parness should have inquired into
the terms and conditions of this transaction before recording it as a sale.

Equipment Acquisition Corporation

Equipment Acquisition Corporation ("EAC"), a subsidiary of Neptune Holding

Company, is in the business of buying and selling computer equipment. On June 27,
1983, EAC ordered ten CADalysts and paid IDI a $201,362.50 down payment, on the
condition that IDI would keep the equipment on its premises and find end-users for the
equipment. At the time of the transaction, neither IDI nor EAC had agreements with end-
users to lease the equipment.
 As directed by both IDI's EVP [*19] and its CEO, Parness caused IDI to improperly
record this transaction as a $805,000 sale as of June 28, 1983. This purported sale was
included in IDI's reported revenues beginning with IDI's 1983 second quarter report on
Form 10-Q. The gross profit on this transaction was approximately $ 300,000 and
represented approximately 47 percent of IDI's 1983 reported second quarter pretax
income.

It was improper to record the transaction as a sale because EAC's obligation to pay for
the units was contingent on IDI's locating end-user lessees for the CADalysts. IDI never
found end-users for the CADalysts, and EAC never paid the balance of the purchase price
on the transaction. IDI leased back four of the CADalysts in November, 1983, and the
remaining six in December, 1983. In the fourth quarter of 1983, IDI reversed the sales
accounting for the transaction.

Parness knew that EAC did not have its own sales force; that IDI was obligated to find
end-user lessees for EAC; that ten CADalysts represented a large number of IDI
machines for a leasing company to buy; and that the equipment never left IDI's premises.
In light of this evidence that the risk of ownership for the CADalysts had not [*20]
passed [**538] to EAC, Parness should have investigated the facts surrounding the
transaction prior to recording it as a sale.

Hughes Aircraft Company: Hughes-Micro

Hughes Aircraft Company, Microelectronics Systems Division ("Hughes-Micro") is a

division of the Hughes Aircraft Company. In the spring of 1983, Hughes-Micro ordered
two CADalysts on a no-charge trial basis for a six month period. As directed by the EVP,
Parness caused IDI to improperly record this transaction as a $ 308,990 sale as of June
30, 1983. This purported sale was included in IDI's reported revenues beginning with its
second quarter report on Form 10-Q. The gross profit on this transaction was
approximately $163,000 and represented approximately 25 percent of IDI's reported 1983
second quarter pretax income.

It was improper to record this transaction as a sale because the CADalysts were ordered
on a no-obligation basis to enable Hughes-Micro to evaluate the equipment. Hughes-
Micro never paid for the CADalysts. In the fourth quarter of 1983, IDI reversed the sale.

Had Parness inquired into the terms and conditions of the transaction, he would have
learned that the Hughes-Micro "purchase" order stated on its face [*21] that the
equipment was ordered on a no-charge loan for evaluation basis. This "purchase" order
arrived after the date as of which the transaction was recorded, but prior to the filing date
of IDI's second quarter Form 10-Q.

C.Parness Caused IDI to Fail to Provide an Allowance for Doubtful Accounts

During 1983, Parness caused IDI to maintain certain receivables arising from two
material bill and hold transactions which IDI improperly recorded in 1982, prior to the
time that Parness began working at IDI. By the end of the first quarter of 1983, neither of
the customers who had ordered the bill and hold equipment had requested delivery or
made any payments, and the equipment remained in IDI's possession. Parness should
have caused IDI to provide an allowance for doubtful accounts in connection with these
transactions.

The first transaction was with Oldershaw Engineering Corporation ("Oldershaw")

which designs specialized machinery primarily for the oil industry. In the second quarter
of 1982, Oldershaw ordered one system 150 on a bill and hold basis, conditional on,
among other things, it being awarded by the end of the year a certain U.S. Government
contract on which it was bidding. [*22] Oldershaw reserved the right to cancel its order
with no liability if it did not receive the contract. Further, consistent with IDI's practices,
Oldershaw's payment was not due until IDI delivered and installed the equipment.
[**539] The CEO and EVP caused IDI to improperly record this transaction as a $
510,295 sale as of June 30, 1982.

