A Must Read -- So who wants any of the old cronies to stay on with the Company?
SEC Settles Fraud Suit Vs Denver Wireless Co
By Judith Burns
09/27/2001
Dow Jones News Service
WASHINGTON -(Dow Jones)- Vari-L Co. Inc. (VARLE) agreed to settle a Securities and Exchange Commission lawsuit alleging the Denver wireless equipment manufacturer cooked its books to show profits it never earned.
Vari-L reported $17 million of income from 1996 to March 2000, when it actually lost $14 million over the period, according to an SEC civil suit filed in federal court in Colorado on Thursday.
The company didn't admit or deny the SEC's allegations, but agreed to an order barring it from future violations of federal securities laws. No fines were imposed.
"We are pleased to have resolved this issue with the SEC in the best interests of the company and its shareholders," Charles Bland, Vari-L president and chief executive, said in a written statement.
In light of its accounting problems, the SEC gave Vari-L a break on laws requiring public companies to have at least three years of audited financial statements.
"This does not give us a free pass on the rules," said Vari-L corporate counsel Lee Terry.
He said the relief means Vari-L can't be sued for not having three years of audited financial reports. If the company wants to tap capital markets before it meets that requirement, it would need a separate waiver from the SEC to do so.
Vari-L reported quarterly earnings on Thursday and Terry said its 2001 financial report, audited by KPMG , will be filed with the SEC shortly. He said he isn't certain when audited reports for 2000 and 1999 will be available.
Former Vari-L president and CEO David Sherman, former chief financial officer Jon Clark, and former controller Sarah Hume, also were sued by the SEC. The agency alleges they took part in the fraud and profited from it by exercising stock options and selling Vari-L stock in 1999.
"Sherman set his own numbers," said Randall Fons, director of the SEC's Denver office, which brought the suit. "Everyone who was involved in the fraud did whatever it took to meet those numbers."
Among other things, the SEC contends Vari-L used improper "bill-and-hold" sales to jack up reported earnings, recorded revenue on products shipped after the close of each quarter, improperly capitalized labor and overhead costs and overstated inventory.
The SEC also claims Sherman failed to disclose more than $200,000 of compensation from 1997-1999. The former CEO didn't settle with the SEC. His attorney, Stefan Stein, wasn't immediately available to comment on the suit.
"We don't believe the allegations will be substantiated," said Hume's attorney, Stanley Marks. He said Hume is prepared to litigate the matter.
Clark settled with the SEC without admitting or denying the allegations. He agreed to pay $216,631 of allegedly ill-gotten gains, interest and penalties and to be barred from acting as officer or director of a public company. Clark's attorney declined to comment.
In a related action, the SEC brought and settled administrative proceedings against former Vari-L Chairman Joseph Kiser and Var-L's auditors, Charles Springer and Robert Haugen and their firm, Haugen, Springer & Co.
The SEC said Kiser knew or should have known of the accounting fraud at Vari-L. He agreed to a cease-and-desist order and to return $58,000 of compensation he allegedly failed to disclose. His attorney, William McLucas, wasn't available to comment.
Haugen and his firm were barred from auditing records of public companies for a minimum of three years. Springer was barred from public company audits for at least 10 years. John McDermott, the attorney for the auditors, said his clients "are pleased to put this matter behind them."
-Judith Burns, Dow Jones Newswires; 202-862-6692; judith.burns@dowjones.com |
