Federal securities regulators have started investigating the affairs of Home Theater Products International Inc., and will visit the Anaheim company's former auditor today to go over allegations of overstated revenue and profits.
The former independent auditor, Jaak (Jack) Olesk of Beverly Hills, said that a staff attorney with the Securities and Exchange Commission's enforcement division questioned him briefly Tuesday and scheduled a meeting for today.
"The lawyer said that this is in a preliminary stage and that they'll go from here," Olesk said.
A spokeswoman for the agency, which enforces financial disclosure rules involving publicly held companies, would not acknowledge the existence of an investigation. But the commission routinely looks into reports of alleged fraud, especially those coming from outside auditors.
Executives at the beleaguered company could not be reached for comment Tuesday.
On Monday, they asked the National Assn. of Securities Dealers to halt trading in Home Theater's stock on the Nasdaq market. The association said it suspended trades until the company can show that its financial statements are accurate.
Olesk, who said he has talked at length with NASD officials, said the SEC wants to know how he uncovered what he said were phony sales documents. Those documents propped up the claim by the consumer electronics company that it earned $4 million on revenue of $41 million during its 1995 fiscal year, which ended June 30.
Without those documents, the accountant has asserted, HTP International, as the company also is known, lost $5 million on revenue of $32 million.
Olesk resigned Sept. 6 after discovering the irregularities and getting what he termed a "nonchalant" response from the company. He subsequently withdrew his audit opinions for the previous three fiscal years.
In quitting, he cited significant weaknesses in HTP's internal controls and concerns about management's integrity. HTP said it disagreed that control weaknesses were significant and "strongly disagrees that there is any legitimate basis for Olesk to question management integrity."
After the company's strong denial last week, Olesk detailed publicly what he found and how he found it, calling it a "fraud" that was "really pretty clever."
HTP packages video and audio electronics into cabinets and sells them mainly to retailers and companies that rent home theater products to consumers. More than half the sales are made on products that bear the Paramount Pictures brand, which HTP licenses from the studio.
A studio spokeswoman said the amount of business it does with HTP is "negligible" to the studio and that Paramount couldn't comment about HTP's problems because it doesn't have any information about the allegations.