Former Officers of Wespercorp Settle SEC Fraud Lawsuit

Wespercorp and three former officers of the ailing Santa Ana computer accessories maker were charged Monday by the Securities and Exchange Commission with overstating the company’s revenues and filing false and fraudulent reports about its financial condition in the company’s 1983 and 1984 fiscal years.

According to SEC officials, the three former officers filed quarterly performance reports in Wespercorp’s fiscal 1983 that overstated the company’s revenues by $1.1 million and exaggerated its profits by $238,000. The SEC said the three overstated fiscal 1984 revenues by $2.4 million while under-reporting the year’s losses by nearly $900,000.

Lynton (Randy) Knapp, Wespercorp founder and former president; Robert Mowry, a former vice president, and Robert Mitchell, former chief financial officer, agreed to settle the cases against them without admitting or denying the charges. All the defendants were ordered to comply with securities laws in the future.

The SEC imposed no penalties on the three former officials for the charges, which were detailed in a civil fraud suit filed in U.S. District Court in Washington.

The charges against the company were contained in a lower-level administrative complaint.

The SEC action represents the last in a series of legal problems that had been hanging over the company, which has lost $20 million in the past 4 1/2 years.

In the past eight months, the company has settled a patent infringement suit filed against it by a major competitor, a breach of contract suit filed by a dissatisfied customer and a class-action suit by disgruntled investors who claimed that they were given false financial data.

All the suits stem from the period when Knapp, Mowry and Mitchell managed the company.

“To my knowledge the SEC matter is the final chapter in the woes of Wespercorp,” said George Dashiell, the company’s president since early 1985.

Investors were apparently pleased by the move. The company’s stock closed on the American Stock Exchange at 87.5-cents Monday, up 12.5-cents for the day.

Knapp, now a private consultant, declined to comment Monday.

Mowry, now the president of United Computer Systems in Cypress, and Mitchell, president of Herb Mitchell Associates, a family-owned marketing consulting firm, could not be reached for comment.

In its complaint, the SEC charges that Mowry, who headed a Wespercorp subsidiary, reported that the operation sold $1.1 million worth of computers that he knew “were neither completely assembled nor shipped.” Further, the complaint states that Mowry signed purchase orders and issued invoices to give the impression that the sales had been completed.

Knapp, who resigned from Wespercorp under pressure in July, 1984, falsely reported to shareholders in fiscal 1983 that the company had completed a sophisticated, new computerized billing system. In fact, the SEC said, the system was still in the research and development phase. After years of costly development, the system, UTILIS, was scrapped, resulting in a $4-million breach-of-contract suit. That suit was settled out of court in December.

Knapp and Mitchell, then the chief financial officer, were also charged with prematurely reporting sales on two contracts, causing the company to overstate its income and revenues in the quarterly performance reports.

The SEC action acknowledges that Wespercorp used its fiscal 1983 and 1984 annual reports to amend the false information in its quarterly reports for those years.

But the complaint noted that the changes for fiscal 1983, which ended on June 30, were published several months after the company filed a prospectus containing the false information for a stock sale in February, 1983.

The offering raised about $6.5 million through the sale of 375,000 shares at about $20.375 per share. Following the offering, the company’s stock began a steady slide to its current level.