UNITED STATES SECURITIES AND EXCHANGE COMMISSION
LITIGATION RELEASE NO. 17084 \ August 1, 2001
ACCOUNTING AND AUDITING ENFORCEMENT
SECURITIES AND EXCHANGE COMMISSION v. LARRY BIGGS, JR., DONALD McLELLAN and LESLIE D. CRONE, Civil Action No. 3-01CV1474-D
FINANCIAL FRAUD ACTION INVOLVING FORMER NASDAQ COMPANY
On August 1, 2001, the Commission announced the filing of an action in the United States District Court for the Northern District of Texas (Dallas Division), seeking an injunction and civil penalties against Larry Biggs, Jr., Donald McLellan and Leslie D. Crone, all former officers of MAX Internet Communications, Inc., a former Nasdaq-listed company headquartered in Dallas.
According to the Commission, the Defendants overstated MAX's sales for the quarters ended September 30, 1999 and December 31, 1999 by 98%. These inflated sales prompted a 600% spike in MAX's stock price in only three months (from $4.44 to more than $28), and allowed MAX to jump from the OTC Bulletin Board to the Nasdaq. The Commission alleges that Biggs (former chief executive officer), McLellan (former president) and Crone (former chief financial officer) each knew that the revenue from these sales could not be recognized under generally accepted accounting principles, but nevertheless recorded them to protect MAX's stock price and to avoid loss of credibility in the investment community. The complaint also alleges that the Defendants misled MAX's auditors during quarterly reviews, and issued a false press release responding to a March 2000 Wall Street Journal article questioning MAX's rapid sales growth. According to the complaint, the Defendants even fabricated the sale of MAX's Brazilian subsidiary in an attempt to justify recording inventory parked at the subsidiary as a "sale" to a "third party."
In settling this matter, the Defendants have agreed to accept permanent injunctions barring future violations of the anti-fraud, record-keeping and reporting provisions of the federal securities laws. Additionally, Biggs and McLellan have consented to pay a $40,000 penalty each, and Crone has consented to pay a $20,000 penalty. Separately, Crone also has agreed to a Commission order barring him from practicing before the Commission as an accountant for three years.
The Commission's civil complaint charges that the Defendants violated Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1, 13b2-2 thereunder, and aided and abetted violations of Sections 13(a) and 13(b)(2) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. The Commission order against Crone, to be issued upon the Court's entry of a permanent injunction against him, will bar Crone from practicing before it for three years, pursuant to Rule 102(e) of the Commission's Rules of Practice.
On August 1, 2001, the Commission also instituted cease-and-desist proceedings against MAX and simultaneously accepted MAX's offer of settlement in which it agreed, without admitting or denying the findings in the Commission's order, to cease and desist from future violations of Sections 10(b), 13(a), 13(b)(2) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-13 and 13b2-1 thereunder, federal securities laws.