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SEC Sues Penthouse, Officials

By Amy Strahan Butler
Bloomberg News
Tuesday, January 25, 2005; Page E01

Penthouse International Inc., the former publisher of the men's magazine, was sued by the Securities and Exchange Commission yesterday for improperly booking $1 million in revenue in the first quarter of 2003.

At the same time, Penthouse founder Robert C. Guccione settled SEC allegations that he violated the Sarbanes-Oxley Act -- which requires executives to certify the accuracy of financial statements -- without admitting or denying wrongdoing.

Founder Robert C. Guccione settled charges.

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Former executive vice president Charles Samel and shareholder Jason Galanis were accused of deliberately filing the inflated financial statement without the review of the publisher's auditor or outside counsel and without giving notice to then-chief executive Guccione, according to the lawsuit filed in U.S. District Court for the Southern District of New York.

The publisher, now known as PHSL Worldwide Inc., improperly recognized a $1 million licensing fee in order to show $828,000 in net income, instead of a $167,000 net loss, for the quarter ended March 31, 2003, according to the SEC's lawsuit.

"The certification requirements of Sarbanes-Oxley are a critical element of the laws to deter financial fraud," said Mark K. Schonfeld, the SEC's Northeast regional director. "This case demonstrates our commitment to enforcing those certification requirements."

Guccione was accused of failing to review the quarterly filing that purported to bear his electronic signature and then later approving documents claiming the company's disclosure controls were adequate.

Penthouse's attorney, Jay Kaplowitz, did not return a call seeking comment. Diana Parker and Stephen Zrenda, lawyers for Samel and Galanis, and Paul Grand, representing Guccione, also did not return calls.

Guccione, who resigned in 2003, formerly held as much as 85 percent of Penthouse's shares outstanding. He no longer has a financial interest in the company. Last year, he turned down an offer to serve as a consultant for the magazine, which he founded in 1965.

Penthouse International owned 99.5 percent of General Media Inc., which published Penthouse magazine. General Media filed for bankruptcy protection in August 2003. In October 2004, Marc Bell Capital Partners purchased a majority stake in the company.

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