Last February, at the annual shareholders meeting of Financial News Network, accountants from Deloitte & Touche publicly praised the cable channel's chief financial officer as a model executive who had built an excellent relationship with the investment community.

FNN was doing splendidly, as was its controlling shareholder, Infotechnology Inc., people who attended the meeting at Culver City, Calif., remember being told. "Infotechnology is poised to increase shareholder value significantly," the annual report promised. "We hope you will share the excitement that your company's management feels about Infotech's prospects for profitable operations."

Recalls one executive of Infotechnology and FNN, both New York-based and publicly traded companies: "Everyone went home fat, dumb and happy."

But just a few months later, the prospects for a bright future were shattered.

On a warm July evening, Infotechnology founder Earl W. Brian, a neurosurgeon turned businessman, received a telephone call from a partner at the auditing firm of Deloitte & Touche, according to company sources.

"We may have a problem," the Deloitte partner said.

The chief financial officer of FNN and Infotechnology, C. Steven Bolen, was apparently making some unusual payments to himself, the Deloitte partner said.

FNN's board of directors launched an investigation, which determined that Bolen had paid himself $795,000 in bonuses. The company describes the payments publicly as "not properly authorized," a phrasing worked out by lawyers to reflect the ambiguities of the situation, according to sources close to the company.

After all, Bolen, a trusted friend of Brian, had been given wide discretion to give himself bonuses, "but no one thought it would be so often or so much," according to one source close to the company. Bolen, who agreed to step down, has been unreachable for comment and his lawyers have not returned telephone calls.

Infotechnology officials said that the internal investigation uncovered no other improper activities at FNN or Infotechnology, which last year bought a controlling interest in Washington-based United Press International, the struggling news service, and also has a major financial stake in other businesses in the Washington area.

Still, the Bolen case brought on a devastating chain reaction that ultimately led management to put the company and its related network of holdings up for sale.

The incident also left the investment community wondering whether Bolen was an isolated player who took advantage of the company or whether the irregularities in the companies' treasuries signal widespread problems in the way Infotechnology was run.

It may take years to sort out whether Infotechnology and FNN purposely misled investors about the company's finances, as shareholders claim in several class-action lawsuits, or whether, as current managers claim, the companies were led by well-intentioned executives who made a few bad decisions.

One conclusion seems clear: Infotechnology and FNN must scramble to restore confidence in the companies and come up with credible numbers about the companies' financial health before any buyers will come forward for the properties, Infotechnology officials and analysts agree.

The company's credibility began to tarnish in late summer and early fall, in the words of one top executive, when Deloitte became "spooked" by the Bolen incident and began questioning the validity of all the information the former chief financial officer had given to the accounting firm about FNN and Infotechnology's network of other holdings in the biotechnology and information service fields -- information the accounting firm relied on to prepare annual financial statements for the companies.

Deloitte resigned as the accounting firm for Infotechnology and FNN last month. It refused to sign the companies' 1990 financial statements and disclaimed as well its former approval of Infotechnology's and FNN's 1989 financial statements.

So skeptical was Deloitte of the information that the auditing firm has said it can no longer even vouch for Infotechnology's claim that it owns 47 percent of FNN and 97 percent of UPI.

Deloitte's worries spread to bankers, who had lent Infotechnology and FNN $70 million, and to leasing companies that are owed $88 million by the two companies.

The banks demanded immediate payment of at least $30 million, sources close to the companies said, an amount Infotechnology and FNN expect to fetch by year's end from the sale of the Learning Channel, a Rosslyn-based cable network 51 percent-owned by the two companies. "Essentially the banks said they had no faith in our future," according to a source close to Infotechnology and FNN.

Meanwhile, a nationwide slowdown in television advertising left FNN $14 million shy of its mid-year revenue target, Infotechnology officials said. That shortage, coupled with the banks' demands, threatened to cripple operations by throwing FNN and Infotechnology into a severe cash crunch, they said.

Bankers at Security Pacific Corp. of Los Angeles, Toronto Dominion Bank of Canada and Midlantic Corp. of New Jersey agreed to give Infotechnology and FNN a reprieve but only if the companies put in place new management, according to company sources.

That meant Brian, a member of Ronald Reagan's cabinet when he was governor of California, had to step down as chief executive of Infotechnology and FNN, which he did last month. He retains his seat on the companies' boards, although other top executives he put in place remain at the company.

Two men replaced Brian: Alan Hirschfield and Allan Tessler.

Hirschfield, formerly chief executive of 20th Century-Fox Film and Columbia Pictures Entertainment Inc., is on leave as managing partner at Wertheim Schroder & Co., a New York investment banking firm that Infotechnology has hired to help it find a potential suitor for FNN, UPI and many of its other holdings.

Tessler, who has been friends with Brian for years, joined Infotechnology's board at Brian's request last year. He resigned from the board when he became co-chief executive last month.

But the bad news kept coming.

The profits and shareholder wealth the companies had promised nine months earlier had changed to warnings by management that Infotechnology and FNN lacked sufficient cash to meet operating expenses or payments on their bank loans or lease obligations.

