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SEC LITIGATION RELEASE
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EXTRACTED KEY WORDS
HYBRID REVENUE SECURITIES COMMISSION SALES STEIN INTERNET FRAUD PERIODIC REPORTING LEDBETTER EZCURRA DISTRIBUTOR INTERNAL CONTROLS DAVIES ACCOUNTING CHARGES EXECUTIVES VICE PRESIDENT ADMINISTRATIVE PROCEEDING CUSTOMERS VIOLATIONS REPRESENTING THEREUNDER AUDITORS BOOKS UNITED STATES IMPROPER SHIPMENTS NET LOSS |
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 16614 / June 29, 2000
Accounting and Auditing Enforcement Release No. 1282
SECURITIES AND EXCHANGE COMMISSION v. HYBRID NETWORKS, INC., CARL S.
LEDBETTER, GUSTAVO EZCURRA, AND CRAIG STEIN, United States District
Court for the Northern District of California, San Jose Division,
Civil Action No. C-00-20718-PVT
S.E.C. CHARGES SILICON VALLEY COMPANY AND FORMER EXECUTIVES WITH
FALSELY INFLATING REVENUE FOR 1997 IPO
The United States Securities and Exchange Commission ("Commission")
today sued Hybrid Networks, Inc. ("Hybrid" or the "Company"), a San
Jose-based manufacturer of cable and wireless Internet access systems,
for issuing false financial statements in connection with its November
1997 initial public offering and for the first quarter following the
IPO. The Commission also charged former Vice President of Sales
Gustavo Ezcurra and former Regional Sales Director Craig Stein with
fraud in connection with the issuance of the false financial
statements. In addition, the Commission charged former President and
Chief Executive Officer Carl S. Ledbetter with failing to implement
internal accounting controls reasonably sufficient to prevent the
fraud. In a related administrative proceeding, the Commission charged
Ronald G. Davies, a former executive for one of Hybrid customers, with
being a cause of the fraud.
Simultaneous with the filing of the Commission's lawsuit, Hybrid and
each of the individual defendants consented, without admitting or
denying the allegations in the complaint, to the issuance of
injunctions against future violations of the federal securities laws.
In addition, Ledbetter, Ezcurra and Stein agreed to pay civil
penalties of $50,000 each. Davies also consented, without admitting or
denying the findings in the Commission's administrative order, to
cease and desist from future violations of the federal securities
laws.
The Commission alleges that Hybrid falsely inflated its 1997 revenue
and income through a series of improper and fraudulent transactions.
Hybrid subsequently restated its financial results for the period,
reducing 1997 revenue from $14.3 million to $4.1 million (representing
a 249% overstatement of revenue) and increasing net loss from $13.6
million to $21.6 million (representing a 37% understatement of net
loss). The Company's rapidly deteriorating financial situation led to
a decline in Hybrid's stock price from a post-IPO high of $24 to
approximately $2 before NASDAQ delisted the Company in December 1998.
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