It would take an hour-long infomercial to unravel the Ronco bankruptcy saga, but it may be worth following. Buried within lawsuit accusations is a claim that a Sarbox certification was forged. If that is true, the courtóand maybe the SECówill have to determine whether investor fraud was committed.
The case involves Ronco, the kitchen and home gadget company famous for the "Veg-O-Matic" and "Pocket Fisherman." On June 26, former Ronco CEO Richard Allen filed a complaint with a U.S. bankruptcy court in California protesting his August 2006 firing, and the current management's right to operate the sputtering company.
Allen, who says he is one of the 20 largest unsecured creditors and largest common shareholder, claims that he was fired for demanding an investigation into why Ronco went bankrupt. It is his belief that the investment bank that took the company public through a reverse mergeróSanders Morris Harris (SMH)ówas in such a rush to collect its $3.5 million commission, that it did a lousy job of due diligence.
Better vetting, says Allen, would have revealed that Ronco had only $250,000 in cash and an accounting system so poor that it would never past muster with the SEC, and therefore would be subject to monthly fines it could not afford. Among other things, Allen also claims that he refused to sign the company's November 2006 Form 10-Q, but that his signature was forged on the document. Ronco revised the filing in February 2007 and said it "inadvertently" included Allen's name.
In a court-filed response to Allen's allegations, current Ronco CEO John Reiland (a one-time CFO of US Dataworks) wrote that he too believed Ronco was "significantly undercapitalized," which is why he arranged for "bridge" financing. Futhermore, he says Allen was fired for submitting false business expenses.
As the he said/he said battle continues--Allen just filed a complaint alleging federal trade violations against Ronco; Reiland told CFO.com that his response would be filed "in due course"--many facts will be sliced and diced before the case ends.
But one thing reamins clear, there is no such thing as a Sarbox-O-Matic.