Aura Systems, Chief May Face SEC Fraud Charges
Aura Systems Inc., a controversial, money-losing Southland-based technology firm that has been a prolific stock issuer, has disclosed that the staff of the Securities and Exchange Commission is recommending that civil securities fraud charges be brought against the company.
The charges, which also would be leveled against Aura President Zvi Kurtzman and an unnamed former officer, were disclosed in Aura’s annual 10-K financial report for fiscal 1996, which the El Segundo company filed with the SEC late Tuesday.
The news sent Aura stock plummeting 52 cents to $3.48 a share on Nasdaq on Wednesday, in heavy trading of 7.9 million shares.
Aura, which for most of the 1990s has billed itself as a former defense contractor making the transition to commercial businesses, says it is involved in the development of products that use electromagnetic force to, among other things, more efficiently create movement in mechanical devices and project sound in loudspeakers.
However, the company has failed to turn an annual profit since at least 1992, although it has claimed dramatic sales growth. Total sales were reported to be $82.3 million for the year ended Feb. 29, up from $11.1 million in fiscal 1992. But Aura said it lost $26 million last year, including one-time charges, adding to total losses of $27.7 million over the previous four years.
To finance itself, Aura has issued a huge number of shares in recent years, including via overseas offerings.
The company’s total shares outstanding have ballooned to 62.9 million as of May 30, up from 27 million in 1993. The stock once sold as high as $12.25.
The SEC has been investigating Aura since 1992. In the 10-K filing, Aura said SEC staff intends to allege:
* Violations of anti-fraud provisions of securities laws, and violations of provisions regarding reporting, books and records, related to Aura’s 1993 reporting of its business arrangement with John Jory Corp., a construction firm. Aura recorded revenue in a deal with Jory, but subsequently revised its financial statements to exclude most of the Jory revenue from reported results.
* Violations of reporting, books and records provisions related to Aura’s business with Micro Computer Distribution Power, a once-significant Aura customer.
MCDP has purchased large numbers of computer monitors from Aura, swelling Aura’s sales in fiscal 1993 and ’94. But the monitors were simply being resold by Aura, which had purchased them overseas.
Aura concedes that the transactions “generated little or no profit” even though they sharply boosted reported sales.
Aura said in the 10-K filing that the SEC staff claims that “in addition to disclosing that MCDP was a significant customer of Aura’s, Aura should have disclosed more details about the nature of the transactions.”
Aura contends that the sales to MCDP were “part of a long-range strategy to develop relationships with manufacturers, suppliers and distributors for a series of computer-related applications that Aura has since introduced into the market.”
The SEC staff recommendation of enforcement action against Aura must be approved by SEC commissioners. “It’s in their hands now,” said Anthony T. Cascio, the firm’s general counsel.
Aura maintains that the SEC staff “is not claiming that [President] Kurtzman or anyone else personally benefited in any way from these events, nor is the staff alleging that these events had any material impact on Aura’s financial results.
“Accordingly, it is anticipated by Aura and its outside counsel that resolution of this matter will not require Aura to restate” previous financial results, the company said. “Neither is it anticipated . . . that the staff will seek any monetary penalties from Aura, Mr. Kurtzman or the former officer.”
An SEC spokesman said that as a matter of policy, the SEC doesn’t comment on its investigations.