The second transaction was with Supreme Design ("Supreme"), a sole proprietorship
whose business is designing tooling. On December 30, 1982, Supreme submitted a
written purchase order to lease one System 150, on a bill and hold basis, at a cost of
$175,000 conditional on Supreme obtaining financing.The owner had an oral
understanding with an IDI salesperson that if Supreme was unable to obtain financing,
Supreme could cancel the order.
Consistent with IDI's practices, payment was not due until IDI delivered and installed the
equipment.

Recording these transactions as sales in 1982 was improper because they were
conditional on the occurrence of future material events. Parness did not know the
circumstances under which these transactions had been improperly recorded as sales.
However, in failing to provide an allowance for doubtful accounts for the [*23]
purported sales, Parness acted in reckless disregard of the fact that by May 12, 1983,
when IDI filed its first quarter report on Form 10-Q, neither Oldershaw nor Supreme had
requested delivery of or paid for the equipment. The two units were still in IDI's
possession without an adequate explanation why IDI was still holding the equipment. The
Oldershaw account receivable had been recorded almost eleven months and the Supreme
Design account receivable five months prior to the first quarter report filing date. Despite
the materiality of these accounts receivables, and the evidence of their uncollectibility,
Parness failed to cause IDI to provide an allowance for doubtful accounts on these
transactions until December, 1983, when the Oldershaw and Supreme receivables were
over seventeen and twelve months old, respectively.

D. Parness was a Cause of IDI's Failure to File Timely a Complete and Accurate
Annual Report on Form 10-K for the Year Ending December 31, 1983.

On March 30, 1984, IDI filed its Annual Report on Form 10-K for the year ending
December 31, 1983. This report was materially deficient in that it omitted Item 6,
Selected Financial Data, Item 7, Management's Discussion [*24] and Analysis of
Financial Condition and Results of Operation and Item 8, Financial Statements and
Supplemetary Data. Parness participated in the preparation of this Annual Report. Among
other reasons, the Annual Report could not be filed timely, and in complete and accurate
form, because Parness had caused IDI to improperly record transactions as sales, and had
failed to cause IDI to provide an allowance for doubtful accounts during the period
covered by the report.

[**540] IV.

CONCLUSIONS

As described above, Parness participated in the preparation of IDI's quarterly financial

statements filed with the Commission beginning with IDI's 1983 first quarter report.
These statements failed to conform with GAAP and were materially false and misleading
in that pretax income was materially overstated. Parness also participated in the
preparation of IDI's Annual Report on Form 10-K for the year ending December 31,
1983, which was materially deficient in that it omitted required information concerning
management's discussion and analysis, selected financial data and audited financial
statements.

In his capacity as Controller, Parness, together with IDI's EVP, caused IDI to
improperly record [*25] as sales six 1983 transactions and to fail to provide an
allowance for doubtful accounts on two 1982 transactions. In each of the eight
transactions, Parness relied on senior management's representations, recklessly
disregarding facts indicating that the transactions were not correctly recorded. In merely
accepting the directives, Parness failed to fulfill his role as a check on the EVP's ability to
override the accounting system. Further, the improper recordings resulted, in part, from
Parness' failure to heed the recommendations contained in PMM's and E&W's
management letters, one of which was dated during the time when Parness was IDI
Controller.

With respect to the 1983 transactions, Parness knew or recklessly disregarded facts
which precluded recognition of sales revenue and/or he recognized sales revenue without
a sufficient basis. In each of these transactions, had he made reasonable inquiries, he
would have learned that the transactions could not be recorded as sales. More
specifically, in connection with IDI's transactions with Subia, Hughes Long Beach, Litho
and Hughes-Micro, IDI had not received signed purchase orders prior to the date as of
which the transactions [*26] were being recorded. When the paperwork did arrive in the
two Hughes transactions, the purchase orders stated on their face that the equipment was
simply on loan, on a "no-charge" basis; with respect to the transactions with NAC and
EAC, Parness knew that neither NAC nor EAC had marketing staffs and that IDI retained
significant remarketing responsibilities with respect to the equipment. Parness also knew
that the CADalyst and the PPT-10 laser printers were complex, untested products and that
their delivery and installation were material contingencies.
 With respect to the 1982 Oldershaw and Supreme transactions, Parness knew or acted
in reckless disregard of the fact that neither company had made any payments to IDI or
requested delivery of the equipment. On May 9, 1983, when Parness signed IDI's first
quarter 1983 quarterly report on Form 10-Q, the Oldershaw receivable was [**541]
almost eleven months old, IDI's receivable from Supreme was five months old and both
pieces of equipment were still in IDI 's possession.

