Pinnacle Micro Settles Allegations of Overstated Sales
Ailing Pinnacle Micro Inc. and three of its former executives on Monday settled regulators’ allegations that they overstated their sales to meet financial goals.
The Securities and Exchange Commission had accused the optical disk drive manufacturer of reporting inaccurate revenue in September 1993, December 1993 and September 1995.
James G. Hanley, former vice president of operations, agreed to pay a $25,000 civil fine. Hanley, the company and the other two executives agreed to stronger penalties if they violate similar regulations in the future. Under the SEC settlement, the company and former executives neither admitted nor denied the allegations.
The suit, filed in federal court in Washington, also named Scott A. Blum, co-founder of the company and a former executive vice president, and Lilia Craig, former vice president of finance.
“My clients settled to avoid possibly lengthy and expensive litigation with the SEC,” said attorney Robert Gooding, who represents Blum and Hanley.
Craig could not be reached for comment. Pinnacle Micro officials declined to discuss the matter, which SEC officials began investigating in 1994.
The SEC said Pinnacle used sales from one quarter to bolster the previous quarter’s numbers, so it could meet its year-end sales goals.
The shipping department, under Hanley’s supervision, allegedly predated packing lists, shipping records and invoices to conceal the dates of the shipments.
These fluctuations caused Pinnacle to manipulate its annual report on April 18, 1995, the SEC alleged. Regulators said the Irvine company dropped its fourth-quarter net income from $652,000 to a loss of $804,000 and lowered net income from $2.6 million to $1.6 million for the year ended Dec. 31, 1993.
In another development, the company said Monday that Kenneth C. Campbell resigned as president last week. Pinnacle’s chairman and chief executive, William F. Blum, was named president as well.
Analysts said Pinnacle Micro’s problems date to 1995, when it changed its focus from reselling data storage devices to manufacturing them. In August, the company fired 25% of its staff, citing weak sales and a corporate need to cut back its operating expenses.
Officials said last month that they are planning another round of layoffs and expect third-quarter revenue to be “significantly” down from the second quarter.
The company has not posted a profit since the third quarter of 1995. It lost $5 million in its second quarter, which ended June 28, compared with a $3.8-million loss in last year’s second quarter. Revenue fell 31% to $11.3 million.
