Suit Says CCT Hiked Stock Price by Hiding Problems
A former shareholder of Computer & Communications Technology charged in a lawsuit filed Wednesday that the company artificially inflated its stock price by failing to report billing irregularities that last month forced it to rescind the $39-million sale of a subsidiary to Los Angeles-based Whittaker Corp.
Honolulu resident Jeremy T. Harrison, in a suit filed in U.S. District Court here, alleged that officials of San Diego-based CCT, a computer products maker, concealed news of defense contract billing irregularities from potential investors. That deception, the suit alleged, improperly boosted the stock value of CCT’s subsidiary, Zeta Laboratories, during an April, 1985, public stock offering. Harrison’s suit also accuses the company of violating various securities laws.
CCT Chairman E. T. Bahre said Wednesday that he had not seen the lawsuit and so would not comment on it.
The firm owned an 86% interest in Zeta, a defense and aerospace products manufacturer based in Santa Clara. In March, Whittaker paid $33.6 million for CCT’s interest in Zeta and another $5.4 million for the remaining 14% held in publicly traded stock.
However, on June 30, citing “apparent irregularities” at Zeta discovered by Whittaker after the sale, CCT announced that it would take back ownership of Zeta and pay Whittaker $39 million.
At the time, Bahre--who was also chairman of Zeta before the sale to Whittaker--said the “adverse impacts on Zeta and CCT could be substantial.”
CCT stock closed at $3.87 1/2 a share on Wednesday in over-the-counter trading, down from a high of nearly $10 before the sale.
Harrison’s lawsuit alleges that CCT officials participated in “ongoing efforts to continue the illusion of Zeta’s business success” in order to “enhance Zeta’s value in the sale of Zeta shares.” CCT realized $4.5 million from the April offering of 835,000 common shares of Zeta.
In Securities and Exchange Commission documents filed at the time of the sale to Whittaker, CCT reported that Zeta’s “cost accounting and procurement systems were in compliance” with federal regulations. However, Harrison’s suit alleges that Zeta officials were in fact “engaging in serious irregularities” and “overcharging its principal customers.”
“At this point, we’re conducting the only investigation into the apparent irregularities,” Bahre said during an interview last Friday. “We intend to turn our results over to the proper government authorities.”
Michael Murphy, editor of the California Technology Stock Letter, published in San Francisco, said, “The key question is why the hell CCT took Zeta back. If the problems were small, (CCT) would never have taken (Zeta) back. They would have said, ‘Sue me.’ ”
Zeta “went through three audits recently, the regular year-end CCT audit, an audit when Zeta went public, and, presumably, an audit when Whittaker bought it,” Murphy said.
