It may have been one of the worst career moves of all time.
In October, John Sculley--having worn out his welcome at Apple Computer--joined a small, unproven, communications company called Spectrum Information Technologies.
On Monday, he resigned--and filed a lawsuit against the executive he says recruited him to the job under false pretenses.
It’s a bizarre, tragicomic saga that may permanently blacken the reputation of one of the nation’s most prominent business executives.
Just a year ago, Sculley was basking in his friendship with Hillary Rodham Clinton--he sat beside her during the President’s first State of the Union Address, symbol of the technological prowess of American business--and being mentioned as a possible secretary of commerce.
But a series of events since then, involving both his departure as chairman from Apple and his four-month odyssey at Long Island-based Spectrum, have critics questioning Sculley’s judgment and credibility.
Investors seem to be questioning Spectrum’s future as well. The company’s stock lost nearly two-thirds of its value in very heavy trading Monday, closing at $2.25, down $3.31 in NASDAQ trading. It now is selling at just one-fifth its price shortly after Sculley’s appointment.
On Monday, Spectrum denied misleading Sculley. But the firm also restated its earnings for two quarters of last year, with slight profits becoming large losses. Spectrum claims to have patents on important wireless communications technologies but has a history of weak financial results and legal and regulatory problems.
Sculley was unconcerned about such issues when he took the job last October, after a whirlwind courtship by Peter Caserta, then chief executive and now president of Spectrum. At the time, Sculley said he wanted to join a small company where he would have “a substantial equity position,” comparing Spectrum to Intel and Microsoft--two of the giants of the worldwide technology business.
Few in the industry saw such potential, though, and many were mystified as to why Sculley would join a company with such a dubious reputation.
The apparent answer emerged several weeks later: an extraordinary compensation package that included a $1-million annual salary and stock options potentially worth tens of millions of dollars.
From the outset, though, analysts suggested that Sculley had not done his homework.
When questioned about some of Spectrum’s past run-ins with securities regulators--which included a delisting from the NASDAQ market--Sculley told the New York Times: “It sounds like you know more about it than I do at this point.”
In the lawsuit he filed Monday in U.S. District Court in Manhattan, Sculley alleges that Caserta deliberately concealed negative information about Spectrum--especially the company’s use of questionable accounting practices and the existence of a Securities and Exchange Commission investigation into possible stock manipulation.
“Caserta’s representations were knowingly false and misleading,” the lawsuit charges. “There were material legal, regulatory, financial and other problems regarding Spectrum of which Caserta was aware, but which he did not disclose to Sculley.”
The suit seeks at least $10 million, plus punitive damages. Sculley had no comment Monday on his future plans.
In a press release issued late Monday, Spectrum said: “Prior to and during his term at Spectrum, Mr. Sculley was fully aware of the circumstances he now cites as his reasons for departing.” The company said it learned of Sculley’s plans only “moments before” he issued a press release announcing his resignation.
Caserta could not be reached for comment.
Whatever the outcome of the litigation, the situation appears certain to damage Sculley’s reputation as a first-rank executive, a standing he honed first at Pepsico and then at Apple.
“A lot of people would not sue on something like this, because it says as much about their judgment as anything else,” said Gary Knisely, chief executive of the executive search firm Johnson Smith & Knisely Accord in New York. “I would think he would have done more due diligence; he was in a position to question them about anything.”
Added Richard Shaffer, a principal at a New York consulting firm now looking for someone to replace Sculley as a speaker at a conference next month: “He took a big risk and he lost. His reputation as a business leader is damaged. Is it unsalvageable? I don’t think so.”
Oddly, Sculley’s attorney, Arnold I. Burns, had every reason to be suspicious of Spectrum. Burns was the lead attorney for ICN Pharmaceuticals in its successful proxy battle with controversial stockbroker Rafi Khan--and Khan had been a major backer of Spectrum stock. Indeed, Caserta at one point was on Khan’s slate of proposed ICN directors.
