By Andrew Pollack, The New York Times Published: February 5, 1992
A jury in a civil suit found yesterday that Hambrecht & Quist, a prominent venture-capital and investment banking firm, and Coopers & Lybrand, the accounting firm, behaved fraudulently and negligently in connection with the Miniscribe Corporation, a disk drive manufacturer accused of falsifying its financial records.
The jury, in a state district court in Galveston, Tex., assessed damages of more than $550 million against Coopers & Lybrand and Hambrecht & Quist, as well as against William R. Hambrecht, founder of the investment firm, and against Q. T. Wiles, a noted corporate turnaround expert who ran Miniscribe for several years when the actions being questioned occurred.
The jury assessed $28.7 million in compensatory damages and $530 million in punitive damages, according to Hambrecht & Quist officials. Of the punitive damages, Coopers & Lybrand was held responsible for $200 million and Mr. Wiles for $250 million, they said. Hambrecht & Quist and various affiliates and subsidiaries were assessed for $45 million and Mr. Hambrecht himself for $35 million.
The suit was brought by Kempner Capital Management and by U.S. National Bank of Galveston, which bought Miniscribe debentures and then sold them at a loss after accusations were made that Miniscribe had falsified its financial statements, by, among other things, shipping bricks as disk drives and counting them as sales.
“It wasn’t bad,” said Joe Jamail, a Houston lawyer who represented the plaintiffs. “It was almost as good as Pennzoil.” In 1985 Mr. Jamail won a $10.3 billion judgment for Pennzoil in a suit against Texaco.
Steven N. Machtinger, senior vice president and general counsel of Hambrecht & Quist, said the company would appeal and was confident that the decision would be overturned or the damages reduced. He said it $500 million in damages was absurb when investors lost $13 million.
Mr. Machtinger also said that Mr. Hambrecht, far from being a participant in any fraud at Miniscribe, had helped uncover it.
“The fraud was committed by officers and employees of Miniscribe without the knowledge, participation or approval of H.&Q. or any of its employees,” Mr. Machtinger said in a statement.
The episode at Miniscribe has become one of the most scandalous in the history of the computer history and has already tarnished the image of both Mr. Wiles, the turnaround expert, and of Hambrecht & Quist, a San Francisco company.
Miniscribe, based in Longmont, Colo., fell on hard times in the mid-1980’s. At that time, Hambrecht & Quist invested in the firm and helped recruit Mr. Wiles, who also served as Hambrecht’s chairman.
Miniscribe seemed to recover, and it issued the debentures in 1987. The securities were underwritten by Hambrecht & Quist and by Morgan Stanley & Company, which was also sued but was found not liable.
After the debentures were issued, charges of fraud began to be made. A special committee of outside directors and new auditors said in 1989 that the company’s managers had “perpetrated a massive fraud.
Miniscribe filed for bankruptcy protection in 1990 and its remains were purchased by the Maxtor Corporation. Several shareholder lawsuits are still pending in Denver against Miniscribe as well as its outside directors, its auditors, and Hambrecht & Quist, as well as a suit by the Securities and Exchange Commission against some officers.
David Nestor, a spokesman for Coopers & Lybrand in New York, was quoted by The Asssociated Press as saying that the company was uncertain if it would comment at length.