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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
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FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) November 8, 1999
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PAIRGAIN TECHNOLOGIES, INC.
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(Exact name of registrant as specified in charter)
Delaware 0-22202 33-0282809
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(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Identification No.)
14402 Franklin Avenue, Tustin, CA 92780-7013
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (714) 832-9922
Not Applicable
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(Former name or former address, if changed since last report.)
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ITEM 5. OTHER EVENTS
On November 8, 1999, PairGain Technologies, Inc. announced a final
agreement with the U.S. Attorney's office. Pursuant to the agreement, on
November 8, 1999, we pled guilty, in U.S. District Court in Santa Ana,
California, to one felony count for failing to implement a system of internal
accounting controls and to maintain accurate books and records in violation of
15 U.S.C. Sections 78m(b) (2) and 78ff, and 18 U.S.C. Section 2, for aiding and
abetting or causing these acts to be done.
Under the terms of the agreement, we agreed to pay a fine of $1,000,000,
to reimburse the government $400,000 for the costs of its investigation and to
pay a $200 special assessment. We also agreed to four years probation. During
the term of probation, we:
o agreed not to commit a federal, state or local crime;
o agreed to file a Form 8-K with the SEC within ten days to disclose
the nature of the offense committed, the fact of conviction, the
nature of the punishment and the steps that will be taken to prevent
the recurrence of similar offenses;
o agreed to submit financial statements reviewed by our outside
accountants in connection with the filing of our quarterly reports
with the SEC. In addition, each member of the Board of Directors,
with the exception of the Chairman of the Board, will be required to
sign each of our quarterly reports during the probationary period
and certify that he or she has read and reviewed the report and
believes it to be true and correct. The current Chief Financial
Officer and the current Chairman of the Board may not exclusively
direct the preparation of the quarterly reports or financial
statements during this period, but may participate in their review;
and
o agreed to engage an expert approved by the Probation Office and the
U.S. Attorney's Office to conduct an examination, at our expense, in
order to: (i) assess whether our internal accounting controls are
adequate such that transactions are recorded as necessary to
maintain accountability for our assets; (ii) assess whether our
books, records and accounts accurately and fairly reflect our
transactions and dispositions of our assets; and (iii) assess
whether we properly disclose our financial transactions in a timely
manner in the appropriate fashion to the appropriate persons or
agencies. In addition, the expert will review our procedures for
making and maintaining corporate documents.
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The expert is to make recommendations deemed appropriate to improve
our system of internal accounting controls and record-keeping. The
expert will report the recommendations to the Probation Office and
the U.S. Attorney's Office. The Probation Office will determine
which recommendations must be implemented. We must then implement
the recommendations identified by the Probation Office as soon as
reasonably practical, but in no event later than 60 days, and shall
report on the progress of such implementation to the Probation
Office. During the term of our probation, we are also required to
permit the expert to conduct follow-up examinations on an annual
basis to determine that we have implemented and maintained the
recommendations identified by the Probation Office.
Since the first quarter of 1996, we have requested our outside
accountants and legal counsel to review our quarterly financial statements and
public disclosures, including financial press releases and periodic SEC reports,
prior to publication. In addition, we have regular meetings with our outside
accountants to discuss the accounting and disclosure of transactions in our
books, records and financial statements. Also, in the first quarter of 1996, we
retained our outside accountants to assist and make recommendations in the
preparation of our "Investment Policy Guidelines" which, among other things,
require a comprehensive system of documentation and record-keeping. These
Guidelines require comprehensive management reports on the status of our
investments to provide assurance of the accuracy of our financial records and
periodic reports to the Board of Directors regarding compliance with the
provisions of the Guidelines. PairGain first adopted these Guidelines in April
1996.
In addition to the agreement reached with the U.S. Attorney's Office
discussed above, PairGain, our Chairman, Charles S. Strauch, and our Chief
Financial Officer, Charles W. McBrayer, also reached a settlement with the SEC.
Without admitting or denying the SEC's findings, PairGain consented to an SEC
order directing us to cease and desist from committing or causing any violations
or future violations of the antifraud, periodic reporting, books and records and
internal accounting control provisions. Messrs. Strauch and McBrayer agreed,
also without admitting or denying the SEC's allegations, not to violate the
antifraud provisions. In addition, Mr. McBrayer agreed not to violate the
periodic reporting, books and records and internal accounting control
provisions. Messrs. Strauch and McBrayer have also agreed to pay civil money
penalties of $25,000 each.
PairGain's Board of Directors authorized the settlement of all
outstanding claims with the U.S. Attorney's office and the SEC in the interest
of avoiding protracted litigation and in order to bring closure to these
matters.
