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SEC Says It Got All It Could From Comparator

Corporations: Regulators exacted no fine or major penalties over the stock scandal because the Newport Beach firm has no assets to take.

September 20, 1996|GREG MILLER | TIMES STAFF WRITER

NEWPORT BEACH — The Securities and Exchange Commission said Thursday that it meted out no fines or major penalties against Comparator Systems Corp., the fingerprint technology firm embroiled in a major stock market scandal last spring, because there was no money left to recover and no stronger punishment to pursue.

"What we have obtained here is all the relief we could get," said Chris Mixter, the SEC's lead attorney in the case. "I don't think there was a firmer resolution to be had."

Newport Beach-based Comparator was dealt only minor penalties in its settlement of an SEC lawsuit that accused the company of fraud and theft.

Under the terms of the agreement, two of the company's top executives, Chief Executive Robert Reed Rogers and Vice President Gregory Armijo, agreed never to serve as officers or directors of any public company. But the two are allowed to continue to serve temporarily as consultants to Comparator, a maker of electronic fingerprint scanning devices.

The settlement surprised many, given that the SEC had moved so swiftly and aggressively against the company after it set three trading records on the Nasdaq stock market and soared thirtyfold in value early last May before collapsing under the scrutiny of market regulators.

Mixter said Comparator's meager financial resources left little chance of recovering investors' losses, and acknowledged that the SEC's enforcement authority is limited.

"We don't have criminal authority, and so what we do get are injunctions and money penalties," Mixter said. "The company effectively had no assets and there is nothing to suggest the company is in a position to pay any meaningful penalty."

The SEC is able to refer cases to the U.S. attorney's office, which can pursue criminal charges, but Mixter declined to say whether the agency had taken that step.

He pointed out that the settlement leaves open the possibility that Rogers and Armijo--whose assets remain frozen--could still face fines. But the executives' attorney said that possibility is remote. "We will be submitting financial information which will show their inability to pay," said the attorney, Gerald E. Boltz.

The settlement came as a disappointment to many Comparator investors who got caught on the downward slide of the company's wild stock market ride in early May.

"How could they go free with no fine, no jail time, no restitution?" said Ralph O'Hara of Sylmar, who bought 300 shares of Comparator stock at $1.50 per share before its value crashed to just pennies per share. "If the public was fleeced by the officers of this company, now we're also being fleeced by the public servants who are supposed to prosecute these people."

Experts said such reactions are understandable, but pointed out that seeking penalties might not be worth the time and expense when chances for recovery are slim.

"A lot of the remedies the SEC gets really don't appear to have a lot of clout," said Harvey Pitt, a Washington attorney who was general counsel of the SEC from 1975 to 1978. "But it would be throwing good money after bad to try to get something that isn't possible."

In a prepared statement, Comparator officials said they were pleased to be "bringing an end to a most difficult time in our company's history."

Rogers and Armijo no longer protested their innocence, as they had throughout the investigation, but issued statements tinged with a touch of defiance.

"In view of the prohibitive cost of continued litigation," Rogers said, "I concluded that it was best for the company, for the shareholders and for me to accept the settlement." He added that he will serve as a consultant "to facilitate the management transition."

Rogers, 67, had already announced his retirement and resigned from his executive posts months ago. Armijo said he has also resigned his positions as vice president and a member of the board of directors.

The settlement does not resolve charges against another Comparator executive, Scott Hitt, who left the company several years ago and is believed to be living in Malaysia. Comparator also still faces lawsuits filed by investors.

The SEC also said Thursday that it has issued an order barring Comparator's former auditor, the Eli Buchalter Accountancy Corp. of Los Angeles, from ever serving as an auditor for any public company. Buchalter had routinely approved Comparator's assets and balance sheets, which the SEC said were fabricated and inflated.

The SEC swooped down on Comparator in May after the company's stock run-up. In a sweeping lawsuit, the SEC accused Comparator of lying about its finances to protect its Nasdaq stock listing, stealing its technology from a Scottish professor and cheating investors by issuing hundreds of millions of shares of worthless stock.

Indeed, Comparator had never posted a profit in its 17 years as a public company, but by last May the 30-employee firm had issued 610 million shares of stock, more than corporate giants such as Microsoft.

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