Advertising

Thursday, November 3, 2005 - Page updated at 12:00 AM

E-mail article     Print

Game-company chairman faces probe by SEC

Times technology Reporter

The chairman of a Seattle video-game company is under investigation by the Securities and Exchange Commission, possibly because of ties to a fax scheme the SEC said was designed to con investors, the company said last week in a regulatory filing.

Infinium Labs said in its filing that Chairman Timothy Roberts received a Wells notice from the SEC. Such notices generally mean the recipient is under investigation and could be sued for securities-law violations.

Infinium also said its financial statements over six quarters had errors and would have to be restated.

The announcement is the latest setback for the company, whose efforts to launch a video-game system and gaming service have been delayed.

Infinium has not announced when it would release the Phantom Game Service but said it will soon seek funding for its final preparatory phase.

Roberts had been Infinium's chief executive and acting chief financial officer, but he resigned in August.

He was replaced by industry veteran Kevin Bachus, a member of Microsoft's original Xbox console team. Bachus had been Infinium's president and chief operating officer since 2003.

When Roberts stepped down, he said in a statement Infinium's board "saw the need for a major change" to reinvigorate the company.

Roberts could not be reached for comment on the investigation.

The commission won't say why it issued the Wells notice. Recipients of such notices have the opportunity to respond directly to SEC staff members to clear up the matter.

In its filing last week, Infinium said it believed the notice was related to an SEC investigation of alleged scams in which several penny stocks, including Infinium's, were promoted by faxes.

The SEC filed charges in July against three men allegedly involved in a scheme to fraudulently promote several companies. One of the men, a Texas resident named Michael O'Brien Pickens, touted Infinium shares, which are traded on the over-the-counter market.

Pickens is the son of Texas oilman and corporate raider T. Boone Pickens.

In addition to the SEC's civil charges, Pickens faces criminal charges after being indicted in August by a federal grand jury in New York on several counts of wire fraud, securities fraud and failure to disclose payment for advertising a security.

The case is ongoing, a spokeswoman for the U.S. Attorney's Office in New York said Wednesday.

Pickens, through his lawyer, declined to comment on the charges. He has not yet responded to the SEC charges, according to an SEC attorney involved in the case.

Infinium paid Pickens $200,000 in 2004 to promote the company and its securities, according to an SEC complaint in the case.

In December of that year, the complaint states, Pickens got wind of a scheme in which faxes were blasted across the country that appeared to have been sent from a financial planner to a "Dr. Mitchel," urging the purchase of shares in a company named AVL Global.

The complaint said Pickens altered the fax by replacing AVL Global's stock symbol with Infinium's, and arranged for it to be sent to hundreds of thousands of fax machines. The idea behind the scheme, the complaint said, was to fraudulently boost Infinium's stock price by creating false hype.

He did the same with two other companies, the complaint said.

Infinium's share price went from 24 cents to 47 cents a share in one day, and people who bought the shares said the fax influenced their decision, according to the complaint.

The stock closed yesterday at 2 cents.

The SEC did not file charges against Roberts or any Infinium employee. Two SEC representatives contacted this week said the commission would not comment on the Wells notice or on any ongoing investigations.

Infinium has received subpoenas for documents, and the SEC has interviewed several of the company's current and former employees, Bachus said.

He said the company wrestled with whether to disclose the Wells notice, since it's mainly a matter between Roberts and the SEC, but decided it was better to make the announcement.

"We don't even really know what they're alleging," Bachus said. He said he didn't know the fax scheme was going on and that Infinium didn't hire Pickens to run a scam.

Roberts will not resign as Infinium's chairman, Bachus said.

"These are allegations," Bachus said. "We're a long way, I think, from seeing a resolution either by seeing the matter adjudicated or through a settlement."

Infinium said last week it will restate its financial statements for 2004 and the first half of this year.

Those statements contain errors related to the company's disclosures about payroll and payroll taxes, the filing said.

After Bachus took over as chief executive, he moved Infinium's headquarters from Sarasota, Fla., to its engineering offices in Seattle.

Since then, he said, he has had accountants and lawyers "tearing apart the company" and looking at previous transactions to make sure everything was above board.

He has also hired new executives, including a new general counsel.

Bachus said he wants to make sure everything is clean before pursuing a new funding round that will help launch the gaming service.

Infinium has said it needs $11 million to launch and an additional $10 million to become profitable.

Although the service is fully functional, Bachus said, the launch timeline depends on funding.

He said he wasn't sure how the SEC investigation and financial restatements will affect Infinium.

"There's no question that it doesn't help," he said.

"On the other hand, I would hope that people understand that this is part of a process of trying to be candid and open about what we're doing in the company."

Kim Peterson: 206-464-2360 or kpeterson@seattletimes.com

Copyright © 2005 The Seattle Times Company

advertising


Get home delivery today!

Advertising