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Former Vice-President of Kurzweil Applied Intelligence sentenced for role in a securities fraud scheme

BOSTON, June 21 /PRNewswire/ -- A former Treasurer and Vice- President of Finance of Kurzweil Applied Intelligence, Inc. ("KAI") was sentenced yesterday to serve three years' probation and provide 200 hours of community service for her role in a scheme to falsely inflate the revenues of the company.

U.S. District Court Judge Reginald C. Lindsay granted the government's motion for a downward departure from the applicable sentencing guidelines range based upon the substantial assistance she has provided to the government in this investigation. About one month ago, she testified as a government witness in the criminal trial of United States v. Bernard F. Bradstreet, et al.

DEBRA J. MURRAY, 36, of Acton, Massachusetts, had previously pleaded guilty to counts of conspiracy and securities fraud in connection with her activities in a scheme to grossly exaggerate the sales revenue figures contained in the company's public filings and press releases. KAI is a Waltham, Massachusetts based company that produces a device capable of recognizing human speech.

At the previously held plea hearing, Assistant United States Attorney Jonathan L. Kotlier told Judge Lindsay that, had the case gone to trial, the government would have proven that MURRAY and other members of KAI's management conducted a scheme to overstate the company's revenue by improperly recognizing revenue from sales that had not, in fact, been finalized. Pursuant to auditing rules, the rules of the Securities and Exchange Commission ("SEC"), and its own polices, the company was not allowed to recognize the revenue from a sale until it had received a purchase order or sales quote signed by the customer and had shipped the goods to the customer. However, the company routinely included in its revenue figures sales in which the customer had not finalized the order and where the goods had not been shipped. By including such revenue in its publicly filed financial statements, the company made it appear that its product was selling far better than it really was and that it was making a profit, when, in fact, it was losing money. As a publicly traded company, KAI was required to file year-end and quarterly reports with the SEC. The reports filed by KAI with the SEC, including the Prospectus for the company's initial public offering and subsequent quarterly reports for the quarters ending July 31, 1993 and October 31, 1993, contained false information relating to the company's revenues.

As the treasurer of KAI, MURRAY was responsible for accurately recording and compiling the financial information of the company. She participated in the efforts to include revenue from sales that she knew had not been finalized. She also participated in the company's efforts to make these bogus sales look legitimate so that they would not be noticed by the company's auditors. In order to make the sales look legitimate, Murray and other upper level managers caused the goods to be shipped to a warehouse to make it appear they had been shipped to the customer. In addition, they caused the use of secret side letters. These secret side letters created conditions to sales which would otherwise appear final if one were to only look at the signed purchase order or sales quotes. In order to escape detection by the auditors, MURRAY instructed her accounting staff to destroy documents, including side letters, that would show that sales had not occurred.

The case was investigated by special agents of the Federal Bureau of Investigation and was prosecuted by Assistant U.S. Attorney Jonathan L. Kotlier and John J. Falvey of the Economic Crimes Unit of the United States Attorney's Office.