The Securities and Exchange Commission charged yesterday that a California computer company and its top officials fraudulently inflated revenues and earnings in an effort to make its stock more attractive to potential investors.
According to an SEC complaint, Computer Communications Inc. of Torrance painted its balance sheet in rosier hues by counting as income proceeds from deals before they were consummated--including some deals that ultimately fell through.
At the same time, the company concealed its real financial situation, which was deteriorating, the SEC said.
The company and six former and current executive officers consented yesterday to a court order against them without admitting or denying the allegations in the SEC complaint. Under the order filed in U.S. District Court here, defendants are enjoined from violating antifraud, reporting and record-keeping provisions of federal securities laws.
The company, which sells equipment that links one computer system to another, filed to reorganize under federal bankruptcy laws in November 1980 and is still in reorganization.
According to the SEC, Computer Communications Inc. earned more than $3.5 million from a public offering that took place in July 1978. Initially the public offering was prompted by a private investor who had a clause that allowed him to demand that the corporation publicly register its shares.
As the offering was being prepared, the company began to experience a severe shortage of cash, which it decided to remedy by selling additional shares of common stock in the offering. "In order to conceal CCI's deteriorating financial position and thereby prevent a decline in the price of CCI's stock prior to the public offering, the defendant officers engaged in a fraudulent course of business whereby they falsified CCI's fiscal 1978 financial statements," the SEC said.
Among other things, the SEC charged that the 1978 registration statement overstated revenue and income by counting as money in hand funds from a purported sale of equipment to Canadian Pacific Railway. The railroad had discussed acquiring certain equipment with the company but had not placed an order. Ultimately it bought the equipment from another firm, the SEC said.
According to the SEC complaint, officers in the firm in some cases put phony letters and memos in the files to lend support to fraudulent claims of income and revenue.