SEC Accuses Ex-MiniScribe Chairman of Inflating Profits
Once-renowned turnaround specialist Q. T. Wiles of Sherman Oaks and 15 other former executives and employees of MiniScribe Corp., an essentially defunct computer disk-drive maker, have been accused of fraudulently inflating the company’s profits in a complaint filed last week by the Securities and Exchange Commission.
The SEC action is the latest in a string of developments involving Longmont, Colo.-based MiniScribe, which filed for bankruptcy court protection in January, 1990, after new management uncovered what it called “massive fraud” at the company. Wiles, 74, resigned as MiniScribe’s chairman in February, 1989.
Wiles could not be reached for comment. But his attorney, Cary Lerman, said Wiles “emphatically denies any wrongdoing” and plans to “defend this action aggressively.”
The SEC complaint, filed in U.S. District Court in Denver, alleges that from 1986 to 1988 some of the defendants violated federal securities laws through a series of fraudulent acts designed to inflate MiniScribe’s profit reports. Among the alleged schemes, the suit says, were attempts to conceal inventory shortfalls by transferring nonexistent inventory between subsidiaries; doctoring the company’s books; breaking into an auditor’s trunks to inflate numbers on inventory lists, and shipping boxes of bricks labeled as disk drives to distributors.
Some of the defendants also accumulated scrap parts that had been written off the company’s books, repacked them and counted them as good inventory, the complaint alleges.
The suit says further that from 1985 to 1987, Wiles and co-defendants Gerald Goodman, MiniScribe’s former president; Patrick Schleibaum, former chief financial officer; and Steven Wolfe, former controller, carried out a scheme to pad profits by deliberately overstating reserves and later using the reserves as cushions to add to earnings.
As a result of the alleged fraud, the suit says, MiniScribe’s profit was overstated by more than $58 million from 1986 to 1988. The complaint alleges that some of the defendants, including Wiles, enriched themselves through sales of MiniScribe stock at artificially high prices while they possessed non-public information about the company’s financial condition.
Seven of Wiles’ co-defendants, without admitting or denying the allegations, have consented to judgments prohibiting them from future violations of securities laws. They also agreed to pay back the losses that they avoided on the sales of MiniScribe stock and certain bonuses that they received, plus interest. The total amount agreed on was $239,287.
The suit seeks to bar Wiles from future securities-law violations, and an unspecified amount of fines based on income that Wiles earned through MiniScribe. SEC attorney James Adelman wouldn’t comment on whether a criminal investigation is under way.
Wiles and other former Mini-Scribe executives and directors have also been named in a lawsuit filed by the company in January. The suit, filed in state court in Boulder, Colo., accuses the more than 60 defendants of fraud, breach of fiduciary duty and breach of contract. It says the defendants’ actions caused the company to lose more than $400 million, and seeks an unspecified amount of damages to be paid to its creditors through bankruptcy court.
Wiles, a former vice president of the San Francisco investment firm Hambrecht & Quist, was once known as “Dr. Fix-It,” a moniker earned during his rescues of such troubled high-tech companies as Milpitas-based ADAC, a medical equipment supplier; Silicon General in San Jose, a semiconductor maker, and Rexon, a Manhattan Beach data-storage firm. In 1985, Hambrecht & Quist, which owned 12% of MiniScribe’s stock, sent Wiles to turn that ailing company around.
During the next few years, Mini-Scribe’s sales and profits soared, and the stock became a Wall Street favorite. But after the alleged fraud was revealed in 1989, MiniScribe’s stock plummeted. Wiles was criticized by the new management for creating an atmosphere in which abuses went unchecked and for trying to run the company from his Sherman Oaks office.
Most of MiniScribe’s assets were sold in April, 1990, to Maxtor Corp. for $46 million in stock and cash.
