SEC Sues Former Lantronix Executive

The Securities and Exchange Commission on Wednesday sued Lantronix Inc.’s former chief financial officer, Steven V. Cotton, for allegedly inflating the company’s sales during fiscal years 2001 and 2002.

Cotton, 43, had the Irvine-based maker of network-management equipment send excessive amounts of products to distributors under arrangements that would delay returns, helping inflate sales, the SEC said in a U.S. District Court suit.

To further delay returns, Cotton arranged for Lantronix to loan money to a third party, which purchased the products from distributors, the SEC said.

The case illustrates “the harm that results when an executive violates well-established accounting rules in an effort to meet Wall Street analysts’ expectations,” Randall Lee, director of the SEC’s regional office in Los Angeles, said in a statement.

Cotton “adamantly, fervently and to his dying day denies that he did anything wrong,” attorney Michael Dempsey said.

Cotton had worked with lawyers and auditors when changing the company’s policies for revenue recognition, Dempsey said.

Lantronix agreed to an order that it not commit future violations of federal anti-fraud laws, the SEC said.

The company neither admitted nor denied wrongdoing as part of the settlement.

Cotton, a resident of Huntington Beach, left the company in May 2002, according to the SEC.