SEC Accuses 16 of Fraud at MiniScribe : Lawsuit: Complaint alleges that the former executives and employees of the computer disk-drive maker inflated the company’s profits.
Once-renowned turnaround specialist Q. T. Wiles of Sherman Oaks and 15 other former executives and employees of MiniScribe Corp., an essentially defunct computer disk-drive maker, have been accused of fraudulently inflating the company’s profits in a complaint filed by the Securities and Exchange Commission.
The SEC action is the latest in a string of developments involving Longmont, Colo.-based MiniScribe, which filed for bankruptcy court protection in January, 1990, after new management uncovered what it called “massive fraud” at the company. Wiles, 74, resigned as MiniScribe’s chairman in February, 1989.
Wiles could not be reached for comment. But his attorney, Cary Lerman, said Wiles “emphatically denies any wrongdoing” and plans to “defend this action aggressively.”
The SEC complaint, filed two weeks ago in U.S. District Court in Denver, alleges that from 1986 to 1988 some of the defendants violated federal securities laws through a series of fraudulent acts designed to inflate MiniScribe’s profit reports. Among the alleged schemes, the suit says, were attempts to conceal inventory shortfalls by transferring nonexistent inventory between subsidiaries; doctoring the company’s books; breaking into an auditor’s trunks to inflate numbers on inventory lists, and shipping boxes of bricks labeled as disk drives to distributors.
Some of the defendants also accumulated scrap parts that had been written off the company’s books, repacked them and counted them as good inventory, the complaint alleges.
The suit says further that from 1985 to 1987, Wiles and co-defendants Gerald Goodman, MiniScribe’s former president; Patrick Schleibaum, former chief financial officer; and Steven Wolfe, former controller, carried out a scheme to pad profits by deliberately overstating reserves and later using the reserves as cushions to add to earnings.
As a result of the alleged fraud, the suit says, MiniScribe’s profit was overstated by more than $58 million from 1986 to 1988. The complaint alleges that some of the defendants, including Wiles, enriched themselves through sales of MiniScribe stock at artificially high prices while they possessed non-public information about the company’s financial condition.
Seven of Wiles’ co-defendants, without admitting or denying the allegations, have consented to judgments prohibiting them from future violations of securities laws.