But Burns said Monday that before joining Spectrum, Sculley had been concerned mainly about the firm’s patent position, not its regulatory standing.
“He spent a lot of time looking at the scope and strength of those patents. On the other subjects, he looked Caserta straight in the eye and said: ‘Is there anything I should know about? I don’t want to come if there are problems.’ ”
Caserta’s alleged dishonesty was “a very painful experience for John,” Burns said.
The Spectrum fiasco followed a messy finish to Sculley’s 10-year reign at Apple.
The computer company had begun to run into financial troubles early last year. In June, it abruptly announced that Sculley would step down as chief executive officer but remain as chairman.
Apple board members and Sculley all said the change had been Sculley’s idea--that he wanted to spend more time on big-picture issues while his successor, Michael Spindler, focused on day-to-day operations. Sculley insisted he had every intention of remaining actively involved at Apple. “This is not my swan song,” he declared.
At the time, though, sources at Apple disputed the official version of the events. A lawsuit by former Apple director Albert Eisenstat alleged that Sculley was ousted by a board unhappy over his growing involvement in politics and other outside activities.
As it turned out, Sculley did not last long at Apple after he left the CEO post.
He took a six-week sabbatical, interrupted only for the introduction of his pet project, the Newton personal digital assistant--a product that flopped in the marketplace. Shortly after, Sculley resigned to become chairman of Spectrum.
His announcement sent Spectrum’s stock soaring. Company insiders cashed in--including Caserta, who exercised stock options and then sold slightly less than half his stake for a profit of $8.4 million, according to CDA/Investnet, a Ft. Lauderdale, Fla., firm that tracks insider activity.
In his lawsuit, Sculley alleges that Caserta induced him to join the company with the express intent of collecting a windfall profit on stock sales. The sales also torpedoed the settlement of previous shareholder lawsuits against Spectrum and prompted the filing of additional shareholder suits last Friday.
Sculley also alleges that he was unaware the company was using a questionable method of accounting for revenue from its patent licensing agreements. In essence, the suit contends, Spectrum was counting money it had not yet received.
The Career Path of John Sculley
The resume of John Sculley, who quit tiny Spectrum Information Technologies Inc. on Monday:
* 1963: Joins Marschalk Co. in New York City.
* 1967: Joins Pepsi-Cola Co. as director of marketing.
* 1970: Becomes company’s youngest vice president, responsible for marketing.
* 1974: Named president of PepsiCo Foods, and will transform the money-losing operation into a profitable enterprise.
* 1977: Becomes chief executive of Pepsi-Cola Co. and launches the widely acclaimed “Pepsi Challenge” campaign of blind taste tests; will succeed for awhile in ousting Coca-Cola as the nation’s No. 1 soft drink.
* 1983: Apple Computer co-founder Steven Jobs asks: “Do you want to spend the rest of your life selling sugared water or do you want a chance to change the world?” Sculley becomes chief executive of Apple, getting a $1-million signing bonus, $1 million in annual pay and options on 350,000 shares of Apple.
* 1985: Dismisses executive vice president Jobs amid lagging sales and dissension among Apple employees.
* 1986: Named chairman of Apple. Under his leadership, Apple’s annual sales explode to $7.9 billion in 1993--from $982 million in 1983.
* Oct. 15, 1993: Resigns from Apple.
* Oct. 18, 1993: Appointed chairman and chief executive of Spectrum Information Technologies, a small Manhasset, N.Y.-based company that holds key patents for wireless transmission of data between computers.
* Feb. 7, 1994: Resigns unexpectedly; files suit against Spectrum President Peter Caserta, seeking more than $10 million in damages, alleging he was misled when he was hired at Spectrum by not being told of SEC inquiries and “aggressive revenue recognition accounting” for license fees.
Sources: Times reports; Dataquest; Current Biography Yearbook; Bloomberg Business News
Researched by ADAM S. BAUMAN / Los Angeles Times