Further, in four of the eight transactions, customers ordered equipment on a bill and
hold basis. This fact alone should have caused Parness to question the propriety of [*27]
their recording. Revenue recognition from bill and hold sales was sanctioned by the
Commission, in certain circumstances, In the Matter of Arthur Anderson & Co.,
Exchange Act Release No. 1787 (June 26, 1981). However, those circumstances which
might justify revenue recognition for bill and hold "sales" were limited to situations
where the buyer has made an absolute purchase commitment, but is unable to accept
delivery. The discussion of bill and hold transactions in the Arthur Anderson proceeding
concerned Mattel, Inc., a toy maker with a highly seasonal business, whose customers,
could not accept delivery of Christmas toys before the Christmas season. GAAP does not
allow, and Arthur Anderson does not sanction, bill and hold transactions absent the
purchaser's having a compelling business purpose of that nature.

Because recognition of revenue on bill and hold transactions is a departure from the
general rule of revenue recognition, see, i.e., APB Statement 4, paragraph 151, the
persons responsible for preparation and filing of an issuer's financial statements have a
responsibility to verify the underlying facts of any such transaction. This inquiry must be
conducted prior to [*28] recognizing revenue from the transactions to ascertain that
revenue recognition is appropriate at the time the transaction is recorded. In addition to
assessing the validity of recognizing revenue for a transaction, it is essential to assess the
proper period in which the transaction should be recorded. In order to meet the revenue
recognition requirements of APB Statement 4, paragraph 150, and the conceptual criteria
of the Arthur Anderson opinion, a "bill and hold" transaction should meet the following
conditions:

(1) The risks of ownership must have passed to the buyer;

(2) The customer must have made a fixed commitment to purchase the goods,
preferably reflected in written documentation;

(3) The buyer, not the seller, must request that the transaction be on a bill and hold
basis. The buyer must have a substantial business purpose for ordering the goods on a bill
and hold basis;

(4) There must be a fixed schedule for delivery of the goods. The date for delivery must
be reasonable and must be consistent with the buyer's business purpose (e.g., storage
periods are customary in the industry);
 (5) The seller must not have retained any specific performance obligations such that
[*29] the earning process is not complete;

(6) The ordered goods must have been segregated from the seller's inventory and not be
subject to being used to fill other orders; and
(7) The equipment must be complete and ready for shipment.

The above listed conditions are the important conceptual criteria which should be used
in evaluating any purported bill and hold sale. [**542] This listing is not intended as a
check list. In some circumstances, a transaction may meet all the factors listed above but
not meet the requirements for revenue recognition.

In applying the above criteria to a purported bill and hold sale, the individuals
responsible for preparation and filing of the financial statements should also consider the
following factors:

(1) The date by which the seller expects payment, and whether it has modified its
normal billing and credit terms for this buyer;

(2) The seller's past experiences with and pattern of bill and hold transactions;

(3) Whether the buyer has the expected risk of loss in the event of a decline in the
market value of the goods;

(4) Whether the seller's custodial risks are insurable and insured;

(5) Whether APB Opinion No. 21, pertaining to the need for discounting [*30] the
related receivable, is applicable;3 n3 and

(6) Whether extended procedures are necessary in order to assure that there are no
exceptions to the buyer's commitment to accept and pay for the goods sold, i.e., that the
business reasons for the bill and hold have not introduced a contingency to the buyer's
commitment.

