The Securities and Exchange Commission is investigating CellStar Corp.’s compliance with federal securities laws, and the handset distributor said it believes the inquiry is focused on previously disclosed events that occurred in 1995 and 1996.
CellStar reported disappointing financial operating results for the first and second quarters of 1996-net losses of $2 million and $3 million, respectively-and posted a $6.4 million net loss for the year.
CellStar attributed delays in filing its 10K forms with the SEC to inventory-management and systems problems. In February 1996, CellStar reportedly lowered its fourth-quarter earnings forecast because of what it said was a bookkeeping error due to double counting inventory.
At the time, CellStar said it expected the sale of its 355 kiosks in Sam’s Clubs locations to alleviate the situation. CellStar sold the retail locations to MCI Communications Corp. in October 1996 for an undisclosed amount.
In May 1996, a lawsuit was filed on behalf of investors, in part alleging CellStar’s management artificially inflated sales figures and other financial projections to increase the price of the company’s stock. The case is pending in a federal district court.
CellStar said it believes it has fully complied with all securities laws and regulations and intends to cooperate fully with the SEC in its investigation.
