EDITOR’S NOTE: As The Boulder County Business Report celebrates its 20th anniversary in 2001, each issue will take a look back at major business events of the past 20 years. Each of these stories will be reprinted in a special Business Report 20th Anniversary issue in November.
By Nancy Nachman-Hunt
Business Report Correspondent
LONGMONT — Boulder County had its share of tragedy, mayhem and malfeasance in 1989.
The county was rocked by the tragic deaths of 17 residents who were on the Chicago-bound United Airlines jet that crash-landed in a corn field near Sioux City, Iowa. The Boulder Valley School District was mired in red ink and forced to cut $3.3 million from its 1990 budget, resulting in the mayhem of lost jobs and many lost school programs. In the business community, the all-too-familiar layoffs in the high-tech sector continued — especially at the now legendary and defunct MiniScribe, the Longmont-based disk-drive maker. It is the MiniScribe debacle that contributed malfeasance to the news mix that year.
The tale of the company’s demise will likely go down in Boulder County business history as one of the most lurid of the late 20th century. The hotshot disk-drive maker was hatched in a Longmont basement in 1980. By 1983, it had captured 19 percent of the computer disk-drive market and was flying high. By 1984, it had gone public, and its founders were millionaires several times over. By 1990, the company was history — decimated by the cumulative effects of management deceit.
From cooking the books to a warehouse full of bricks instead of disk drives, MiniScribe’s transgressions not only made page one of the Wall Street Journal, but sent many of its officers and directors to federal prison. Because there is still active litigation surrounding exploits of those who ran the company, no one contacted by The Business Report who was involved with the company during those years would comment today on the company’s demise. What follows was gleaned from articles written during 1989, the year the fiction of MiniScribe’s success unraveled.
According to news accounts, MiniScribe’s troubles began in 1984. It had been riding high when it went public in 1983 — underwritten by Morgan Stanley & Co., the contemporary dean of New York investment banks, and boasting none other than IBM as its primary customer. As luck would have it, within several months of its debut in public markets, Big Blue decided it was going to make its own disk drives. Reeling from the loss of its biggest client, MiniScribe was forced to lay off more than 1,000 workers and almost went bankrupt. During the first two quarters of 1985, the company lost $20 million.
But MiniScribe found a white knight. San Francisco investment bank Hambrecht & Quist (now J..P. Morgan H&Q) decided it would rescue the company. The bank rid itself of MiniScribe’s previous management team, invested $20 million and installed one of its partners, turnaround artist Quentin T. Wiles, as MiniScribe’s chairman and chief executive officer.
Dr. Fix It, as Wiles was then known, was charged with fixing MiniScribe. For the next three years, it looked as if Wiles and his management team were doing just that. In 1986, the company reported $185 million in sales; in 1987 it reported $362 million. By 1988, MiniScribe had 8,200 workers in plants in Longmont and Southeast Asia and reported sales of $603 million.
Storm clouds were gathering for the company by the end of that year. In October, it cut 350 workers, citing low demand for disk drives. In December, it cut 2,000 more jobs, citing the industry’s “terrible over-capacity situation.”
In early 1989, the bottom dropped out. MiniScribe reported a fourth quarter 1988 loss of $14.6 million, and on Feb. 22 Wiles resigned, saying his family situation no longer allowed him to spend the time required to act as CEO through “another difficult period in the industry.” A new chairman and CEO, Richard Rifenburgh — yet another turnaround artist — was installed to keep the company solvent.
What Rifenburgh’s internal investigation of the company revealed caused him in May to inform investors that none of MiniScribe’s financial statements for 1986, 1987 or 1988 were reliable.
In September, Rifenburgh’s investigation was made public. Wile’s management style, which the Wall Street Journal termed as “abusive,” had created a situation where managers felt compelled to deliver on sales goals, whether or not they had been met. Wiles, according to profiles written about him at the time, ruled by what he called “Q.T.’s disciplines.” The rules required extensive meetings, careful goal setting and constant updating. He had a reputation, according to the San Jose Mercury News, for abruptly firing managers who didn’t perform and putting tremendous pressure on those who remained.
In an effort to elude Wiles’ wrath, managers at the time contended, fraud on a massive scale had been perpetrated at MiniScribe. To pad sales, the company had, incredibly, packaged bricks as finished disk drives and shipped them to distributors. It also had shipped many more disk drives to customers than were ordered. To avoid booking losses on product returns, it had logged defective drives as inventory and shipped them out to customers again.
None of the glowing numbers reported to investors — or to the Securities and Exchange Commission — were accurate. Shareholder lawsuits against officers and directors by November 1989 tallied more than a dozen. By December, MiniScribe’s finances were the subject of a federal grand jury probe. The company was forced to default on interest payments on its corporate bonds, saying it was trying to keep enough cash on hand to settle lawsuits out of court.
Such quick settlements were not to be, however. In January 1990, MiniScribe filed for Chapter 11 bankruptcy protection and never emerged. The company was defunct by November.
Ultimately, its shareholders, save one, settled for $34 million in a class action. For his part in the charade, Wiles got more than two years in federal prison. Today, one final lawsuit remains unresolved.