- 8 -
The conclusion of the meeting set in motion a number of
events. Pryor returned to his accounting firm and made journal
entries in Kolonaki's books. The entries reduced Georgiou's
liabilities to Kolonaki and replaced them with JAI liabilities to
Kolonaki. The entries consisted of debits of $234,000 to
"Investment in Judy [JAI]" and $952,000 to "Accounts Receivable,
Judy [JAI]" (totaling $1,186,000) and of a credit of $1,186,000
to "Accounts Receivable, Georgiou". The entries were dated "as
of 10/1/89" but were actually made sometime after the meeting in
1991.
Entries were made in the JAI books to change notes payable.
The entries consisted of a $952,100 debit to "Notes Payable,
George Georgiou" and a $952,100 credit to "Notes Payable,
Kolonaki". The entries were dated "as of September 30, 1990" on
the books but were actually made sometime after January 18, 1991.
As part of the plan to sell shares to the public for JAI and
GRS, Ernst and Young prepared the September 30, 1990, tax returns
for the two corporations. The GRS tax return was prepared pro
forma because Ernst and Young was aware that Georgiou planned to
have GRS file a consolidated return with Kolonaki. The JAI tax
return was prepared as a separate return with Georgiou listed as
the sole stockholder. Ernst and Young signed the JAI return on
June 12, 1991, and gave it to Crisafi. Crisafi did not file with
the IRS the separate JAI tax return for 1990.
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