Credit where credit’s not due

Craig Consumer Electronics, no longer extant, sold consumer electronics products from Los Angeles County. The SEC has sued Richard Berger, the former CEO, and Donna Richardson, the former chief financial officer, for not disclosing the company’s weak finances in periodic reports and in its initial public offering registration document. In its claim the SEC alleges that the parties overstated the debtors figure that was used to secure a credit line from a bank. Each day Berger and Richardson are said to have held up processing of sales returns, against which Craig was not allowed to borrow. It is also claimed that they inflated the firm’s inventory which provided security for the line of credit by including ineligible faulty stock. The complaint also states that Berger led Craig to artificially overstate sales and income for the first three months of 1993 by inappropriately including US$1.3 million revenue from faulty merchandise. The offences are the same as those identified in the Sirena case above. Berger has agreed to a permanent injunction without admitting or denying the charges, he has been fined US$25,000 and will not serve as an officer or director for five years. In an associated action, Bonnie Metz, Craig’s managing director of its Hong Kong office, has agreed to a cease and desist order for knowingly evading internal controls and falsifying books and records. A federal grand jury in Los Angeles has indicted all three individuals for conspiracy, loan fraud, falsifying company books and records, lying to the auditors of a publicly-traded company, and making false statements in SEC filings.