2 Top Executives of High-Tech Firm Settle SEC Charges
Two former top executives of a bankrupt computer-graphics company on Wednesday settled Securities and Exchange Commission charges that they fraudulently inflated the firm’s earnings and sold personal stock without disclosing information about the company’s declining financial condition.
In twin consent agreements, William Weksel, former chairman and chief executive of Information Displays, agreed to turn over $208,000, while Albert Bromberg, former executive vice president of the Armonk, N.Y., firm, agreed to give up $103,000. The money represents losses that the pair allegedly avoided by selling out before news of Information Displays’ problems reached the market.
For the record:
12:00 a.m. Aug. 14, 1986 FOR THE RECORD
Los Angeles Times Thursday August 14, 1986 Home Edition Business Part 4 Page 2 Column 6 Financial Desk 3 inches; 73 words Type of Material: Correction
An Aug. 7 story about Securities and Exchange Commission charges against two former executives of Information Displays stated that Bateman Eichler, Hill Richards and Merrill Lynch “helped finance the 1984 purchase of the company by Orange County businessman Leonard S. Levy for nearly $15 million.” Levy purchased shares in Information Displays on margin in open-market transactions. Neither Bateman Eichler nor Merrill Lynch acted as Levy’s investment banker, and the story did not intend to imply that they did.
Neither admitted wrongdoing. The company’s former controller, Stewart Parness, signed a separate consent agreement to settle charges that he played a role in the inflating of corporate profits, which the SEC alleged took place in the second half of 1982 and the first half of 1983. Parness also did not admit wrongdoing but agreed to refrain from any such practices in the future.
Purchased in 1984
Information Displays’ failure dealt heavy losses to a number of investors and was followed by a welter of lawsuits. Among those who suffered were two brokerages, Los Angeles-based Bateman Eichler, Hill Richards and Merrill Lynch of New York. Both firms helped finance the 1984 purchase of the company by Orange County businessman Leonard S. Levy for nearly $15 million. The two brokerages were stuck with Information Displays stock when Levy could not repay his borrowings. The company is now in liquidation proceedings in U.S. Bankruptcy Court in New York.
Weksel and Bromberg could not be reached for comment.
The SEC charged that the executives inflated Information Displays’ earnings by $3.1 million over four fiscal quarters by recording as sales 11 so-called book-and-hold transactions involving computer-graphics equipment. In such transactions, the products are shipped on consignment, or on loan, and with an understanding that they may be returned later. Such transactions may not be booked as sales according to generally accepted accounting principles, the SEC asserted in its statement of charges.
The SEC has not pursued an enforcement action concerning book-and-hold transactions since 1981, but enforcement officials are known to believe that many companies--including small high-tech manufacturers--use such practices.
The SEC also charged that Weksel and Bromberg knew of a design defect in a key new product of the company, called CADalyst, long before the glitch became known among investors in 1984. A faulty circuit board in the computer-graphics system slowed the product’s operation and made it much more likely that it would fail, or “crash.” But, although prospective buyers began to catch on to the problem, in the fall of 1983 the company falsely said in press releases that “sales activity remains strong,” the SEC said.
Between December, 1982, and September, 1983, Weksel and Bromberg sold $1.3 million of their own stock although they knew that the company’s earnings were lower than reported and that the CADalyst had possibly insurmountable technical problems.
