NINE YEARS LATER, SOME CLOSURE IN FRAUD CASE
Published: Monday, April 28, 2003 Edition: Morning Final Section: Business Monday Page: 1E
Illustration: Photo
Source: MIKE LANGBERG column
PaulJain starts serving a 30-month federal prison sentence on July 18, nine years, two months and one day after resigning in disgrace from the company he founded and then destroyed in what still stands as one of the biggest fraud cases in Silicon Valley history.
Investors and bond holders lost $200 million in the collapse of Media Vision, a manufacturer of computer sound cards and CD-ROM upgrade kits based in Fremont, while hundreds of employees lost their jobs.
There's an old saying, ''Justice delayed is justice denied.'' In this case, a decade of delays has made a messy situation even messier.
Jain, now 57 and living in Berkeley, pleaded guilty to wire fraud charges in August 2000 just before facing a trial in federal court. He is broke and will likely face judgments that would take away any future earnings beyond the minimum he needs to survive. Even if entitled to time off for good behavior, he's almost certain to spend more than a year behind bars.
''Mr.Jain has accepted responsibility and learned a huge lesson from this, and drastically changed his conduct in the business world,'' said CraigAllison, a lawyer in Sacramento who represented Jain in the criminal case.
On the other hand, Jain has yet to make any financial restitution for his crimes; he's now selling a vacation home in Squaw Valley that's worth an estimated $260,000, with proceeds going to Media Vision creditors. That could be all Jain will ever pay.
While there's no indication Media Vision ever made Jain incredibly wealthy, it's certain his net worth was higher when he stepped down as the company's chief executive on May 17, 1994. If federal investigators and regulators had moved promptly to freeze his assets, creditors might have received hundreds of thousands if not millions of additional dollars.
Jain also faced no restrictions on his activities until criminal charges were first filed in 1998 and could have committed other frauds while the wheels of justice creaked along. Indeed, Jain worked as a consultant at Dazzle, another Fremont multimedia company, for about two years in the mid-1990s -- although there have been no allegations of wrongdoing involving his time there.
Media Vision's sad history now sounds all too familiar, resembling such later mega-scandals as Enron and WorldCom. Here's how federal prosecutors told the story in an April 8 sentencing memorandum:
''Jain founded the company (in 1990) with visions of turning it into the next Microsoft or Intel. Fueled by this ambition, Jain quickly raised hundreds of millions of dollars. . . . Unfortunately, competition turned out to be much stiffer than expected, and the company's actual performance failed to meet Jain's unrealistic predictions.
''And it is here that the defendant crossed the line from competition to crime. . . . Jain (and others) cooked the books with millions of dollars of phony sales and imaginary inventory; they recharacterized expenses as assets to boost reported profits, hid returned product at a secret warehouse, lied to their auditors, lied to the analysts and lied to the SEC. . . .
''By his own account, PaulJain was the driving force behind this fraud. He was the one who called the shots and the one who set this fraud in motion.''
I was a technology reporter when Media Vision was first attracting attention in 1992 and 1993. I still remember being stunned when the first allegations of fraud emerged in early May 1994, because Media Vision's products were well-respected and the company had a strong No. 2 position in the market behind rival Creative Technology, based just down the road in Milpitas.
To me, this compounds Jain's wrongdoing. He wasn't just some small-time con artist who gulled a few greedy investors; he killed what could have been a successful business if he'd only known when to stop pushing.
There's one final twist: Jain will be serving a shorter sentence than Media Vision's chief financial officer, StevenJ.Allan.
Allan, now 53, opted to plead not guilty. His first trial in 2001 ended in a hung jury, but he was convicted in a second trial last year and given 41 months in prison, with his sentence beginning June 4.
As part of Jain's guilty plea, he agreed to testify against Allan. When Allan got a shorter sentence than sought by federal prosecutors, they reduced Jain's prison time out of concern for ''the negative message that could be sent to prospective cooperators that accepting responsibility and assisting the government provides no meaningful benefit.''
Allan, who is also broke, is considering an appeal, says his lawyer, ArthurA.LemannIII of New Orleans. Lemann is staying on the case because his cousin is Allan's wife.
Federal prosecutors and regulators told me last week the Media Vision case dragged on for so long because it was complex, and insist such cases move much faster today. Let's hope so, because there's no glory in punishing the guilty when it takes nine years to lock the jailhouse door.
Caption: PHOTO: Jain
Media Vision CEO is likely headed for jail.