MiniScribe

~ the eulogy ~

MiniScribe was founded in 1980 in Longmont, Colorado by Terry Johnson, who had spent two decades in disk drives already and knew the business properly. It grew the way hardware companies grew then, by winning a contract with IBM's PC division, and it went public in late 1983 on the strength of it. Then IBM cut its PC/XT orders in 1984 and MiniScribe laid off a quarter of its staff in one motion, which is the ordinary risk of building your revenue on one customer.

Hambrecht & Quist put twenty million dollars in to steady it and installed their own turnaround specialist, Q. T. Wiles, who was known as Doctor Fix-It and ran the company from Sherman Oaks in California rather than from Colorado. Wiles managed by target. Numbers were set, the numbers were not negotiable, and the culture that developed underneath him was one where reporting a miss was worse than causing one.

So in january 1987, when managers found an inventory shortfall of two to four million dollars, they did not report it. They fabricated counts. They broke into the auditors' locked boxes and swapped the independent tally for their own. By autumn the hole was fifteen million dollars and the methods had escalated accordingly, which is where the bricks come in.

This one is entirely outside my life. I was five years old and the company was in Colorado, and the drives it made were the sort of component that arrives inside a machine with somebody else's name on the front. What connects, thinly, is what happened afterward: Maxtor bought the assets and ran the Longmont plant as Maxtor Colorado, and Maxtor drives were ordinary equipment in Turkish PCs through the late nineties and into the broadband years. I owned that lineage without knowing there was one.

~ the dossier ~

~ the bricks ~

The scheme is famous because it is so physically absurd. Managers rented a warehouse, bought bricks, weighed them to match the shipping weight of a hard disk, packed them into drive cartons and shipped the containers to a subsidiary in Singapore. On the books those containers were inventory in transit, which is the hardest category for an auditor to physically verify. The count was met. Twenty-six thousand bricks went into boxes.

Around it ran the smaller crimes that actually did the work: shipping product to customers who had not ordered it and booking the revenue, counting scrap and defective units as good stock, changing shipping dates. The bricks are what get remembered because they are a picture. An investigating committee's 1989 report described the fraud as deliberate and pervasive, running down through the organization rather than sitting with two people at the top.

~ what got buried with it ~

Employees laid off before christmas 1989 took the story to the Denver newspapers. The company filed for bankruptcy in january 1990 and Maxtor bought the assets that year for forty-six million dollars. Q. T. Wiles was convicted of issuing false financial statements and of insider trading, and served three years in federal prison; the chief financial officer, Patrick Schleibaum, went in as well. Coopers & Lybrand, the auditors, ended up paying out substantially over the work they had signed.

The part worth keeping is that the drives were fine. MiniScribe was not selling a product that did not work, it was selling a working product into a market with brutal margins and a chief executive who had made honesty structurally expensive. The company that got caught faking inventory was killed by its management method, not by its engineering, and the plant kept building drives under a new name for years afterward with most of the same people in it.

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