Capping a four-year investigation, the Securities and Exchange Commission today filed suit against four former top officers of Media Vision Technologies, accusing them of fraud and insider trading.
Over a four-month period in early 1994, Media Vision's stock plummeted from 46.5 to less than 5 after irregularities in the company's financial books came to light. The Fremont, California-based company subsequently filed for bankruptcy in December of 1994, and was reorganized and renamed Aureal Semiconductor. None of the charges filed today pertain to Aureal or any of its officers.
The four Media Vision executives named in the suit include Paul C. Jain, the company's president, director, and chief executive; Steven J. Allan, chief financial officer and a vice president; Robert S. Williams, controller; and Wayne Nakamura, director of manufacturing.
The suit, filed in U.S. District Court in San Francisco, alleges that the four "violated the federal securities laws by causing Media Vision...to fraudulently overstate its financial results for its second fiscal quarter...the third fiscal quarter...and for the fiscal year ended December 31, 1993...." It also accused Jain, Allan, and Nakamura of pocketing more than $2.33 million by selling Media Vision stock while in possession of insider information.
The suit seeks damages and a permanent injunction forbidding Jain and Allan from holding an executive position at any publicly traded company in the future. While serious, the action may not be the only worry for the defendants--particularly Jain and Allan. The U.S. Attorney's office is conducting a separate criminal investigation that is pending.
The SEC and the U.S. Attorney's office already have settled with two other Media Vision executives. In June of 1997, Michael Humphress, a sales director, pled guilty to falsifying sales numbers to inflate Media Vision's value, and in January of this year Russell Faust, Media Vision's chief operating officer, pled guilty to similar charges. Both agreed to pay fines, to never again work as an officer of a public company, and to assist investigators in their probe.
In April, Williams, the Media Vision controller, pled guilty to one criminal count of lying to both the Federal Bureau of Investigation and the SEC.
Darryl Rains, an attorney for Allan, contended that his client was innocent of the charges filed against him.
"We're sorry that the SEC feels they need to bring this case," said Rains, an attorney at Morrison & Foerster. "Steve is not the person who caused the problems at Media Vision."
An attorney for Nakamura declined to comment, and attorneys for the other two defendants did not return phone calls.
The suit alleges that, during the second half of 1993, Jain and Allan "directed subordinates to falsify documents in order to artificially inflate Media Vision revenue and understate Media Vision expenses in an extensive scheme to defraud Media Vision investors." By the end of that year, "all four helped hide the fraud from Media Vision's outside auditors by lying to the auditors and creating false accounting entries on company documents."
The overstatements resulted from improperly recognizing revenue generated from products distributed to customers who had the right to return the products, the suit alleged.