Former Turnaround Expert Goes on Trial for Fraud : Technology: Q.T. Wiles of Sherman Oaks is accused of profiting from false financial statements at disk-drive maker MiniScribe, the last firm he was hired to save.

The trial of Sherman Oaks resident Quentin Thomas (Q.T.) Wiles, once renowned in high-technology circles for saving troubled companies, began Monday with opening arguments before Chief Judge Richard P. Matsch in U.S. District Court in Denver.

Wiles, 74, faces three criminal counts of fraud related to the last company he was hired to save, Longmont, Colo.-based MiniScribe Corp., which filed for bankruptcy five years ago.

Prosecutors allege that Wiles took part in a scheme to defraud investors by issuing false financial statements, then profited from stock sales. It also alleges that he illegally obtained a bank loan under fraudulent pretenses. Each of the three counts carries a maximum sentence of five years in prison and a $250,000 fine.

Wiles’ career at MiniScribe, a computer disk-drive maker, began in 1985. The company was posting losses, and Wiles, who worked for the San Francisco venture-capital and investment-banking firm Hambrecht & Quist, had a reputation as a trouble-shooter of rare talent. He was sent to MiniScribe to clean things up, and as chairman of the company he was initially credited with helping to bring about a sales increase from $115 million in 1985 to $603 million in 1988.

In the same period, MiniScribe went from a loss of $16.8 million to reported earnings of $25.8 million, and the company’s stock became a Wall Street favorite, quintupling in the first two years of Wiles’ management.

But in 1988, intense price competition in the computer-equipment market resulted in a loss at MiniScribe in the fourth quarter. Wiles resigned shortly after.

New management then reported to the Securities and Exchange Commission that it had uncovered inaccurate reports about earnings at MiniScribe.

At one point, concealment efforts included shipping bricks packaged as disk drives to boost inventory numbers, according to the indictment, which was filed in Colorado in March, 1993.

But Wiles’ attorney, H. Alan Dill, of the Denver law firm Dill, Dill, Carr & Stonbraker, said that Wiles did not know about the misdeeds being committed by his underlings at MiniScribe.

Dill said that Wiles lived in California and visited the Colorado firm only twice during his four-year tenure as its chairman and chief executive officer. Wiles’ reliance on subordinates resulted in his being duped, Dill said.

Dill said former MiniScribe employees have been given immunity from federal prosecution. Prosecutors declined to comment on the case. Wiles “was as much a victim of it as anyone else was,” added lawyer Cary Lerman of the Los Angeles firm Munger, Tolles & Olson, a member of the defense team.

Wiles is the second person to face criminal charges in the case. Patrick J. Schleibaum, MiniScribe’s former chief financial officer, was found guilty of two felony counts of filing a false statement with the SEC and insider trading before a federal jury in Denver last month. Schleibaum awaits sentencing.

A lawsuit filed in federal court in Denver resulted in a 1992 settlement in which the defendants agreed to pay a total of $128 million. Another lawsuit was also settled after a jury in Texas found MiniScribe’s former management liable for more than $250 million in damages in a case brought by the company’s bondholders. Other civil suits that resulted from MiniScribe’s collapse are pending.

The defense in Wiles’ criminal case pivots on a meeting prosecutors allege took place in October, 1987, in which an executive showed Wiles a memo that said the company’s inventory had a shortfall of millions of dollars. Prosecutors allege that Wiles ordered the memo destroyed.

Wiles’ attorneys deny this. They say Wiles couldn’t believe the shortfall existed, and told his subordinates to go back and take another count. Later, he assumed the matter had been resolved, said Dill.

“We think the case comes down to that meeting,” said Lerman.

Wiles could not be reached for comment. His attorneys said he is no longer working and has temporarily moved out of his Sherman Oaks home, which was damaged in the Northridge earthquake and is being repaired.

Dill takes pains to point out that during Wiles’ long career, he was the antithesis of the infamous corporate raiders of the 1980s. They bought and dismembered healthy companies, but Wiles restored sick companies to health, Dill said. For MiniScribe, it made little difference. MiniScribe has since been liquidated, and its assets were bought by Maxtor Corp.