U.S. Securities and Exchange Commission
Litigation Release No. 18357 / September 22, 2003
Accounting and Auditing Enforcement Release No. 1867 / September 22, 2003
Former Chief Executive Officer of Craig Consumer Electronics Found Guilty of Fraud After Criminal Trial
U.S. v. Richard I. Berger and Bonnie K. Metz, CR 00-994 (A)-RMT
The United States Attorney for the Central District of California announced that on September 4, 2003, after a two-month jury trial in federal district court in Los Angeles, Richard I. Berger, the former president, chief executive officer, and chairman of the board of directors of Craig Consumer Electronics, Inc., was found guilty of twelve felony counts, including conspiracy, bank fraud, falsifying corporate books and records, and making false statements in filings with the Securities and Exchange Commission. Craig sold consumer electronics to retailers such as Best Buy and Circuit City, and was based in Cerritos, California.
A federal grand jury indictment alleged that in 1996 and 1997, Berger fraudulently enabled Craig to borrow significantly more from its line of credit than was allowed under the terms of its credit agreement with a consortium of four banks. The indictment further alleged that Berger fraudulently overstated Craig's inventory and accounts receivable. Craig's reported inventory and accounts receivable established the amount of Craig's borrowing availability from the bank. By fraudulently transferring defective inventory to a refurbished inventory category, and by overstating Craig's accounts receivable through the creation of bogus shipments and by shipping product early, Berger defrauded the bank into loaning Craig more than allowable under Craig's borrowing agreement. The bank consortium ultimately lost approximately $8 million and many investors lost their entire investment in the company.
The jury deadlocked on other counts against Berger and on counts against Bonnie K. Metz, Berger's co-defendant and Craig's former vice president of international sales. Donna Richardson, Craig's former chief financial officer, earlier pled guilty to three criminal counts of bank fraud. Sentencing for both Berger and Richardson is pending.
Previously, on September 27, 2000, the Commission filed a civil complaint against Berger and Richardson in federal district court in Los Angeles for misleading investors through false disclosure and financial reporting in filings with the Commission. Simultaneous with the filing of the complaint, Berger consented to the issuance of a permanent injunction, without admitting or denying the allegations contained in the Commission's complaint, agreed to pay a civil penalty, and be barred from serving as an officer or director of a public company for five years. See Litigation Release No. 16731 (Sept. 27, 2000). In August 2001, Richardson consented to a permanent injunction, without admitting or denying the allegations contained in the Commission's complaint. See Litigation Release No. 17100 (Aug. 13, 2001). The Commission's actions against Berger and Richardson involved primarily the same conduct as charged in the criminal case.
In an administrative proceeding, Metz, agreed, without admitting or denying the Commission's findings, to cease and desist from knowingly circumventing internal controls and falsifying books and records. See Administrative Proceeding No. 3-10316 (Sept. 27, 2000). In another administrative proceeding, on December 13, 2000, the Honorable Brenda P. Murray, chief administrative law judge, revoked the registration of the common stock of Craig Consumer Electronics, Inc., pursuant to Section 12(g) of the Exchange Act. See Exchange Act Release No. 43715 (December 13, 2000).