SEC Says Ex-Logitech Execs Hid Poor Sales

     SAN FRANCISCO (CN) – The Securities and Exchange Commission sued two former executives for computer equipment maker Logitech on Monday, claiming they lied to auditors and overstated the company’s income to conceal poor sales of a video-streaming device.
     According to the complaint, Logitech’s troubles began when it launched a product called “Revue,” an Internet-connected video-streaming device that sits on top of and hooks up to a TV.
     “From the outset, Revue sales were significantly below internal forecasts,” the SEC says in its complaint. “The company’s projections in October 2010 were for sales of more than 350,000 units in the third and fourth quarters. In fact, the company sold approximately 165,000 units by the end of the fourth quarter, falling short of its own projections by more than 50 percent.”
     Because of its high inventory and weak sales, Logitech agreed in December 2010 to stop making Revue, although its contract manufacturer in Asia had already purchased about $11 million in component parts.
     The SEC says former chief financial officer Erik Bardman and former acting controller Jennifer Wolf should have known that sales had fallen well below expectations, that Revue parts were excess and that Logitech had developed a plan to dispose of the Revue parts inventory.
     It also says Bardman and Wolf knew Logitech was required to write down the value of the Revue inventory, and that an independent auditing team met with them in April 2011.
     According to the complaint, in an email to Bardman “Wolf stated that the company would save several million dollars by not writing down the component parts. Wolf had no reasonable basis for assuming that the component parts would be built into finished goods. In fact, the most expensive of the components, chips manufactured by Intel, could not feasibly be used in other products, as they were specifically programmed for Revue.”
     The SEC says Bardman replied: “Yes, we need to understand with precision what we are looking at and what decisions we need to make or clarify. We are still committed to making the right decisions and staying within our lowered range for Q4 — we need to achieve them both.”
     On April 18, 2011, Wolf sent a spreadsheet analysis to the auditors of the Revue excess component parts but did not include the $10 million Logitech lost on the parts, the SEC says.
     In meetings with the auditing team that week, Bardman and Wolf allegedly confirmed the false assumptions in the analysis and told the auditors that Logitech planned to manufacture at least 79,000 Revue units using the excess component parts when it actually had no plans to do so, according to the SEC.
     It adds that in May 2011, Bardman signed Logitech’s annual financial statement to the SEC, reporting an operating income of $142.7 million. This overstated Logitech’s actual income by $30.7 million, or 27 percent, according to the SEC’s complaint.
     The SEC seeks civil penalties against Bardman and Wolf for violating the Securities and Exchange Acts and Sarbanes-Oxley Act, lying to auditors and falsifying accounts.
     Wolf’s attorney William Kimball said in an interview Tuesday that “Ms. Wolf did absolutely nothing wrong. She did everything and more required by professional accounting standards and she acted reasonably and in good faith at all times. We look forward to defending this in court.”
     He added, “We strongly disagree with the SEC’s position on proper accounting in this matter and we’re very disappointed the SEC chose to bring this case against Ms. Wolf.”
     SEC attorney Paul Kisslinger could not immediately be reached by phone for comment Tuesday.
     In a statement Tuesday, the SEC announced that Logitech also agreed to pay a $7.5 million civil penalty for inflating its 2011 fiscal results and committing other accounting violations over a five-year period. Former CEO Gerald Quindlen was not accused of any wrongdoing, but he returned $194,487 in incentive-based compensation and stock sale profits he received during those five years.

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