Phantom maker in hot water with SEC
[UPDATE] Infinium Labs CEO addresses unpaid payroll taxes, company founder's possible lawsuit.
In March of 2004, Infinium Labs exchanged legal maneuverings with hardware information site HardOCP after that site published an investigative piece looking into the business history of company founder Tim Roberts. The article painted an unflattering portrait of Roberts by detailing shady practices and a history of failed businesses that left the then-Infinium CEO coming off like an incompetent businessman at best, and a scam artist at worst.
Roberts stepped aside as Infinium CEO earlier this year, but problems from his tenure still dog the company. In a Friday filing with the Securities and Exchange Commission, Infinium revealed that Roberts, currently chairman of the company's board of directors, has been given notice by the SEC that the group is planning to bring charges against him for violating federal securities law. While the SEC notice didn't specify what the charges would be in connection to, Infinium believes they are related to an SEC investigation relating to "phony fax scams," where several penny stocks, Infinium among them, were unlawfully promoted to investors.
What's more, under Roberts' tenure as CEO, the company wasn't properly reporting its payroll and payroll taxes. Due to the fines and interest the company now owes due to the erroneous reporting, Infinium has scrapped its previous financial guidance for investors.
"We recorded accrued payroll and payroll taxes of $834,682 at December 31, 2004 and $1,225,903 at June 30, 2005," the filing stated. "These amounts did not include interest and penalties. As a result, we believe that the recorded amounts should have been approximately double that which was actually recorded."
During this period, it came to light that Infinium was operating with $134,000 cash-on-hand, so the company might have been unable to pay those taxes regardless. At the time, a company executive said it was just business as usual. In the company's most recent 10-Q filing with the SEC, it claims $90,100 cash-on-hand as of June 30, 2005.
Infinium Labs opened the day trading at $0.025 a share, and as of press time, it had lost 13 percent of its value, down to $0.022.
[UPDATE]: GameSpot spoke with Infinium Labs CEO Kevin Bachus to get comment on the situation. Bachus downplayed the significance of the SEC filing, pointing out that it came about as a result of an internal audit Bachus had conducted upon succeeding Roberts as CEO in August.
"When I took over the company 10 weeks ago, my first order of business, as it would be in any transition, was to ask the accountants and lawyers to go through everything. I said, 'Look, I want you to tear everything apart, look at every transaction, and come back and tell me it's all clean or we have a couple things wrong.'" The audit came back revealing that while the company had disclosed it was late paying taxes to the IRS during Roberts' tenure, it failed to note in its quarterly reports that the company still expected to pay fines and interest (which could add up to $1.2 million) in relation to those tardy tax payments.
As for how the company will pay that money, given the relatively small amount of cash it keeps on hand, Bachus said the company would work out a payment plan with the IRS. Rather than the dire situation some might interpret this as, Bachus said it will not make or break the company and that it is merely "part of a process that's designed to address any deficiencies that exist."
Whether or not this is the last of the deficiencies, Bachus couldn't say. "I don't expect to find anything more, but I didn't expect to find this either. We've looked at everything we can think to look at," he said.
As for the SEC's notice to Roberts, Bachus said the company believes it's tied in to the phony fax scam simply because SEC investigators have contacted the company, subpoenaed documents, and interviewed staff members about that scam several times in the past. The scam itself appears to have originated with a former consultant of the company who sent out misleading stock tips to investors, driving the price of the stock up dramatically before cashing in and dumping his stock. However, Roberts' exact relation to this scam remains unclear.
"Evidently, as part of their investigation, the SEC has concluded that Tim [Roberts] has done something wrong," Bachus said. "We don't know what it was. I don't know if Tim even knows what it was."
So has an accounting oversight that took place under Roberts' tenure and pending SEC charges that the Infinium founder broke the law in connection to a stock inflation scam queered the working relationship between Bachus and the chairman of his board of directors?
"Not really," Bachus said. "I was authorized by the board to take these actions, and some of them I'd take anyway in my capacity as CEO. Tim certainly made no effort to impede this review, and I'm sure he felt as embarrassed as anyone else by these mistakes."
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