U.S. SECURITIES & EXCHANGE COMMISSION
Litigation Release No. 18275 / August 6, 2003
Accounting and Auditing Release No. 1831 / August 6, 2003
SEC v. Oliver Hilsenrath and David S. Klarman, Civil Action No. C-03-3252 (BZ) (N.D. Cal.).
SEC CHARGES FORMER EXECUTIVES OF U.S. WIRELESS WITH FRAUD
The U.S. Securities and Exchange Commission announced today that it has filed an action in federal court charging Oliver Hilsenrath and David S. Klarman with fraud and other misconduct in violation of the federal securities laws. Hilsenrath is the former Chief Executive Officer and Klarman the former General Counsel for U.S. Wireless Corporation ("U.S. WIRELESS"), headquartered in San Ramon, California.
The Commission's complaint alleges as follows: From August 1997 to January 2000, Hilsenrath and Klarman had U.S. WIRELESS transfer common stock worth approximately $3.2 million and cash totaling approximately $428,000 to several offshore entities that they secretly owned and controlled. The transfers were part of a scheme by Hilsenrath and Klarman to extract assets from U.S. WIRELESS without providing any consideration in return. In order to conceal their misappropriation of company funds and stock, the defendants caused U.S. WIRELESS to make materially false and misleading statements in its 1998, 1999, and 2000 annual and periodic financial reports filed with the Commission. Under the direction of Hilsenrath and Klarman, the cash and stock transfers were originally recorded in U.S. WIRELESS's books and financial statements as compensation for services or as the sale of stock for valid consideration. Hilsenrath and Klarman also made misrepresentations about the transfers to U.S. WIRELESS's auditors. The defendants also made false statements in at least one Form S-3 filing. In early 2001, U.S. WIRELESS's Board of Directors received information challenging the validity of the transfers. Once the unauthorized and illegal character of the transfers was recognized, U.S. WIRELESS restated its financial results for fiscal 2000 to increase its annual net loss from $11.4 million to $17.7 million, or by 35%.
The Commission's Complaint charges Hilsenrath and Klarman with violating Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b) and 13(b)(5) of the Exchange Act of 1934 ("Exchange Act") and Rules 10b-5, 13b2-1 and 13b2-2 thereunder and aiding and abetting violations of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. The Commission seeks an order enjoining Hilsenrath and Klarman from future violations of these provisions, barring them from serving as directors or officers of companies reporting to the Commission, requiring them to disgorge their ill-gotten gains, and requiring them to pay civil money penalties.
In a separate action, the U.S. Attorney's Office for the Northern District of California filed criminal charges against Hilsenrath and Klarman.