Tech Millions Were Smoke, SEC Says

SAN JOSE (CN) - Top executives of now-bankrupt OCZ Technology Group defrauded investors of $200 million and lied about it to accountants, the SEC claims in court.

The SEC sued OCZ's founder and former CEO Ryan Petersen and its former CFO Arthur F. Knapp Jr. in separate securities fraud lawsuits in Federal Court.

Petersen founded the computer-drive company in 2002 and was CEO "until he was forced to resign in September 2012," the SEC says in its Oct. 6 complaint.

He ordered the company to disguise sales discounts as marketing expenses, to oversupply customers with more inventory than they could sell, and hid the cost of product returns from financial statements, according to the SEC.

He also concealed large product returns, including one for nearly $3.5 million in 2012, from the company's own accountants and auditors, according to the complaint.

These deceptions helped the company rake in $200 million from investors between 2010 and 2012, the SEC says.

"The picture that Petersen portrayed of OCZ's operations and financial condition to investors was a far cry from its true operational and financial condition," the 25-page complaint states.

Knapp, who was CFO and vice president of finance from 2005 to 2013, juggled the books with accounting tricks, the SEC says in the separate complaint against him. As the company's de facto chief accountant, he disguised the costs of goods sold as research and development expenses, misclassified labor and overhead costs, recorded profits when goods were shipped and not paid for, and understated the costs of product returns, the SEC says.

The false accounting caused the company to overstate revenue by $100 million from 2011 to 2013, according to the complaint. Knapp left the company in March 2013.

Petersen, 40, who lives in Panama now , faces nine securities-related charges, including fraud, falsifying books, lying to accountants, lack of internal controls and failure to reimburse stockholders.

Knapp, 66, of San Jose , faces seven charges, including fraud, failure to implement controls, falsifying books and other claims.

The SEC seeks permanent injunctions, disgorgement, civil penalties and wants both men barred from acting as officers or directors of any securities-backed entity.

OCZ declared bankruptcy in December 2013, and its assets were acquired by Toshiba in January 2014.

Subscribe to Closing Arguments

Sign up for new weekly newsletter Closing Arguments to get the latest about ongoing trials, major litigation and hot cases and rulings in courthouses around the U.S. and the world.

Email *

Submit