Sculley quits as head of Spectrum Firm sought gain from name, he says

February 08, 1994|By Ian Johnson | Ian Johnson,New York Bureau of The Sun

NEW YORK -- In one of the stranger chapters in recent corporate history, John Sculley, the former marketing whiz behind Apple computers, quit his job as head of an obscure telecommunications company yesterday, saying that its president had hired him only to profit off his name.

Mr. Sculley, who left Apple Computer Inc. last year after it suffered a series of business setbacks, said in a statement that he would not have joined Spectrum Information Technologies Inc. in October if the company been more upfront with him.

He said he was not told that the Securities and Exchange Commission was investigating the company's accounting practices.

"I only learned of pending SEC inquiries of the company from press reports on or about Jan. 25, 1994. If I had been properly informed . . . I would not have joined the company," Mr. Sculley said. Spectrum holds patents that allow data to be sent over cellular telephones.

Mr. Sculley blamed Spectrum President Peter Caserta, who hired him last year. In a lawsuit filed yesterday in the U.S. District Court for the Southern District of New York, Mr. Sculley said Mr. Caserta gave him a "false and misleading picture" of the Long Island, N.Y., company. He claimed $10 million in damages, saying the job had hurt his career.

Shortly after Mr. Sculley joined the company as chairman and chief executive officer, Mr. Caserta sold 1 million shares of Spectrum and reaped $8 million, leading Mr. Sculley to charge in his suit that Mr. Caserta's "apparent short-term goal was to reap huge profits by selling large blocks of Spectrum stock driven up in value by the public announcement that Sculley had joined the company."

HTC Mr. Caserta did not return calls, but Spectrum said in a statement that "Mr. Sculley was fully aware of the circumstances that he now cites as his reasons for departing."

The company also said that Mr. Sculley had not consulted with management prior to leaving, which it said was "clearly in violation of his employment agreement with the company and disregards his responsibilities to its shareholders."

Sculley said Spectrum knew before he joined them that the SEC was investigating. Last month, Spectrum confirmed news reports that the SEC had been investigating it since May 1993 -- five months before Mr. Sculley joined.

The SEC was investigating insider trading and how the company booked revenues. Spectrum booked the revenues immediately after signing licensing agreements even though it hadn't yet received money from the contracts. Normally, revenues are booked when they are earned.

The company said yesterday that it was changing these accounting practices to make them "more conservative" and restating its revenues -- knocking $6.37 million off its net income for the six-month period from April to September of 1993. That means the company now shows a $5.31 million loss for the period instead of a $1.06 million profit.

Investors responded to the news by selling Spectrum stock. About 39 million shares changed hands, 18 times the usual trading volume, as the stock fell $3.3125, to $2.25 -- a 61 percent drop.

The events left many wondering why Mr. Sculley joined Spectrum in the first place. The company has patented designs that allow information to be sent quickly on cellular phone lines -- and has claimed that this gives it a dominant position in the information transmission business.

But others have disputed this claim, and many information heavyweights, such as the American Telephone & Telegraph Co. and the Bell telephone companies are spending hundreds of millions of dollars on similar research.

"After talking with Sculley a couple of months ago, my conclusion was that there wasn't much with Spectrum, but this did give him a chance to use his Rolodex and make things happen. It wasn't a bad place to start over," said Peter Bernstein, a telecommunications analyst for Probe Research in New Jersey.

Mr. Sculley was in the market for a new job after being forced out of his job in October as Apple's chairman and chief executive officer. He claims he left on his own, but Apple officers and industry analysts say the company wanted him out.

Although credited with turning Apple into a household name and helping to sell Apple's user-friendly technology to the computer illiterate, Mr. Sculley's Apple had been slipping the past few years. Its technology remains incompatible with the standard IBM machines, and its Newton notepad computer was seen as a hugely expensive curiosity.

After joining Spectrum, Mr. Sculley said, he asked the company's new auditors, KPMG Peat Marwick, to review the company's finances and practices. On Feb. 2, 1994, they reported back and said they couldn't support the company's practices, he said.

Mr. Sculley said he then ordered the company to restate its finances, which it did yesterday.

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