The Sarbanes-Oxley Act of 2002 has claimed an unlikely victim: Benjamin Hong, the longstanding former chief executive of Nara Bancorp, who is considered the "godfather" of Korean-American banking.

Hong, who has spent 30 years in Los Angeles banking circles, was ousted from Nara last month in a power struggle with Dr. Chong-Moon Lee, one of Nara's largest shareholders through its acquisition of Asiana Bank in 2003, and a legend in Silicon Valley's high-tech industry.

The apparent reason for getting rid of Hong was that he had deferred accepting $600,000 of a $1.3 million bonus in 2002 ostensibly to avoid reducing earnings by one penny a share. Nara's former chairman, Thomas Chung, had agreed in a letter to Hong that he would be reimbursed for automobile allowance and country club dues upon his retirement at the end of the first quarter of 2005.

The agreement presented problems for Nara's new president and chief executive, Ho Yang, who recognized that the payments would detract from earnings under his tenure not to mention the fact that securities laws prohibit arrangements that appear to be aimed at manipulating earnings.

Yang, who took office in October, is the former head of the Korea division of Bank of New York. He discovered the letter, in which Chung thanks Hong for agreeing to the arrangement that would help Nara to a "smoother earnings curve."

Neither Yang nor Hong could be reached.

Yang's position that the payments must be dealt with harshly was supported by company chairman Lee, a founder of the PC graphics-accelerator business Diamond Multimedia Systems.

Late last month, both Chung and Hong were ousted from Nara's board, and the company said it would have to restate 2002 earnings to properly account for the payments to Hong.

While some see the matter as personal others don't it is sure to obscure Hong's achievements at Nara, which grew from $50 million in assets in 1992 to more than $1 billion under his reign. In the aftermath of the Los Angeles riots that devastated Koreatown, Hong stepped forward to make loans to help small merchants rebuild.

The discovery of the payments to Hong also forced Nara to delay the filing of its annual report, and last week the Securities and Exchange Commission threatened to delist its stock. Nara's chief financial officer also was reassigned.

Shares of Nara have fallen 31 percent so far this year, to under $15 on April 7.
Kate Berry

Cogent Sales
Cogent Systems Inc.'s fingerprinting software attracted attention last year because it can sort through databases of millions and come up with fingerprint matches in seconds. After the company raised $200 million in a public offering in September, its stock soared from the $12 offering price to trade in the $40s through the new year. Then, despite positive financial news, the stock slumped to the low $20s in March perhaps not so coincidentally, at the end of the company's lock-up period.

Cogent now has a market capitalization of $1.8 billion, down from $2.7 billion at year-end. Though analysts remain positive on the stock four of the nine with coverage rate it an "outperform" some say insider selling is dragging down its shares.

Chief Financial Officer Paul Kim sold 75,000 shares in late March, a sale of more than $1.8 million. Company management declined to comment on the sale.

But Kim's stock sale, which hit just after the expiration of the 180-day lock-up period outlined in the company's September prospectus, did not go unnoticed. Often called a "vote of no confidence," insider selling has the potential to dilute shares outstanding and raises questions among investors.

Other analysts chalk up the stock's decline to profit-taking by large institutions that purchased it in the IPO.

"Since the company went public in September, it became so strong that a lot of institutions tripled their investments in three or four months," said David Sterman, analyst with investment banking firm Halpern Capital Inc. "A lot were looking to take profits." (Halpern Capital does not provide banking to Cogent.)

The Department of Homeland Security accounted for 60 percent of Cogent's $87.7 million in revenues last year, and the governments of Venezuela and Algeria each accounted for 10 percent. Other clients include the Federal Bureau of Prisons and the L.A. County Sheriff's Department none of which are cutting back on their fingerprinting vigilance.

In March, the company announced continuing contracts from the Italian National Police and L.A. County, plus a new contract to provide its fingerprint border control system to an undisclosed Middle Eastern country, widely believed to be Jordan.

Cogent's fourth-quarter earnings, reported in late February, beat analysts' estimates by 2 cents a share, coming in at $9.9 million, or 11 cents a share. In the year-ago period, when the company was not public, net income was $9.6 million.

One of the risks to the stock, according to Joel Fishbein of Janney Montgomery Scott LLC, is that most of the revenue comes from a small group of clients, and government contracts particularly those of foreign governments do not come at a predictable rate.

Cogent is expanding from the criminal fingerprinting market to civil applications voter registration and identifications, national identification cards, and similar products which Fishbein said in a February note is a positive move.

Sterman agreed. "This is the beginning of a global opportunity," he said. "The idea is that governments will adopt all of this first, then in two to three years, companies will start using it."
Hilary Potkewitz

Survival of the Fittest
Troubled telescope maker Celestron of Torrance agreed to be acquired last week by Taiwanese partner Synta Technology Corp., ending any chance of a merger with Irvine competitor Meade Instruments.

The deal marks the beginning of the end for telescope manufacturing in California. Both Meade and Celestron have struggled to compete against the lower labor costs enjoyed by Taiwanese competitors and have been hindered by plunging revenues and expensive litigation.

Celestron still designs its computerized telescopes in the U.S., but it long ago outsourced its manufacturing to Taiwan, where Synta is a big supplier. The company will continue to be led by its senior management team and for now, its operations will remain in Torrance.

Joseph Lupica, Celestron's chief executive, declined to disclose the purchase price but noted that "each existing owner is getting a return on their original investment."

The company was highly leveraged, but it did attract five bidders, said Celestron Marketing Manager Jennifer Adams.

For years, Meade and Celestron were adversaries in court, squaring off in a number of patent infringement cases. Meade had sought to acquire Celestron but was blocked by the Federal Trade Commission over antitrust concerns.
Kate Berry

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