ClearOne denies SEC allegations

0 Comments | Deseret News (Salt Lake City), Feb 8, 2003 | by Jenifer K. NiiDeseret News business writer

ClearOne Communications Inc. on Friday denied all allegations by the U.S. Securities and Exchange Commission, including claims that the company misled its auditors and investors about its performance.

In a 12-page response filed in U.S. District Court for Utah Friday evening, ClearOne categorically denied it violated any SEC regulations and that "any harm claimed was not actually and proximately caused by any acts or acts of defendants, but was instead caused by the acts of third parties."

The SEC in January filed a complaint in federal court, claiming ClearOne overstated its income, revenues and accounts receivable; misled outside accountants; made illegal deals with distributors; and hid merchandise from the spring of 2001 through late summer 2002.

The company's chief executive officer, Frances M. Flood and chief financial officer, Susie Strohm, were named individually in the complaint. Both have since been placed on temporary administrative leave pending resolution of the matter.

Formerly known as Gentner Communications, ClearOne specializes in audio and video teleconferencing products and services.

Friday evening, interim co-CEO Mike Keough declined to discuss the case specifically but said the company plans to vigorously defend itself. In the meantime, ClearOne has received strong support from its clients and partners and will proceed with business as usual, Keough said.

"This company is essentially three businesses in terms of product, conferencing services and business services," he said. "The complaint only touched upon a portion of the product end.

"We are expanding our distribution channels as we speak. We are refocusing our field salespeople and spending a lot of time communicating with our customers. We're being very proactive as far as reaching out and touching base with everyone involved with this company."

In its response to the SEC complaint, ClearOne criticized the commission for its investigation, which it characterized as hasty.

"In this case, (it) lasted a mere three weeks," the document stated, "including the Christmas and New Year's holiday."

The company also argued the commission didn't give the company a meaningful opportunity to respond before it filed its official complaint and that it failed "even to follow its own internal investigation procedures, which are designed, among other things, to protect the investing public and to satisfy minimum requirements of due process."

ClearOne and the SEC will meet next in federal court, at a preliminary injunction hearing scheduled for early March. Ken Israel, SEC district administrator, declined Friday to discuss the case, except to say that it is proceeding on pace for the hearing.

The company also faces at least three civil lawsuits and a criminal investigation by the U.S. Attorney's Office. Trading on the company's stock has been halted until Nasdaq gives its go-ahead to resume.

E-mail: jnii@desnews.com