Defunct Maker of Disk Drives Sues Former Executives
MiniScribe Corp., a defunct computer disk-drive maker in Longmont, Colo., has sued its former officers and directors, including former chairman Q. T. Wiles of Sherman Oaks, for allegedly manipulating the company’s financial statements and committing other wrongdoing to bolster the company’s image.
The suit, filed in state court in Boulder, accuses the more than 60 defendants of fraud, breach of fiduciary duty and breach of contract, among other things. It alleges that from 1985 to 1988, former directors and officers operated the company through racketeering, wire fraud, securities fraud and mail fraud.
MiniScribe filed for Chapter 11 bankruptcy protection in January, 1990.
Also named in the suit are the San Francisco investment company Hambrecht & Quist, of which Wiles was a vice president, and the accounting firm Coopers & Lybrand, which audited MiniScribe’s financial statements from 1985 to 1988.
The suit is based in part on an internal investigation by MiniScribe’s new management, which found that much of the company’s turnaround under Wiles’ chairmanship was in fact due to creative accounting, said Greg Ruegsegger, the Denver attorney representing MiniScribe.
Wiles, 71, was sent to MiniScribe in 1985 as a turnaround specialist for Hambrecht & Quist, which owned 12% of the company’s stock. He resigned from MiniScribe and Hambrecht & Quist in February, 1989, after new company directors discovered the alleged mismanagement.
The suit says that at one point, bricks were packaged and shipped as computer disk drives to temporarily boost sales and inventory figures.
The suit does not specify damages, but Ruegsegger said the defendants’ alleged wrongful actions cost the company more than $400 million. Any damages collected as a result of the suit will become part of MiniScribe’s assets in bankruptcy court and will be paid to creditors, Ruegsegger said.
In June, the company sold most of its assets for $46 million to Maxtor Corp., a disk-drive maker based in San Jose. The company’s creditors committee is expected to review a liquidation plan this month to determine how the remaining assets, including damages from the lawsuit, should be distributed, said Roger Barzun, general counsel for the company’s bankruptcy estate.
Wiles could not be reached for comment on the lawsuit. His Denver attorney, Ken Starr, was on vacation but has said in published reports that Wiles denies any wrongdoing.
After Wiles joined MiniScribe, the company appeared to have made a remarkable comeback as it went from a loss of $16.8 million in 1985 to reported profits of $25.8 million in 1988. In the same time, its sales soared from $115 million to $603 million. But MiniScribe’s new management has said those financial statements were inaccurate due to “a massive fraud.”
Before coming to MiniScribe, Wiles helped turn around companies such as Milpitas-based ADAC, a maker of medical equipment; San Jose semiconductor maker Silicon General; Rexon, a Manhattan Beach data storage business, and Granger Associates, a Santa Clara telecommunications firm.
Some MiniScribe officials said that MiniScribe proved too big for Wiles--it was five times larger than other firms he had managed--and that Wiles was rarely present while he was chairman.
