Securities and Exchange Commission charges two
Netopia executives with fraud
By Jeff Shuttleworth, Bay City News Service
March 30, 2006
SAN FRANCISCO(BCN) - The U.S. Securities and Exchange
Commission Wednesday charged two former sales executives of Emeryville-based
software company Netopia Inc. with fraudulently boosting the company's
The commission also filed, and simultaneously settled, charges
against chief executive Alan Lefkof and former chief financial
officer William D. Baker, alleging that the executives later learned
of a side agreement yet failed to take timely corrective action.
The Commission's complaint, filed in U.S. District Court, alleges
that Netopia's former head of worldwide sales, Thomas Skoulis
of Menlo Park, and former head of software sales, Peter Frankl
of Addison, Texas, entered into two secret side deals in 2002
and 2003, each for about $750,000.
According to the SEC, Netopia's customer had limited resources
and under the side agreement it would only have to pay Netopia
if and when it successfully resold the software to an end-user.
SEC officials said it was improper to record revenue for the transactions
because payment was contingent on future events.
They said Skoulis and Frankl concealed the deal terms from Netopia's
The SEC said their actions caused Netopia to report fraudulently
inflated software revenue to the investing public, and for the
fourth quarter ended September 30, 2003, allowed the company to
report its first profitable quarter in three years.
The complaint also alleges that Baker, of Fremont, and later
Lefkof, of Tiburon, learned of the payment contingency associated
with the 2003 transaction but failed to take immediate corrective
SEC officials said that even though Lefkof and Baker knew about
the side agreement, they allowed Netopia to issue a misleading
press release on July 6, 2004, that incorrectly treated the outstanding
order as merely an uncollectible bad debt.
The commission alleges the sale should never have been recorded
as revenue and Netopia should have restated its 2003 financial
In a statement, Helane Morrison, district administrator for the
SEC's San Francisco office, said, "Even if they don't participate
in the underlying financial fraud, senior executives confronted
with evidence calling into question the accuracy of the company's
financial statements must take immediate steps to investigate
and to cease further misrepresentations to the investing public."
The commission's complaint charges Skoulis, Frankl, Baker and
Lefkof with violations of the antifraud and other provisions of
the federal securities laws.
Simultaneously with the filing of the complaint, Baker and Lefkof
have agreed to settle the charges, without admitting or denying
According to the SEC, among other things, Baker and Lefkof have
consented to orders requiring them to pay civil penalties of $35,000
Baker also has consented to the entry of an order barring him
from serving as an officer or director of a public company for
five years and an order prohibiting him from practicing before
the commission as an accountant for five years.
For the remaining defendants in the litigation, Skoulis and Frankl,
the commission seeks disgorgement, civil monetary penalties, and
injunctive relief, as well as an order barring Skoulis from serving
as an officer or director of a public company.
Also Wednesday, the commission instituted and simultaneously
settled administrative cease-and-desist proceedings against Netopia.
The SEC said that without admitting or denying the commission's
findings, Netopia agreed to cease and desist from future violations
of the corporate reporting, books and records and internal controls
provisions of the federal securities laws.
Netopia said that the settlement is consistent with its announcement
last July 22 that it had submitted an offer of settlement to the
SEC to resolve the investigation.
In a statement, Netopia vice president and chief financial officer
Charles Constanti said, "Netopia is pleased that the SEC
now has approved the officers of settlement made by Netopia and
Mr. Lefkof in July 2005."
Constanti said, "Netopia believes that these settlements
are an important step in putting behind us the events related
to the restatement of financial statements for prior years."
Constanti said, "Netopia and Mr. Lefkof now can devote full
attention to providing industry-leading broadband equipment and
software to telcos worldwide."
Netopia says it makes "high-performance broadband customer
premises networking equipment and carrier-class software for the
remote management of broadband services and equipment."
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