|NTG exec: It was 'Catch-22'||
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NTG Press Coverage Summary
The chief financial officer of defunct Network Technologies Group Inc. says it was never part of his job to handle the company's accounting.
In an interview with the Business Journal this week, Thomas Bray -- NTG's former chief financial officer -- denied any role in the alleged accounting irregularities at NTG.
He also said his role as CFO was in title only and primarily confined to finding new financing for the struggling telecommunications firm. Accounting and audit decisions, he said, were made by others at the firm.
"I was not real hands-on with the audit," Bray said.
Bray has become the latest executive to disavow any culpability in the accounting scandal that brought the Fells Point telecommunications firm to its knees. Bray, and other former NTG officers -- including co-founders Michele Tobin and Victor Giordani -- are being questioned by federal law enforcement authorities looking into the company's accounting practices, according to interim CEO John M. Collard.
The company was shuttered July 12 and all 125 employees were laid off after Collard said he found alleged accounting irregularities. He says he found nearly $2 million in phony invoices used to inflate the company's collateral and keep money flowing from its chief lender, Mercantile-Safe Deposit & Trust Co.
Collard has been pointing fingers at NTG's auditing firm, Ellin & Tucker Chartered, for not discovering the alleged accounting irregularities during its audit. He says such a discovery may have prevented two venture capital firms -- including the Abell Venture Fund -- from investing a total of $2 million in NTG in March.
Ellin & Tucker completed its initial field audit of NTG in late January. But it never issued a final report.
"If somebody isn't going to say that something's wrong, then why audit?" said Collard, an Annapolis-based turnaround consultant hired by the NTG board after CEO and co-founder Michele Tobin resigned in late June.
Ellin & Tucker Managing Director Edwin Brake said that the accounting firm wasn't hired to look for accounting irregularities, only audit the company's financial statement. The firm never completed the 2001 audit, Brake said, because the firm's auditors never got enough information from management.
"We feel we've done an admirable job," Brake said. "We believe in the ethics of the profession. We adhere to them to the best of our ability."
Bray -- the former CFO -- also said that both the auditors and Mercantile were so uncertain about NTG's financial health before its collapse that neither of them would budge on the company's 2001 audit.
Bray says Ellin & Tucker didn't want to issue its report until Mercantile decided whether to renew its $2.5 million line of credit with NTG. Mercantile, he said, wouldn't make a decision until the audit was finished. "We were kind of caught in this Catch-22 between the bank and the audit firm," Bray said.
Mercantile did not renew its line of credit.
Another of the major outstanding issues with the audit concerned Adesta Communications Inc., a Nebraska telecommunications company that filed for federal bankruptcy protection in November 2001, Bray said.
Adesta was an NTG client and owed NTG $900,000, Bray said. The amount was so important to the company -- NTG had revenues of $28 million in 2001 -- that Ellin & Tucker had to wait to see if the money would be paid. In March, NTG was paid $800,000 of the $900,000, Bray said, and the issue was resolved. But the issue over Mercantile's financing was never settled.
Brake declined to talk about any specifics of the NTG audit, including the Mercantile and Adesta issues, but he said there were scores of issues that hadn't been resolved at the time that NTG collapsed.
"There were at least 25 to 30 items that were still [in question] on this assignment," Brake said. "We never got the balance of the information."
NTG had been a high-profile company with well-known clients such as Comcast, WorldCom and AT&T. Former State Sen. Thomas Bromwell worked for NTG for four years. In a written statement, Bromwell said he had no involvement in the company's accounting practices.
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