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Two former executives of Kurzweil Applied Intelligence Inc. will go to prison for their role in bilking investors who plowed $24 million into the Waltham company's 1993 stock offering.
Former president and chief executive Bernard F. Bradstreet, 51, of Sudbury, was sentenced yesterday to two years and nine months in prison by US District Judge Richard G. Stearns, and Thomas E. Campbell, 63, of Acton, the firm's former vice president in charge of sales, was sentenced to 18 months in prison.
Bradstreet, who masterminded the fraudulent accounting scheme, was also ordered to pay a $2.3 million fine.
The judge was somewhat lenient, given the pair's previously squeaky clean records. Under sentencing guidelines, Bradstreet faced up to 10 years in prison, and Campbell could have gotten nearly six.
Still, first assistant US attorney Mark Pearlstein called it a milestone in the government's fight against white-collar crime and said the sentences "vividly demonstrate that this type of criminal conduct will no longer be tolerated."
The sentences handed down yesterday provide a stunning end to a remarkably brazen scheme at Kurzweil, which makes speech recognition systems for computers.
Bradstreet and Campbell were convicted by a federal jury last May, after a three-week trial. They were found guilty of conspiracy, securities fraud and falsifying the books and records of Kurzweil during a two-year period straddling its August 1993 IPO.
The company recorded sales for potential customers who had not yet signed final sales agreements and booked millions of dollars in phony sales, shipping the goods to a local warehouse, where they gathered dust.
The scheme allowed Kurzweil to claim its revenues were higher than they actually were, making the company's stock look more attractive to the investing public.
"These defendants 'cooked the books' of the company and thereby duped investors into believing that KAI was performing much better than it really was," Pearlstein said.
At least 10 other employees were directly or indirectly involved in the scheme, yet it eluded the company's auditors, its board of directors and Robertson, Stephens & Co., which underwrote the stock offering.
When it was finally uncovered by the company's auditors in May 1994, Bradstreet, Campbell and the company's treasurer, Debra Murray, resigned. Murray, who earlier pleaded guilty, agreed to cooperate in the government's case against her former co-workers and her testimony was key to winning the jury convictions, prosecutors said. Another executive, David Earl, vice president of operations, was acquitted.
A former Marine fighter pilot, Bradstreet was a well-established figure in the high-tech community and had a reputation as a straight-shooting, ethical man who was devoted to his family.
Bradstreet attended Harvard College on an ROTC scholarship and spent five years in the Marines during the Vietnam War, becoming a captain. After the war, he attended Harvard Business School, and worked as a loan officer at First National Bank of Chicago before becoming treasurer at Prime Computer Inc. from 1979 to 1985.
He jumped to Kurzweil in 1985 as chief financial officer, working closely with company founder Ray Kurzweil. He eventually became cochief executive with Ray Kurzweil. By 1991, he was in charge of day-to-day operations.
That's when the company's questionable accounting practices started, according to Murray's testimony. If a quarter was ending, but a sales representative hadn't yet cemented a deal, Bradstreet allowed the company to book the revenue a few days early. Instead of being shipped to the customer, the goods were sent to a Chelsea warehouse until the order was signed.
Gradually, that policy was relaxed to allow sales to be booked two weeks early. By 1993, the rules were stretched until "the whole policy basically went out the window and [we did] whatever was necessary to book the revenue," Murray testified.
Eventually, a salesman was pressured to forge the signatures of customers who weren't ready to sign a deal - and never did.
In April 1994, the fraud was finally discovered during an audit by Coopers & Lybrand, the company's accountants.
This story ran on page c16 of the Boston Globe on 12/13/96.
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