|LinkNet Files for Bankruptcy to Help Fight SEC Charges |
BY STEVEN OBERBECK
THE SALT LAKE TRIBUNE
LinkNet Inc., a Salt Lake City-based company accused in a U.S. Securities and Exchange Commission lawsuit in California of defrauding investors of $17 million, has filed for Chapter 11 bankruptcy.
The long-distance telephone service company's managing director, Allen Johnson of Farmington, said the U.S. Bankruptcy Court for Utah filing in part was related to the expense of defending the company against the SEC's allegations.
"We've spent a lot of money -- $200,000 -- on legal fees, and then we have some other litigation we are pursuing," Johnson said.
The SEC in January accused LinkNet Inc. and LinkNet de America Latina Ltd., along with principals Johnson, Dale Carone of Tarzana, Calif., and Joseph Isaac of Stephenson Ranch, Calif., of defrauding more than 1,900 investors.
The SEC contends the defendants from August 1999 until October 2000 sold unregistered securities in the two companies through a boiler-room operation. It maintains the defendants lied to investors, telling them a public offering of LinkNet stock was imminent and that the two companies had contracts that would generate millions in revenue.
They failed to disclose that at least 30 percent of the money investors put up was paid as commissions to those working in the boiler room, the SEC alleged.
Ken Israel of the SEC's Salt Lake City office said he does not expect the Chapter 11 filing to affect the federal court action in California.
In its Chapter 11 filing, LinkNet claims it owes approximately $4 million to its 20 largest unsecured creditors, including $1.1 million owed to LinkNet de America Latina Ltd. Under a Chapter 11, a company is given an opportunity to remain in business while it reorganizes its finances.