Auditor Quits Merisel Over Its Leadership, Lack of Operations

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Deloitte & Touche LLP dropped Merisel Inc. from its auditing roster last month after the common stock of the technology distributor was delisted by the Nasdaq.


In advising Merisel that it was resigning, Deloitte cited the same reason Nasdaq did the Long Beach-based company has no active business operations and essentially exists as a shell corporation. Nasdaq denied an appeal of the decision on Dec. 20.


Deloitte has also expressed concern regarding the investigation of the alleged fraud by Merisel’s former president and chief executive, Timothy Jenson, in connection with the sale of software licensing assets to D & H; Services.


Deloitte asked for an investigation into whether Jenson had access to the company’s financial reporting system, but the investigation was delayed due to a move of Merisel’s offices. The move was completed and computers were operational as of Dec. 21, the company said.


Deloitte also said it couldn’t rely on the representations of Merisel’s new chief executive, Donald Uzzi, because of Uzzi’s involvement in the an alleged accounting scheme at Sunbeam Corp. in the mid-1990s.

Uzzi was part of the management team under “Chainsaw Al” Dunlap that allegedly manipulated the company’s books, leading Sunbeam to file for bankruptcy. Dunlap, Uzzi and others were accused of fraud by the Securities and Exchange Commission. Uzzi reached a settlement with the SEC in 2003.


Merisel said its board reviewed the settlement order and determined that Uzzi did not admit any liability and the order “did not present a legal obstacle” to his hiring.


On Dec. 28, Merisel agreed to purchase the assets of New York-based Color Edge Inc., a commercial photographic and digital imaging company that serves professional photographers in the fashion, retail and editorial worlds.

David Lott



Executive Shuffle


Diagnostic Products Corp., which remains under government scrutiny on a variety of matters, has promoted Sidney Aroesty, the company’s senior vice president of operations and chief operating officer, to the additional post of president.


Chief Executive Michael Ziering, who held the additional title of president, will remain CEO.


Aroesty already had been performing many of the duties as president, said company spokesman James Brill. “It’s just to broaden senior management. It formally provides him with the title,” Brill said.


Diagnostic Products has been banned by the Food and Drug Administration from submitting new test applications while the agency investigates its clinical testing procedures.


It is also under criminal investigation by the U.S. Attorney’s Office in Los Angeles over insider trades conducted by officers, directors and employees while the FDA review was underway. Aroesty is among the officers who traded stock during that period.

Laurence Darmiento



Flame Out?


Shares of Sun Valley-based Flamemaster Corp. surged for the second time in two weeks, rising as much as 42 percent in one day due to what the chief executive described as short covering.


By the end of trading Dec. 29, Flamemaster shares had settled down to a 1.9 percent loss, to $55.30 a share, after climbing as high as $80.


Flamemaster CEO Joseph Mazin said the activity was a result of short-selling that took place after a planned 7-for-1 stock split was announced on Dec. 14. On that day, 84,420 shares traded hands average daily volume is normally just 1,600 shares and the stock price leaped $21.20 to $54.20.

“Over a three-day period, over 70 percent of outstanding shares traded,” Mazin said. “So, a short position developed to accommodate for the increased volume. Of course, this is speculation on my part.”


Short selling is a way for investors to profit from the falling price of a stock. Investors borrow the security from a broker and sell it, with the understanding that they must buy shares later hopefully at a lower price to return to the broker. But when the stock price doesn’t go down, as Flamemaster’s hasn’t, investors are forced to buy the stock back at a higher price to close out, or “cover,” their losing bets.

David Lott

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