U.S. Securities and Exchange Commission Washington, D.C. Litigation Release No. 15599 / December 22, 1997 Accounting and Auditing Enforcement Release No. 997 / December 22, 1997 SECURITIES AND EXCHANGE COMMISSION v. ROBERT HOWARD AND ROBERT E. VERRANDO, U.S. District Court for the Southern District of New York (97 Civ. 9378 (SWK) (December 22, 1997) The Securities and Exchange Commission today filed a Complaint in the U.S. District Court for the Southern District of New York against Robert Howard and Robert E. Verrando, the Chairman and President, respectively, of Presstek, Inc., a Hudson, New Hampshire-based manufacturer of printing press technology and related products. Without admitting or denying the allegations in the Complaint, Howard, 74, and Verrando, 66, consented to the entry of final judgments of permanent injunction against them that also require them to pay a total of $2.9 million in civil penalties. In a related matter the Commission issued a Cease-and-Desist order against Presstek by consent. The Complaint alleges that between 1994 and 1996, Howard and Verrando caused Presstek to disseminate, through its own statements and its distribution of certain third-party statements, materially misleading information concerning its sales and business prospects. The Complaint alleges that Presstek s stock price has been extremely volatile, and that most of the false and misleading statements were made during a period in which its price increased from $45 in November 1995 to $200 a share in May 1996. They also occurred amid a public tug-of-war between investors with long and short positions in Presstek stock. Specifically, the Complaint alleges the following: In 1994 and 1995, Howard directed Presstek to distribute several thousand copies of several editions of the Cabot Market Letter ( Cabot Letter ), a financial newsletter that aggressively touted Presstek and which contained excessive earnings projections for the company. Howard knew, or was reckless in not knowing, that those earnings projections far exceeded Presstek s contemporaneous internal projections. Presstek adopted those unrealistic projections by distributing the Cabot Letters without disclaimer, and during a time when Presstek elected not to make public its own projections because management did not view them as reliable. In the Fall of 1995 and continuing thereafter, Presstek failed to disclose adverse developments in its business relationship with its primary customer, Heidelberger Druckmaschinen A.G. ( Heidelberg ). In May 1995, Heidelberg, a large German printing press manufacturer, had unveiled the Quickmaster-DI ( Quickmaster ), a new printing press that used Presstek s technology and equipment. However, in September ======END OF PAGE 1====== 1995, Heidelberg management informed Howard that mass commercial shipment of the Quickmaster would be postponed due to problems with the press s performance. By November 1995, as a result of Heidelberg s delay, Heidelberg and Presstek also agreed to reduce Presstek s shipments to Heidelberg of equipment for the Quickmaster by 25 percent for 1996. Prior to the reduction, Presstek had planned to increase its shipments in 1996 by 50 percent. Heidelberg agreed to provide Presstek with monetary concessions to help Presstek maintain capacity and offset earnings lost due to the production delay, including the payment to Presstek of $7 million in equal monthly payments through 1996. Although fully informed of this situation, Verrando drafted a press release concerning the Quickmaster that was issued by Presstek on November 7, 1995. Howard read that release shortly before or after it was issued. That press release falsely claimed Heidelberg had sold over 500 Quickmasters, when, in fact, Heidelberg had only received more than 500 orders for the press. Additionally, the press release failed to disclose the technical problems that delayed commercial production, or that such problems resulted in a reduction of Presstek s shipments of Quickmaster systems for 1996. Presstek s Form 10-K for 1995, and its Forms 10-Q for the first three quarters of 1996, also failed to disclose the adverse developments with Heidelberg. Later in November 1995, Howard reviewed and edited the draft of a research analyst's report on Presstek and had Presstek distribute the report, which in final form substantially overstated Presstek's sales and earnings expectations. For example, the report projected 1996 sales of another Presstek laser imaging product of $26 million, when Presstek internally projected only $10 million. It also projected 1996 sales of consumable printing plates of $33.2 million, contrasted with Presstek s internal projection of $8.7 million. It projected 1997 earnings of $2.42 per share, 80% more than Presstek s internal projection of $1.34 per share. Howard did not correct those errors, and Presstek distributed the erroneous report for more than six months to investors without disclaimer. Verrando was aware that projections in the analyst s report were significantly greater than Presstek s contemporaneous projections, but failed to halt its distribution. ù The price of Presstek stock increased by a material amount the first trading day after the release of the November 7 press release (15%) and the release of the research analyst s report (10%). Simultaneously with the filing of the Complaint, Howard and Verrando consented, without admitting or denying the allegations in the Complaint, to the entry of a final judgment enjoining them from future violations of Sections 10(b) and 13(a) of the Securities Exchange Act of 1934 ("Exchange Act"), and Exchange Act Rules 10b-5, 13a-1, 13a-13 and 12b-20. Howard and Verrando agreed to pay civil penalties of $2.7 million and $200,000, respectively. ======END OF PAGE 2====== In the settled cease-and-desist proceedings, the Commission found that Presstek violated the same provisions of the securities laws. Without admitting or denying the findings therein, Presstek has consented to the entry of an Order making findings and ordering Presstek to cease and desist from further violations of these provisions described in the Complaint. In the Matter of Presstek, Inc., Administrative Proceeding No. [insert]. The Commission s investigation in this matter is continuing. ======END OF PAGE 3======