The Securities and Exchange Commission filed suit against the former chief financial officer of Irvine-based Lantronix Inc.
The SEC charges that Steven Cotton planned a scheme to defraud investors with false financial results in 2001.
Regulators said Cotton deceived investors about the company’s sales by sending excessive product shipments to distributors and secretly giving them return rights and unusual payment terms, a practice known as “channel stuffing,” according to the SEC suit.
The suit also said Cotton had Lantronix give loans to third parties to buy Lantronix products from one of its distributors.
In addition, the suit said Cotton would ship unordered products and recognized revenue on a contingent sale.
The complaint said Cotton’s scheme caused Lantronix to overstate its revenues by up to 21% and understated pre-tax losses by up to 98% in 2001.
Lantronix subsequently restated its financial results for the relevant periods.
Separately, Lantronix agreed to a cease and desist order from future violations of the antifraud provisions of securities laws.
