SEC Plans Fraud Suit Against Aura
The Securities and Exchange Commission plans to bring a civil fraud case against Aura Systems Inc. and three top officers, the El Segundo-based company said in a regulatory filing Monday.
Additionally, Aura’s senior management team will resign in February, taking stock options and one-year consulting contracts in lieu of severance payments, the company said in the SEC filing.
The planned SEC lawsuit follows a multiyear probe into the accounting practices of Aura, which has ventured into businesses as diverse as video game equipment, loudspeakers and fax modems without making money.
Aura was founded in 1987 by Zvi “Harry” Kurtzman, a former Hughes Aircraft scientist who said he was going to apply defense technology to a broad array of civilian products. In fact, Aura made little or no money and was the subject of lengthy reviews by the SEC. Kurtzman, Aura’s chairman and chief executive, is among those leaving.
The company has lost about $200 million over the last five years. It sales have plunged from a high of $137 million in 1998 to $2.3 million for its fiscal year ended Feb. 28.
“This separation process will provide the company with the opportunity to make an orderly transition to a new management team,” Aura said in its SEC filing. A special committee of the board of directors will search for new managers.
In addition to Kurtzman, the officers who agreed to leave include Gerald Papazian, the firm’s president, and Arthur Schwartz, an executive vice president.
Also resigning, the company said, is Cipora Kurtzman-Lavut, a senior vice president and sister of Kurtzman. Neal Kaufman, another senior vice president, and Steven Veen, the chief financial officer, also will resign, the company said.
Aura’s offices were closed Monday, and none of the officers could be reached for comment. An SEC spokesman declined to talk about the case.
However, Aura said in its filing that Kurtzman, Veen and Papazian are accused of “violations of the anti-fraud and books and records provisions of the securities laws.”
The executives “have agreed to propose to settle with the SEC without admitting or denying” any allegations “to avoid potential lengthy and costly litigation,” Aura said. The allegations grew out of an investigation into the company’s financial statements for the fiscal years 1996 through 1999.
Aura said that the SEC would seek to bar the three executives from serving as officers and directors of other public companies and that it wanted to prohibit Veen from practicing accounting before the SEC.
Under the separation agreements, the departing officers gave up rights to multiyear cash severance benefits in exchange for a one-time grant of stock options exercisable at a price of 55 cents a share that vest over 18 months from their termination. Aura shares rose a half cent Monday to close at 44 cents in over-the-counter trading.
Additionally, each of the officers will be paid as consultants to Aura for one year at 85% of their current compensation. Aura paid Kurtzman $385,000 in its fiscal year ended Feb. 28.
Aura said it has talked about a settlement of SEC charges against the company but that “no agreements have yet been reached.”
“Although Aura believes that it will reach a settlement in a manner that will not have a material adverse effect on the company’s business, it cannot predict with certainty when or if such a settlement will occur or what the actual effects of such a settlement would be,” Aura said.
