Soyo Group

» see soyogroup.com as it lived, on the wayback machine

~ the goodbye ~

There were two companies called SOYO and only one of them made anything. The Taiwanese one, SOYO Computer, designed motherboards, and if you bought a budget board in the late 1990s the name on the box was theirs. The American one was a distributor incorporated in Nevada on 22 October 1998 to sell the Taiwanese company's boards into the United States, and this grave is about that one, because by 2005 it had stopped buying from Taiwan altogether and was selling flat-panel televisions under a name it no longer had much claim to.

Its last filing with the Securities and Exchange Commission is an 8-K submitted on 18 May 2009 under accession number 0001010549-09-000383, and it is an unusually bleak document. It reports that the company had discontinued all operations and filed for Chapter 7 protection in the United States Bankruptcy Court for the Central District of California, Riverside Division, case number 09-19355-RN. It reports a default on roughly $24 million and a further $1.5 million owed to United Commercial Bank, with no interest or principal paid since March of that year. It reports that the auditor, Vasquez and Company, had resigned on 30 April and had withdrawn its opinion on the 2007 accounts along with the interim reviews for 2007 and 2008. And it reports that the chief financial officer resigned on 10 May.

The document gives the petition date as 5 May 2008, which cannot be right. The case number begins with 09, the loan default it describes started in March 2009, and every other account of the collapse gives 5 May 2009. A company whose filings had been materially false for two years got the year wrong one last time on the way out.

~ the chronicle ~

~ in through a shell ~

Soyo Group never went public in the ordinary sense. It arrived on the market inside a dormant listed company called Vermont Witch Hazel Company, Inc., a Nevada shell that had registered shares in July 2000. On 22 October 2002 that shell acquired SOYO, Inc. in exchange for a million Class A preferred shares valued at $1 million and 28,182,750 common shares. Two days later Ming Tung Chok and Nancy Chu, who were married to each other, bought 6,026,798 shares from the shell's principal for $300,000, which gave them about 51 percent of the result. The name changed to Soyo Group, Inc. on 15 November 2002 and the fiscal year end moved from July to December a few weeks after that. The accountants treated the whole arrangement as a recapitalization rather than a purchase.

What the public company owned was a sales operation, not a factory. Its own annual report describes 42 employees at the headquarters in Ontario, California, as of 31 March 2008, selling into Brazil and Canada, including Wal-Mart Canada, under the SOYO name plus licensed Honeywell branding and house labels for televisions and furniture. Nancy Chu's brother Andy Chu was president and principal shareholder of the Taiwanese company whose name the American one was using. The shares traded on the OTC Bulletin Board under the ticker SOYO and later on the pink sheets, never on Nasdaq.

~ twenty-one customers who were not there ~

The reported numbers looked like a growth story. Revenue ran $31.0 million in 2003, $32.4 million in 2004, $38.3 million in 2005, $56.8 million in 2006, then $110.9 million in 2007 with $3.05 million of net income. The share price followed, from a low of 28 cents in the first quarter of 2007 to a high of $1.80 in the fourth.

The SEC's account is that the last of those jumps was manufactured. Its complaint, filed in the Central District of California on 29 November 2011 as SEC v. Nancy S.W. Chu et al., alleges that between January 2007 and November 2008 the company booked over $47 million of fraudulent sales revenue arising from at least 120 fictitious transactions with 21 customers, overstating net revenues in its periodic filings by between 14.4 and 76.8 percent. The Commission put the effect plainly in a later release: the scheme had the effect of nearly doubling Soyo's net revenues for 2007 over the previous year. Reported revenue in 2006 was $56.8 million and the 2007 figure was $110.9 million.

The invented sales had a mechanical purpose. A receivable is something a bank will lend against, and the fake ones were used to keep drawing on a revolving line of credit at United Commercial Bank and to stop that line from going into default. There was also a $6 million debt-for-equity swap with a vendor that was still under negotiation and subject to cancellation when the company reported it as finished, in a Form 10-Q for the quarter ended 30 June 2008 that cleared an account payable of slightly over $6 million from the balance sheet and cut current liabilities by 14 percent.

~ the penalty, per invoice ~

Nobody from the company answered the Commission's complaint. Chu and Eric Jon Strasser, a consultant who prepared the SEC filings and who the Commission says knew the swap disclosure was false and kept it from the auditor, were both found in default. On 10 August 2012 the court ordered Chu to pay $15,600,000 and Strasser $260,000. The Chu figure comes straight out of arithmetic: the maximum third-tier penalty of $130,000, applied once for every one of the 120 fictitious transactions.

The receivables that started it had already been taken away from the company before it filed. A receiver, Kenneth Krasne, was appointed by stipulation in San Bernardino Superior Court over nearly all of the receivables and inventory that secured the bank's loans. soyogroup.com and soyousa.com both answer today with the same 114 bytes of registrar parking script, and SOYO-branded mini PCs still turn up on marketplace listings under an owner nobody has identified in print. The name outran both companies that used it.

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