The agreements with the U.S. Attorney's office and the SEC were
announced in a press release issued on November 8, 1999. A copy of our press
release is attached as Exhibit 99.1.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(c) Exhibits
Exhibit No. Exhibit
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99.1 Text of Press Release by PairGain dated November 8, 1999.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934,
PairGain has duly caused this report to be signed on our behalf by the
undersigned hereunto duly authorized.
Date: November 15, 1999 PAIRGAIN TECHNOLOGIES, INC.
/s/ MICHAEL PASCOE
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Michael Pascoe
President and Chief Executive Officer
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INDEX TO EXHIBITS
Exhibit No. Exhibit
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99.1 Text of Press Release by PairGain dated November 8, 1999.
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EXHIBIT 99.1
PAIRGAIN
PAIRGAIN TECHNOLOGIES, INC. 14402 Franklin Avenue Tel 714.832.9922
Tustin, CA 92780-7013 Fax 714.832.9924
N E W S R E L E A S E
FOR IMMEDIATE RELEASE
FOR MORE INFORMATION:
Kim Gower
(714) 832-9922
PAIRGAIN REACHES FINAL AGREEMENT WITH FEDERAL AGENCIES
TUSTIN, CALIF. --- (NOVEMBER. 8, 1999) --- PairGain(R) Technologies,
Inc. (NASDAQ: PAIR), today announced that the Company has reached a final
agreement with the U.S. Attorney's office in relation to the 1995 unauthorized
trading activities and theft of the Company's funds by its former money manager,
Jay Goldinger. Additionally, the Company and two of its officers have reached a
final agreement with the Securities and Exchange Commission (SEC) regarding the
same matters.
In the interest of avoiding protracted litigation which would likely
cost millions of dollars, the Company's Board of Directors authorized the
Company to settle all outstanding claims with the U.S. Attorney's office by
paying a penalty of $1,000,000 and reimbursing the government for its
investigative costs of $400,000. The Board also authorized the Company to plead
guilty to one count of failure to implement a system of internal accounting
controls and to maintain accurate books and records. The plea is not expected to
have any material effect on the Company's present or future business, or its
ability to do business in the future. The financial impact of this agreement was
recorded in the Company's September 30, 1999 financial results.
In order to bring closure to all matters relating to the Goldinger
fraud, the Company and two of its officers, Chairman Charles S. Strauch and
Chief Financial Officer Charles W. McBrayer, without admitting or denying any
alleged wrongdoing, also have agreed to settle allegations made by the SEC that
they failed to meet certain disclosure and accounting provisions of the
Securities and Exchange Act regarding Goldinger's unauthorized activities.
According to the SEC, PairGain's losses, as reported in 1995 were
caused by theft of the Company's funds by Jay Goldinger, who deceived and misled
PairGain and secretly transferred the Company's funds to other clients. PairGain
was one of many clients that was the victim of Mr. Goldinger's scheme.
A company spokesperson said, "PairGain's Board, while recognizing the
importance of the disclosure and accounting issues raised by both government
agencies, believes that the Company and its officers acted in what they believed
were the best interests of the shareholders in this matter. Only after an
extensive investigation did it become obvious that PairGain and Goldinger's
other clients were the victims of a massive fraud. The Company is glad to
finally get this matter behind it and expects that the Government will punish
Goldinger to the full extent of the law."
PairGain Technologies, Inc. is the world leader in the design,
manufacture and marketing of DSL (Digital Subscriber Line) networking systems.
Service providers and private network operators worldwide use PairGain's
products to deploy DSL-based services, such as high-speed Internet, remote LAN
access and enterprise LAN extensions over the existing infrastructure of copper
telephone lines.
# # #
EXCEPT FOR THE HISTORICAL INFORMATION CONTAINED HEREIN, THE MATTERS DISCUSSED IN
THIS ANNOUNCEMENT ARE FORWARD-LOOKING STATEMENTS WHICH INVOLVE RISKS AND
UNCERTAINTIES, INCLUDING BUT NOT LIMITED TO ECONOMIC, COMPETITIVE, GOVERNMENTAL
AND TECHNOLOGICAL FACTORS AFFECTING THE COMPANY'S OPERATIONS, MARKETS, PRODUCTS,
SERVICES AND PRICES AND OTHER FACTORS DISCUSSED IN THE COMPANY'S FILINGS WITH
THE SECURITIES AND EXCHANGE COMMISSION. ALL TRADEMARKS WITHIN ARE THE PROPERTIES
OF THEIR RESPECTIVE MANUFACTURERS.
