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NewCom Officers Indicted in Fraud, Conspiracy Case

Tech: Three executives and an outside director are charged with falsifying financial records of the defunct Westlake Village firm.

September 06, 2002|E. SCOTT RECKARD | TIMES STAFF WRITER

Three officers and a director of NewCom Inc., a defunct Westlake Village tech firm, were charged Thursday with falsifying company financial records in a case federal prosecutors portrayed as an example of the Bush administration's pledge to crack down on corporate greed.

The criminal fraud and conspiracy case is the latest development in a long investigation of NewCom and its majority owner, Aura Systems Inc. of El Segundo. The firms' former top executives agreed in June to pay fines and be barred from running public companies to settle federal civil charges that they overstated sales by tens of millions of dollars during the late-1990s boom years.

NewCom, founded in 1994 as a wholly owned subsidiary of Aura, became a public company in September 1997 when 30% of the company was sold to investors.

Its collapse in May 1999 wiped out stock holdings once valued at nearly $140 million--an example of the corporate debacles that Debra Yang, the U.S. attorney in Los Angeles, said have "shaken the faith of Americans" in the nation's financial systems.

"We will weed out corporate corruption driven by personal greed at all levels," said Ronald Iden, the assistant director of the FBI's Los Angeles office, which investigated NewCom, a supplier of computer accessories.

Named as defendants in a 36-count fraud and conspiracy indictment, unsealed Thursday, were NewCom Chief Executive Sultan Warris Khan, 57, of Calabasas; Executive Vice President Asif Mohammad Khan (no relation to Sultan Khan), 57, of Westlake Village; and Steven Conrad Veen, 46, of Downey, Aura's former chief financial officer.

In addition to charges of securities fraud, mail fraud and wire fraud, Asif Khan and Sultan Khan also are charged with money laundering. Veen is accused of signing off as CFO on NewCom's allegedly falsified financial statements.

If convicted of all the charges, Asif Khan and Sultan Khan would face prison sentences of seven to 12 years under federal sentencing guidelines. Veen's sentence would be considerably less.

NewCom outside director Alexander Remington, 45, who owned Micro Equipment Co. in Norcross, Ga., NewCom's biggest supplier, has agreed to plead guilty to one conspiracy count for his role in the alleged scam and has been cooperating in the investigation. According to his plea agreement, Aura and NewCom executives began overstating revenue from Micro Equipment from NewCom's start.

Attorneys for the defendants said they all intended to plead not guilty at their arraignment Monday. They were released on appearance bonds of $500,000 apiece for Asif Khan and Sultan Khan, and $200,000 for Veen.

"The indictment involved complex commercial transactions, and we see them differently from the prosecution," said Tom Pollock, an attorney for Sultan Khan. Pollock said his client "looks forward to resolving the situation favorably."

Jan Handzlik, Asif Khan's lawyer, said his client "believes that the substantial control exercised by Aura over NewCom's business affairs will significantly affect the outcome of this case."

Mark Harris, Veen's attorney, couldn't be reached for comment.

Assistant U.S. Atty. Pamela L. Johnston, the lead prosecutor on the case, said the investigation remains open with other individuals as targets.

Asif Khan, Sultan Khan and Veen were among those who settled civil charges filed by the Securities and Exchange Commission in June. The agency said Aura reported at least $26.5 million in fictitious sales in 1997 and 1998, and NewCom falsified its balance sheet by at least $43.2 million in 1998 and 1999. Also settling with the SEC was Zvi "Harry" Kurtzman, Aura's founder, whom the SEC described as a "recidivist" offender of securities fraud laws, citing a 1996 cease-and-desist order the agency had obtained against Kurtzman.

Kurtzman, who appeared in court to post Veen's bond, declined to comment. Sources familiar with the case, speaking on condition of anonymity, said he remains a target of the investigation. Kurtzman maintains that he and Aura were defrauded by Asif Khan and Sultan Khan, according to another source.

Aura hired Asif Khan and Sultan Khan in 1994 to set up NewCom, according to the indictment, which alleges that they soon devised an overbilling and kickback scheme with Remington's company.

The goal was to raise cash to help Asif Khan and Sultan Khan repay a $2-million debt from their involvement in an embezzlement at a computer company where they had worked previously, the indictment alleges.

Asif Khan and Sultan Khan allegedly netted $1.1 million personally from the NewCom scheme, Johnston said.

The defendants also defrauded a lender, Actrade Capital Inc., of $1 million, the indictment alleges.

Prosecutors said they expect indictments in three or four more corporate fraud cases in Los Angeles by year-end.

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