ClearOne Communications places board members on leave

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    By Clinton Oja

    ClearOne Communications placed their chief executive and chief financial officer on leave Jan. 21 after the Security and Exchange Commission found irregularities in accounting.

    According to an SEC litigation release, CEO Frances M. Flood and CFO Susie Strohm violated antifraud and reporting laws and lied to auditors.

    Because of the allegations, both Flood and Strohm have been temporarily removed from daily duties, said Bryce Benson, director of investor relations at the Salt Lake City company.

    “We have not yet determined how long Flood and Strohm will be removed from their positions,” Benson said. “The key is that these are allegations, and we still haven”t presented our side of the story.”

    The two executives are accused of “channel stuffing,” a practice that sends unwanted products to distributors with the understanding that distributors pay for the products once they sell. The manufacturer then accounts for the products as revenues before they sell.

    While Flood and Strohm are on leave, ClearOne has appointed Chief Operating Officer Greg Rand and Chief Strategy Officer Mike Keough to act as co-CEOs.

    Benson said the investigation began after a disgruntled employee notified the SEC about the possibility of revenue scheming.

    According to an article in the June issue of Fortune Small Business, titled “Under the Microscope,” Flood stressed the importance of maintaining credibility.

    “You want to be without question,” she said. “If you lose your credibility, in my opinion you”ve lost everything. The Enron thing was definitely sad, but I”m almost glad it surfaced. I think it was a great wakeup call to a lot of other companies.”

    After the SEC complaint, ClearOne authorized an internal investigation and brought in an outside auditor to work with investigators, Benson said.

    “Not all of our revenue is in question – just a portion,” Benson said.

    Ken Israel, district administrator for the SEC, sai ClearOne was under investigation for less than a month before they reported financial discrepancies dating back to March 2001.

    “ClearOne also made an effort to inflate revenues and earnings,” he said

    Compared with last year”s Enron and Worldcom scandals, the SEC is dealing with a much smaller problem.

    “Enron was the fifth largest company in the nation,” Israel said. “The size of the company makes this situation much smaller.”

    ClearOne is scheduled to attend a preliminary hearing on March 3.

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