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Former Craig Execs Indicted For Fraud

LOS ANGELES — A federal grand jury indicted three former Craig Consumer Electronics executives for allegedly defrauding four banks in a failed bid to keep the company afloat before it was liquidated in 1997.

The banks lost about $8 million in a scheme in which the executives borrowed more money against the company’s line of credit than allowed under the banks’ line-of-credit agreement.

Craig Consumer Electronics is not related to Miami-based New Tech, which purchased the Craig name when Craig Consumer Electronics was liquidated.

“By at least shortly before Craig’s initial public offering in May 1996, the company realized that it could not obtain sufficient credit to maintain its business if it accurately reported certain sales and inventory levels to its bank,” according to a Securities and Exchange Commission (SEC) document.

The indicted executives are former chairman/president Richard Berger, CFO/treasurer Donna Richardson and international trade director Bonnie Metz.

The grand jury’s 34-count indictment charges the executives with conspiracy, loan fraud, wire fraud, falsifying corporate books and records, lying to the publicly traded company’s auditors, and making false statements in reports to the SEC. They face a maximum penalty of 30 years for each loan fraud count and up to five years for each remaining charge.

The grand jury specifically charged Berger and Richardson with intentionally inflating Craig’s accounts receivable and inventory levels, thus enabling the company to exceed its credit limit with the banks “by a significant amount,” according to the SEC documents.

The line of credit was secured against accounts receivable and inventory. Craig was allowed to borrow a certain amount against new goods in inventory, a lesser amount against refurbished goods in inventory, and nothing against defective goods.

Berger and Richardson inflated receivables by prebilling retail stores for goods that hadn’t yet been shipped and by telling the banks that certain accounts receivable were valid even though the goods had been returned by retailers, the U.S. attorney’s office said. “Each day, Berger and Richardson manipulated processing of the sales returns to meet Craig’s daily cash flow needs,” an SEC document added.

In addition, all three indicted executives intentionally inflated inventory figures by reclassifying defective goods as new or refurbished and by misrepresenting that Craig owned shipments from its overseas suppliers that didn’t exist or it did not yet own, the attorney’s office said.

Berger’s history with Craig goes back to the mid-1980s, when his La Mirada, Calif., distributing company, Bercor, purchased the Craig consumer electronics business and the Craig name from Craig Corp.

About two years later, Bercor filed Chapter 11, and Craig was sold to another company, Berel, in which Berger was also an officer. In May 1996, Berel took Craig public, but in August 1997, Craig again filed for Chapter 11. It was later liquidated.