Signal Tech execs from Saratoga are named in SEC fraud case
Locals who led the company in '90s named in civil suit
Claim is inflated earnings
By Oakley Brooks
Two Saratoga executives who led defense contractor Signal Technology Corp. in the mid-1990s have been named as defendants in a civil suit filed recently in San Jose by the Securities and Exchange Commission.
The suit alleges that Saratogans Dale Peterson, 66, Russell Kinsch, 52, and five others inflated Signal Tech's earnings by more than $9 million between 1996 and 1998.
Peterson served as CEO and chairman of the board of Signal Tech between 1994 and mid-1998. Kinsch was the company's chief financial officer from February 1996 to June 1997.
Signal Tech was based in Sunnyvale, but is now headquartered in Danvers, Mass.
The allegations relate to activity in Signal Tech's Keltec Division, which builds power supply units for high-tech communications systems.
The seven executives are said to have used improper accounting practices by failing to record losses, failing to write off worthless inventory and prematurely recognizing revenue, in violation of federal securities law.
After a changeover in management in mid-1998, Signal Tech restated its earnings for the period in question. The restatement showed an actual loss for the year 1997.
The SEC announced the allegations on March 27 in a press release that Peterson's lawyer describes as "trying to make colorful a case that isn't colorful."
In the release, Peterson was said to have disregarded generally accepted accounting principles, known as GAAP. The SEC quoted Peterson as saying he was "sick of people thinking GAAP was important."
Fellow defendant Richard Nabozny, the vice president of operations of Signal Tech from 1992 through June 1998 and the company's president for a brief period in 1998, was quoted as telling an accountant, "Don't give me GAAP. I'll shove GAAP right up your ... "
Peterson's lawyer, Leo Cunningham with Palo Alto-based Wilson, Sonsini, Goodrich and Rosati, says Peterson's comment was taken out of context from four days worth of testimony given the SEC. During the testimony, Cunningham says Peterson was without a lawyer.
"He didn't think he needed one because he was innocent," says Cunningham.
Cunningham says he's unaware of Peterson's current occupation.
Neither Kinsch nor his attorney, Richard Heidlage of the Boston firm Prince, Lobel, Glovsky and Tye, were available for comment last week.
Several attorneys close to the case have questioned the timing of the allegations--on the heels of the Enron scandal--after almost four years elapsed since Signal Tech's last suspected infraction.
Celia Moore, the SEC's deputy assistant district administrator in Boston, dismisses the connection between the Enron situation and the filing of the Signal Tech case.
"The SEC has always had, as part of its mission, oversight of accounting practices," Moore says. "That has always been part of the SEC's mission before Enron. And it will continue to be part of its mission after Enron."
According to the SEC, Peterson and Kinsch signed accounting forms and letters to auditors that did not take into account Keltec's losses between 1996 and 1998.
The commission is seeking millions of dollars worth of fines from the federal courts and an order permanently barring Peterson, Kinsch and three others from acting as officers or directors in any public company.
In conjunction with the case, Signal Tech agreed to cease and desist from further accounting violations, without confirming or denying the SEC's findings about the company.
The defendants will now have 45 days to respond to complaints filed against them in the San Jose court.
Saratoga, California Since 1955
