Xybernaut - Fraud Charges and Bankruptcy

Fraud Charges and Bankruptcy

In February 2005, Edward and Steven Newman were subpoenaed by the Securities and Exchange Commission about sales of Xybernaut stock. An internal company audit described improper conduct by the brothers including charging the company for personal expenses, hiring family members without SEC notification, failing to inform the company's board about large transactions, and interfering with internal audits. In April 2005, they were forced to resign. Following their ouster, the Board of Directors appointed Perry L. Nolen, previously president of Xybernaut's services subsidiary, as President and CEO of Xybernaut.

In July 2005, Xybernaut filed for bankruptcy reorganization. Xybernaut did have some success selling its technology to retail and hospitality customers such as grocery chain Tesco PLC, as well as government and military, including the U.S. Army. But Tim Shea, a senior analyst at Venture Development Corporation, said that "They've been sowing the seeds pretty well, but part of the problem is that they have this line of products that were a little on the big and bulky side and had battery problems." In January 2007, Xybernaut emerged from bankruptcy protection, following a reorganization.

In October 2007, Edward and Steven Newman were indicted, along with Xybernaut's former General Counsel, Martin Weisberg, for securities fraud and money laundering in federal district court in Brooklyn, New York. The indictment alleges, among other things, that the Newmans and Weisberg caused Xybernaut to issue hundreds of millions of Xybernaut shares at below market prices to two Israeli business men who, in turn, paid them millions of dollars in secret cash kickbacks. The Israeli business men, Zev Saltsman and Menachem Eiten, were also indicted and are awaiting extradition to the United States. Also included in the indictment is Andrew Broawn, the former President and CEO of Ramp, Inc. Investors who were fleeced by the company and its executives continue to wait for justice to be served and the Israeli businessmen extradited and the Newman brothers sent to prison.