Even though IDI had a history of sales reversals on bill and hold transactions, and even
though E&W's April, 1983, management letter underscored the need for better controls
regarding bill and hold sales, Parness failed to conduct a diligent investigation to
ascertain that IDI's bill and hold transactions met the conditions for proper revenue
recognition.

Before signing the IDI quarterly reports on Forms 10-Q, Parness needed a reasonable
basis for believing hat the transactions were properly recorded. In two recent
proceedings, the Commission has cautioned individuals who have responsibility for

3
Once the individuals responsible for preparation and filing of the financial statements have ascertained
that the revenue may be properly recognized, they of course, have an on-going obligation to review for
collectibility of the bill and hold receivable
ensuring that [*31] periodic reports filed with the Commission comply fully with the
disclosure requirements of the federal securities laws. See In the Matter of Michael R.
Maury, SEC Exchange Act Release No. 23067 (March 26, 1986); In the Matter of
Thomas C. Runge, SEC Exchange Act Release No. 23066 (March 26, 1986). A corporate
official cannot, merely by following the directives of his or her corporate supervisors,
insulate himself or herself from liability for assisting on behalf of an issuer in the
preparation or filing of reports which are materially false, misleading and incomplete.4
See also, In the Matter of Paul N. [**543] Conner, SEC Exchange Act Release No.
14382 (January 16, 1978) (proceeding pursuant to Rule 2(e) of the Commission's Rules
of Practice); In the Matter of Gerald J. Flannelly, SEC Exchange Act Release No. 15181
(September 22, 1978) (proceeding pursuant to Rule 2(e)).

Parness did not act as a primary decision-maker with respect to either the improper
recording and reporting of the six 1983 transactions or the improper decision not to
provide an allowance for doubtful accounts on the two 1982 transactions. IDI's CEO and
EVP devised the improper practices and made the ultimate decisions that caused IDI's
false recording and reporting. However, in the Commission's view, these circumstances
cannot justify Parness' failure to take sufficient steps to satisfy himself that the
transactions were properly recorded and reported initially and/or on an ongoing basis.
This failure was inconsistent with his duties as the Controller at IDI.

V.

FINDINGS

Based on the foregoing, the Commission finds that:

(1) Parness, within the meaning of Exchange Act Section 15(c)(4), was a cause of IDI's
violations of Exchange Act Sections 13(a) and 13(b)(2)(A) and Rules 12b-20, 13a-1 and
13a-13 thereunder by his participation in the preparation of the IDI's financial statements
included in IDI's quarterly reports on Forms 10-Q for its quarters ended March 31, 1983,
and June 30, 1983, each of which was not prepared in accordance with GAAP, and which
was materially false [*33] and misleading in that pretax income was overstated; and by
his participation in the preparation of IDI's annual report on Form 10-K for the year
ending December 31, 1983, which was deficient in that it failed to include in complete
and accurate form all information required to be included.

4
Parness also improperly signed the 1982 representation letter to E&W dated February 24, 1983, attesting,
among other things, that he and the other signees were responsible for the fair presentation of the financial
statements in conformity with GAAP, and that "there . . . [were] no material transactions that [were not] . . .
properly recorded in the accounting records under the financial statements." Since the specific
representations contained in the February, 1983, representation letter to E&W were not based on actual
knowledge of the facts or on an adequate inquiry, Parness was obligated to make clear the limitations of
his representations.See In the Matter of Gerald J. Flannelly, SEC Exchange Act Release No. 15181
(September 22, 1978) (proceeding pursuant to Rule 2(e) of the Commission's Rules of Practice). [*32]
 (2) Parness violated Rule 13b2-1 under the Exchange Act by directly and indirectly,
falsifying or causing to be falsified, IDI's 1983 books, records and accounts.

VI.

OFFER OF SETTLEMENT

Parness has submitted an Offer of Settlement. The Commission deems it appropriate

and in the public interest to accept this Offer of Settlement.

VII.

ORDER

IT IS HEREBY ORDERED that:

Parness shall comply in all respects with the requirements of Exchange Act Section
13(a) and 13(b)(2)(A) and Rules 12b-20, 13a-1, 13a-13 and 13b2-1.

By the Commission.