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U.S. Securities and Exchange Commission

Litigation Release No. 19102

Accounting and Auditing Enforcement Release No. 2192

Securities and Exchange Commission v. Steven J. Henke and Chan M. Desaigoudar, United States District Court for the Northern District Of California, Civil Action No. C-98-4011-VRW


The Securities and Exchange Commission announced that it has filed a motion for civil contempt against former California Micro Devices (“Cal Micro”) CEO Chan M. Desaigoudar. U.S. District Court Chief Judge Vaughn R. Walker found Desaigoudar liable for fraud and insider trading in February 2004, ordering him to pay $1,341,424 in penalties and prejudgment interest. The Commission’s contempt motion alleges that Desaigoudar still owes over $300,000, and seeks incarceration or additional monetary penalties to enforce compliance with the judgment.

The Commission originally sued Desaigoudar in August 1998, alleging that Cal Micro’s then-CEO and Chairman participated in a scheme to fraudulently overstate the revenues of the once high-flying Silicon Valley technology firm, while illegally pocketing hundreds of thousands of dollars by selling Cal Micro shares before the fraud was uncovered. In separate criminal proceedings brought by the United States Attorney for the Northern District of California, Desaigoudar pled guilty to, and was sentenced for, insider trading in Cal Micro's stock.

Following a three-day bench trial in December 2003, Judge Walker issued an Order finding that Desaigoudar played a central role in the fraudulent scheme to inflate Cal Micro’s revenue, and that Desaigoudar avoided losses of $573,000 by selling Cal Micro stock that he knew was fraudulently inflated in value. The Court ordered Desaigoudar to pay over $1 million in penalties, as well as prejudgment interest of $308,428. The Court also permanently barred Desaigoudar from serving as an officer or director of a public company.

According to the Commission, Desaigoudar has failed to pay the prejudgment interest ordered by the Court. The Commission's contempt papers request Chief Judge Walker's determination that Desaigoudar has violated the judgment without justification. The Commission asks that Chief Judge Walker impose remedial sanctions of incarceration and/or civil monetary penalties to force Desaigoudar's compliance with the judgment. The Commission has specified the date of March 31, 2005 for the court hearing on its contempt request.



Modified: 02/28/2005