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3 Convicted of Fraud Agree to Pay, Won't Have to

KLaw: Former executives of Home Theater Products International plead poverty in settling an SEC suit.

May 15, 1998|PATRICE APODACA | TIMES STAFF WRITER

Three former executives previously convicted of carrying out a bogus sales scheme at an Anaheim home theater systems company have agreed to repay nearly $1.2 million in profits from the fraud to settle a lawsuit by the Securities and Exchange Commission.

But SEC spokesman James A. Howell said the payments were waived after the men produced financial statements showing they didn't have enough money.

The complaint and the agreement were filed Wednesday in federal court in Santa Ana.

The lawsuit accuses Paul R. Safronchik, 37, former chairman and chief executive of Home Theater Products International Inc., and Douglas A. Roy, 29, the company's former controller, of falsifying company books and records and inflating its sales and income from 1993 until October 1995.

Safronchik and Jerome A. Adamo, 62, Home Theater's former president, were charged with releasing phony financial statements. All three executives committed insider trading by selling stock when they knew the company's financial statements were false, the complaint says.

Without admitting the allegations, Safronchik agreed to repay $577,500, Adamo $568,313 and Roy $36,500. Safronchik and Adamo were also barred from serving as officers or directors of any public company.

Safronchik pleaded guilty in December 1996 to bank fraud, securities fraud and conspiracy to commit securities fraud. He is scheduled to be sentenced June 1 and faces up to 45 years in prison and a maximum fine of $1.5 million.

In October, Safronchik was ordered by a federal judge presiding over a class-action lawsuit to pay $25.3 million to investors who bought stock in Home Theater.

In September, Roy pleaded guilty to conspiracy to commit securities fraud. His sentencing is scheduled for Thursday, and he could receive up to five years in prison and a $250,000 fine.

Adamo pleaded guilty in February to insider trading and was sentenced to six months of home detention and two years' probation. He also was ordered to pay a $50,000 fine.

The class-action lawsuit is proceeding against Adamo, and is scheduled to go to trial in November, said Jim Jakonette, an attorney for the plaintiffs.

According to the SEC complaint, Safronchik began the scheme to falsify the financial performance of Home Theater in 1992. Over the next three years the company reported about $6 million in false profits, the agency said.

The bogus financial results were uncovered by an outside auditor in 1995. Safronchik later admitted in his guilty plea that $9.3 million of the $12 million in sales Home Theater reported for its fiscal year ended June 30, 1995, "simply did not exist."

Home Theater, which filed for bankruptcy protection after the fraud was uncovered, has been sold off in pieces.

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