Man Fined for Role in Fraud Case : MiniScribe: A Sherman Oaks resident has been ordered to pay $250 million in punitive damages in the collapse of a disk drive company.
Last week, a Texas jury assessed Quentin T. Wiles, a Sherman Oaks resident, $250 million in punitive damages for his role in the collapse of MiniScribe, a now-defunct computer disk drive manufacturer.
The jury in state district court in Galveston, Tex., found that Wiles and three other defendants in the lawsuit were guilty of fraud, negligence, gross negligence and conspiracy to commit fraud. It ordered the New York-based accounting firm Coopers & Lybrand to pay $200 million in punitive damages. Hambrecht & Quist, an investment banking concern in San Francisco, was assessed $45 million in punitive damages, and another $35 million was levied against the investment firm’s president, William R. Hambrecht.
Responsibility for paying the more than $20 million in compensatory damages was spread among Wiles--MiniScribe’s former chairman--Coopers & Lybrand and Hambrecht & Quist.
The jury deliberated more than two days before awarding the damages on Tuesday to Kempner Capital Management Co., which bought MiniScribe debentures and sold them at a loss after allegations surfaced that MiniScribe had falsified its financial statements. Kempner’s clients included the Galveston school district and several pension plans.
Coopers & Lybrand said it will appeal, as did Hambrecht & Quist. The investment firm said it was also a victim of the fraud.
Wiles could not be reached for comment on the Texas case. But his attorney, Dennis E. Kinnaird, said the award was by “a runaway jury and we’re confident it won’t hold up on appeal.”
Wiles, 72, a once-renowned specialist in turning around ailing companies, is also a former official of Hambrecht & Quist. In 1985, the investment firm, which owned 12% of MiniScribe’s stock, sent Wiles to help MiniScribe, based in Longmont, Colo., recover from its financial troubles.
During the next few years, MiniScribe’s sales and profits appeared to soar, and its stock became a Wall Street favorite. But in 1989, allegations began to surface that MiniScribe’s profits were overstated.
Wiles resigned as MiniScribe’s chairman in February, 1989. The following January, MiniScribe filed for bankruptcy protection after new management uncovered what it called a “massive fraud” at the company that included shipping bricks instead of disk drives and doctoring the company’s books. In a report prepared by MiniScribe’s new management, Wiles was criticized for creating an atmosphere in which abuses went unchecked and for trying to run the company from his Sherman Oaks office.
Kinnaird says that Wiles continues to do consulting work for other high-tech companies. The lawyer said Wiles did not testify in the Texas case because of ongoing investigations related to other litigation.
Several other MiniScribe lawsuits are still pending, including a complaint filed by the Securities and Exchange Commission last August in a federal court in Denver that accuses Wiles and 15 other former company executives and employees with violating federal securities laws through a series of fraudulent acts. That suit seeks to bar Wiles from future securities law violations and asks for an unspecified amount of fines based on income that Wiles earned through MiniScribe.
Texas Judge Roy Engelke has given attorneys for the defendants until Friday to file motions before he will revise or approve the judgment, said Joseph D. Jamail, Kempner’s attorney. Jamail is best known for winning another huge verdict from a Texas jury: the $10.3 billion awarded in 1986 to Pennzoil Co. in its lawsuit against Texaco Inc. That payout was later reduced to $3 billion under a settlement.
MiniScribe’s assets were purchased last summer by Maxtor Corp., a San Jose disk drive manufacturer.
