Criminal
Aug. 17, 2002
Guilty Verdict in Media Vision Fraud Case
SAN FRANCISCO - A federal jury Thursday convicted Steven Allan, a former top executive at Media Vision Technologies Inc., on five counts of fraud and lying to auditors in one of Silicon Valley's largest financial fraud cases.
The conviction ends a long-running corporate prosecution that in 1998 produced five indictments of top Media Vision executives. The other executives pleaded guilty and testified against Allan. All five are expected to be sentenced in December, according to Assistant U.S. Attorney John Hemann.
Jurors deliberated for 21/2 days after a monthlong trial in Oakland before returning a mixed verdict against Allan, 52, of Los Gatos.
Allan, the former chief financial officer, was convicted of three counts of wire fraud and two counts of lying to accountants and auditors. Jurors acquitted Allan of two counts of mail fraud and deadlocked on charges of insider trading and making false statements to the Securities and Exchange Commission.
"This was a classic cooking the books case with a cadre of top executives shaping the numbers," Assistant U.S. Attorney Miles Ehrlich said. "These cases are notoriously difficult to prove."
In 1994, the company reported revenue of $241 million and profits of $20 million. After the fraud was uncovered, Media Vision was forced to restate its 1993 earnings, reporting its actual revenue was $150 million, with net losses of more than $99 million, according to the U.S. attorney's office.
During his opening statement last month, Ehrlich said Allan and other executives took the company public and quickly raised $200 million from investors. They kept raising public expectations about the company's performance in the early 1990s.
To keep the fiction alive they began the shifting the reporting of expenses from one quarter to another and engaged in "earnings management" to make the company appear more profitable, according to Hemann.
The executives hid millions of dollars in expenses "so they could report higher profits today and take care of the losses later when no one was looking," Ehrlich told jurors when the trial opened.
Referring to national allegations of corporate misconduct against a host of former high-flying companies, Hemann said, "that is what all these companies are accused of doing."
Allan's attorney, Arthur Lemann III, of New Orleans, had argued his client was being made a scapegoat by the other executives, who were seeking to avoid long prison terms.
Ehrlich, however, pointed out that Allan was a certified public accountant and was once an auditor.
Former Chief Executive Officer Paul Jain pleaded guilty to two counts of fraud and faces eight years in prison when he is sentenced, according to Ehrlich. Also pleading guilty were Russell Faust, chief operating officer; Michael Humphress, vice president for sales; and Robert Williams, corporate controller and Allan's second-in-command.
The fraud was uncovered in a series of 1994 newspaper articles by the San Francisco Chronicle, which led to an SEC investigation and eventually to the 1998 indictments. Media Vision earnings were restated, eliminating at least $6 million in inventory and profit during 1994, according to Ehrlich. After the news broke, the stock plummeted from its high of $46 a share to $2 a share. Three months later the company filed for bankruptcy.
A shareholder class action was filed in 1994 and led by Lieff Cabraser Heimann & Bernstein, eventually resulting in a $28 million settlement with Media Vision accountants Coopers & Lybrand and Ernst & Young and with the company underwriters, NationsBanc Montgomery Securities and Cowen & Co.
Pamela Mac Lean
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