Symbol Technologies Thursday agreed to pay approximately $138 million in penalties to settle charges of accounting fraud with the Securities and Exchange Commission, the U.S. Attorney's Office and shareholders.
The SEC, meanwhile, charged 11 former executives from the Holtsville, N.Y., mobile products vendor with federal securities fraud.
Symbol said it has resolved the SEC charges, the related investigation by the U.S. Attorney's Office for the Eastern District of New York and private shareholder class-action suits.
Both the SEC's and U.S. Attorney's agreements call for Symbol to pay a $37 million penalty, payable to a restitution fund for Symbol investors, and $3 million to the U.S. Postal Inspection Service Consumer Fraud Fund.
Also, as part of its settlement of private shareholder litigation, brought separately against the company and subject to court approval, Symbol said it would pay $98 million, composed of $1.75 million in cash and $96.25 million in stock.
Symbol also said it has reached an agreement with Jerome Swartz, Symbol's co-founder and former chairman, that, among other things, calls for him to pay $4 million in cash to investors to settle other class-action suits. The settlement with Swartz is in addition to his agreement in July 2003 to relinquish about two years of salary, bonus and stock options remaining under his prior employment agreement.
The SEC found that from at least 1998 until early 2003, Symbol and its former executives engaged in numerous fraudulent accounting practices, including channel stuffing and other financial misconduct that led to cumulative net revenue of more than $230 million and more than $530 million on its pretax earnings.
Bill Nuti, Symbol president and CEO, said in a statement he believes the company has succeeded in putting the vast majority of its problems behind it.
Among the executives charged, the SEC Thursday named Tomo Razmilovic, Symbol's former president and CEO, along with former senior Symbol managers Kenneth Jaeggi, Brian Burke, Michael DeGennaro and Frank Borghese as allegedly directing the fraud. The SEC also named former Symbol executives Christopher DeSantis, James Heuschneider, Gregory Mortenson, James Dean and Robert Donlon as having allegedly playing a role.
The SEC also charged that while the accounting fraud was occurring, Leonard Goldner, Symbol's former general counsel, allegedly manipulated stock option exercise dates to enable certain senior executives, including himself, to profit unfairly at the company's expense. Rather than use the actual exercise date as defined by the options plans, Goldner allegedly instituted, without board approval or public disclosure, a practice of using a more advantageous date chosen from a 30-day period so as to reduce the cost of the exercise to the executive, according to the SEC.
In addition, according to the SEC's decision, after the committee began its investigation, Jaeggi allegedly directed subordinates to discard copies of so-called "Tango sheets," and DeGennaro allegedly rigged the revenue recognition data provided to forensic accountants involved in the first internal inquiry, instructed subordinates to withhold or delay providing information to investigators and directed employees "to sanitize" key portions of schedules that they intended to provide to investigators.
While these former executives were allegedly engaged in their efforts to derail the investigations and cover up the fraud, said the SEC, Symbol filed multiple periodic reports containing financial results that it has since restated, including its Form 10-K for 2001 and a form 10-Q that Jaeggi allegedly falsely certified.
These charges follow last year's guilty pleas from former chief accounting officer Robert Korkuc and former sales finance executive Robert Asti, who admitted to scheming to inflate Symbol's earnings. In late December 2003, former CEO Richard Bravman, who took over for the embattled Razmilovic, stepped down after it was discovered he took part in a transaction initiated by other insiders that led to the premature recognition of about $860,000 in revenue.
Symbol has over the 18 months or so restructured its executive leadership, fired employees and instituted corrective financial reporting and launched a new channel program as a way to help remedy issues related to the scandal.
Symbol settled the SEC complaint without admitting or denying guilt, according to the SEC. As part of the agreement with the U.S. Attorney's Office, Symbol is acknowledging responsibility for previous misconduct by certain employees and will cooperate in the investigation, according to a Symbol statement. Charges against the 11 employees are still pending.
Trading on Symbol stock was halted periodically on Thursday, but later closed the day at $15.43, up from Wednesday's close of $14.71.