TAMPA, Fla.-After failing to reach a negotiated settlement with the manufacturer of a tire-balancing system over financial fraud charges, the U.S. Securities and Exchange Commission has pursued the matter in federal court. On September 26, the SEC filed a complaint in U.S. District Court for the Middle District of Florida against Excal Enterprises Inc. and its subsidiary, Assix Automotive Inc., which licenses its AccuBalance service to tire retailers under the Combi System TM7000 or Combi-Matcher trade names.
The Commission alleges that Excal-and a number of its former officers and directors-violated various provisions of the federal Securities Exchange Act of 1934 by engaging in a scheme to mislead investors into believing the company was ``financially sound and growing when, in fact, it was not.''
Formerly known as Assix International Inc., the Tampa-based firm changed its name last June to Excal, and set up its tire-balancing unit as Assix Automotive.
The SEC also claims Excal and various company individuals failed to report the loss of three principal customers-Sears, Roebuck and Co., its Western Auto Supply Co. subsidiary, and Winston Tire Co.-in a timely and accurate fashion.
Furthermore, the SEC accused Excal of falsely reporting nonexistent revenue from Western Auto, which severed its contract with the company in 1990.
Four defendants, according to the SEC and published reports, have settled charges with the Commission. They are: Charles Ross, former Assix outside director; George Crook, former COO; former secretary/treasurer Douglas Gardner; and alleged inside trader J. Theodore Biesanz, who had served as chairman of Assix from 1986 until his resignation in 1991.
The SEC said the four-without admitting or denying the allegations-agreed to pay $127,835, and not engage in such conduct again.
Remaining defendants include: R. Park Newton III, current Assix chairman, who served as president and CEO of the firm from the time he founded it in July 1986 until his resignation in August 1994; former controller Richard Brewer; and alleged inside trader Fredric Schadt.
The SEC began its investigation of Excal in June 1992, based on allegations made by an executive the company said Mr. Newton ``had fired as a result of a foiled takeover attempt.''
Based on their roles in the alleged fraud, the SEC reported three others have settled:
Former Western Auto executives Terry Kuntz and Richard Scheer, who were accused by the SEC of preparing fictitious documents in order to falsify Assix's books and records and mislead Assix auditors; and
Richard Russell, former Assix controller and later CFO, who was charged separately with ``recklessly signing'' a materially false and misleading quarterly report, Form 10-Q, which he filed with the SEC without making appropriate inquiries concerning a ``licensed dealer contract,'' despite being aware of substantial problems with the agreement.
Timothy R. Barnes, Assix's chief financial officer since August, told TIRE BUSINESS that last year the SEC had worked out a settlement involving Assix and a number of its corporate officers in which they ``neither admitted nor denied doing anything wrong, promised they wouldn't do anything wrong in the future, and the company paid zero dollars in fines.''
However, following a subsequent investigation, the Commission has revoked that agreement, charging Assix allegedly ``undervalued'' an office/warehouse complex it owns in Jacksonville, Fla.
Assix received the property in 1994 as part of a financial settlement with Sears following termination of licensing agreement for use of Assix's now-defunct Tire Matcher System TM6000 to balance tires.
A Sept. 25 statement from Excal said its settlement discussions with the SEC had reached an impasse, and it vowed to ``vigorously'' defend itself against the allegations. It noted that founder R. Park Newton III had resigned all positions as an officer with the company ``to minimize the impact'' of impending SEC litigation, though he will remain board chairman, an administrative position.
The statement went on to refute the SEC's charges, adding that Excal's appraisal of the Jacksonville property was reached by a standard, ``appropriate'' method for valuing real estate assets.
Excal's business operations are now being directed by new president and CEO, W. Carey Webb.
In its most recent annual report, Excal said Sears had represented 76 percent of its fiscal 1994 revenue.
As of July 1, the company said it had 11 different agreements representing 131 Combi-Matcher licensed dealer programs. Three dealerships-Michel Tire Co., 4day Tire and Tires by Wheel Works Inc.-accounted for 62 percent of Excal's auto service revenue in fiscal 1995. Big 10 Tires accounted for another 25 percent, but severed its ties with Excal at the fiscal year-end, June 30.
CFO Tim Barnes said although Excal has expanded its business with tire dealerships, ``we're not back at the level we were at'' with Sears, when Assix had a presence in 40 states. Assix is now doing business in only eight states, he said.
The Assix Combi-Matcher combines a conventional electronic wheel balancer with the firm's tire matching technology, which it claims reduces force variation by buffing a tire's outer shoulder in designated areas, resulting in a more uniform tread footprint.