To meet expenses, Infotechnology would have to be dismantled by selling off its assets, including what is considered its crown jewel, FNN, the 24-hour cable business news network that reaches 35 million households.

And, the management said, the Securities and Exchange Commission had launched a formal investigation into possible violations of securities laws and other allegations of fraud involving the companies' leasing agreements.

The stock price for Infotechnology and FNN, which hovered in the $9 range during the past year, has fallen to less than $2. Wall Street has all but given up on the companies, and shareholders, angry at the sudden loss of value in their holdings, have filed legal claims.

"There's no credibility left," said Paul Marsh, an analyst for the investment research firm Bateman Eichler, Hill Richards in Los Angeles. "There's no sense following the stock if all the numbers are suspect, given all that's happened."

Brian, 49, is a man who has kept much of the inner workings of his complex holdings away from public view. When he created Infotechnology a decade ago, he set it up as a venture capital concern. As such, it does not have to divulge profits or losses, even though it is publicly traded over the counter.

He once explained his disinterest in annual shareholder meetings by telling an interviewer, "Did you ever learn anything at a shareholders meeting? I haven't." (FNN, by contrast to Infotechnology, must hold annual meetings because it is structured like most publicly traded corporations.)

Brian surrounded himself with friends like Bolen, to whom he entrusted many key parts of the business, sources close to the companies said. Brian declined to comment for this article.

The striking feature of Brian's small empire is its labyrinth of interlocking pieces, which he has said make the sum of its parts greater than the whole, but also have served to confound analysts and shareholders.

Transactions between Infotechnology and its affiliate companies have raised questions. What is an arms-length sale between separate Infotechnology-related entities, and what is a shuffling of assets with the potential of artificially inflating the profits of certain operations? And while Brian is known as someone who goes first-class in his own life, from a Park Avenue duplex in Manhattan to the home and farm on Maryland's Eastern shore, critics said he is known for running his operation, especially, FNN, on a shoestring, and they said it's to the detriment of the quality of the programming.

Others describe him as a maverick entrepreneur with terrific ideas but management skills that are somewhat lacking.

Critics also complain that money that could have improved FNN and UPI instead went into myriad investment ventures. One is Telecommunications Industries Inc. of Tysons Corner, an information company. Another is Hadron Inc., a Fairfax-based government contractor.

The Justice Department has paid tens of thousands of dollars to a Hadron subsidiary to make a computer file and data base for documents involved in lawsuits. Brian has denied that his friendship with former Attorney General Edwin Meese influenced the Justice Department's contract with Hadron, which one competitor has contended.

When it comes to providing credible, accurate and timely information to the public about FNN and Infotechnology, executives at the two companies failed to meet acceptable standards, according to regulators, analysts and the company's former accountants.

That report card is ironic for companies that just last June unveiled a new software package they touted as a technological breakthrough for providing investors with real-time stock prices and other data essential for financial decision makers.

The product would be a hit, they said, because it "integrates credible, accurate and timely information -- the driving force in today's marketplace."

Many of Infotechnology's shareholders think the company fell far short of that goal and are fighting back through lawsuits filed in California, New York and Delaware.

Avacus Partners L.P., a Washington-based investment group, alleges that Infotechnology, Brian and others wasted company assets when they bought UPI last year. (Brian and Avacus each hold about 7 percent of Infotechnology's stock, putting them neck and neck for the title of the company's second largest shareholder. The company's largest shareholder is Merrill Lynch & Co., which owns less than 15 percent.)

The other suits allege the companies violated securities laws by giving false and misleading information to the public. Named as defendants in the suits are Infotechnology, FNN, Brian and Bolen, among others.

Co-chief executives Hirschfield and Tessler said they plan to restore a sense of calm and stability in the company soon. New financial statements will be out by Thanksgiving, they said. At that time, they also will have concluded an extensive internal investigation of allegations of fraud in the companies' leasing contracts and other alleged irregularities. Officials for the companies have said these allegations are among those being investigated by the SEC.

By early 1991, they hope to have published a revised version of the companies' 1989 annual report.

Lawyers at Milberg Weiss Bershad Specthrie & Lerach, who are representing some of the shareholders in Los Angeles who filed suit, said that they are conducting their own extensive investigation of Infotechnology and FNN based on information provided by former FNN workers who allege fraud at Infotechnology.

Hirschfield and Tessler have stated, however, that so far, their investigation has found no evidence to suggest any problems beyond some sloppy bookkeeping. Clearly the companies have been mismanaged, they said, but not intentionally. And they said there certainly has been no widespread fraud.

The shareholders' lawyers said they also believe the Infotechnology network of companies sold assets between themselves to inflate the income of the companies, maneuvers that had the effect of defrauding stockholders by concealing the true financial condition of the companies. They said they think Brian and other officials at Infotechnology and FNN will try to use Bolen as a scapegoat by saying he acted alone.

For Brian, however he's judged in the long run, one outcome is certain. To pay the bills of the empire he has tried to build for over a decade, he will have to watch as the empire is unraveled.