For Those Who Think This Column Is Too Tough, a History Lesson

Also, more on Sunrise and Sabratek. Plus a Padinha impression.
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From the "for what it's worth" file:

If you haven't read Carol Loomis' "Recipe for Jail" cover story in the current

Fortune

, you're missing a valuable piece of journalism by one of this country's most credible financial writers. It should be required reading in both "Investment 101" and "Management 101." For the former, so shareholders realize what happens if they ignore warnings that a company in which they're invested may be cheating; for the latter, so execs know what's in store for them if they do cheat.

The story included a chart on execs who've been sent to jail for their misdeeds. One familiar to longtime readers of this column is Chan Desaigoudar, CEO of

California Micro Devices

(CAMD)

in the mid-1990s, who remains free while appealing a three-year jail sentence. By the time I was done writing

that

saga, readers were no doubt bored to tears as they have been with similar sagas that seem to take up so much of this column's space.

But pieced together, these sagas present abbreviated case studies that should serve as reminders of how far some managements will go to make their businesses look better than they really are.

Like many items here, the Cal Micro story started with a fairly innocuous column in the

San Fran Chronicle

that cited high and rising receivables. Headlined "Does Cal Micro's Balance Sheet Portend Blowup?", the column noted how the chip fabricator appeared to be on quite a roll if you did nothing but look at its press releases. Not only were its earnings and sales posting impressive year-over-year gains, but it had just sold 10% of itself to

Hitachi Metals

. (And a big outfit like that wouldn't

not

do its due diligence, would it? Ha!)

Cal Micro blamed the high receivables on favorable credit terms extended to "approximately" 10 Asian customers and distributors "to avoid shipment delays." (A likely story, right?)

Not even close.

Less than two months later the company disclosed, deep in its fourth-quarter earnings report, that it was taking back from overseas customers and distributors $8.3 million in unsold resistors and capacitors that had led to those high receivables. That equaled a whopping 21% of all of its product sales in the last fiscal year.

Which brings us to the best part: When I asked Desaigoudar and his treasurer, Steve Henke, in a joint interview how many distributors were involved, neither would give specifics.

So I asked again. "How many?" After a moment of silence, Henke said, "Between seven and eight."

Which countries were they in? "The Far East," said Desaigoudar.

Again, which countries? "The Far East."

Asked again to identify the countries, there was silence, and then Henke said, "I'd say all of them are either in Taiwan, Hong Kong or Singapore..." He wasn't sure about Malaysia.

(Why should that matter? Because any time a company takes back that much inventory from foreign distributors, it knows not only what countries those distributors are in, but the names of the owners, their wives, their kids and their birthdays!)

Oh, and when I told Desaigoudar that skeptics were wondering whether Cal Micro had inflated sales in prior quarters to make itself look more attractive to Hitachi and other investors, he snapped, "That's ludicrous."

Which of course is what they all say.

P.S.: Cal Micro never filed for bankruptcy, but shareholders have never recouped anywhere near where the stock was at its highs.

Short Positions

Sunset on Sunrise?:

Something you don't often see -- a gutsy analyst initiating coverage on a company with a price target a quarter of where the stock is currently trading. That's just what Richard Leza of

John G. Kinnard

did yesterday to

Sunrise Technologies

(SNRS)

, citing concern over the company's potential to sell its laser treatment for corrective eye surgery. (See my

reports on the company months ago, which have been followed in recent days by

those of my colleague

Jesse Eisinger

.) What makes Leza's nonrecommendation so noteworthy is his price target, given what he considers the best-case scenario -- 3 1/2 -- for a stock that closed yesterday at 15, down 2, or 12%. Sunrise officials were unavailable for comment.

For the record:

Upon rereading a recent

item here on

Sabratek

(SBTK)

, I notice I said that investor Charles Stewart answered the number listed in a research and development agreement between his

Systle Corp.

and Sabratek with a blunt "hello." Sorry, there was no number for Stewart in the agreement, as there were for the other parties mentioned. That number came from one of his 13-Ds.

Pretending to be Padinha:

Who is more lovable?

The Iridiots

The IDT-iots

The Lernahooligans

The Iomegans

None of the above

Herb Greenberg writes daily for TheStreet.com. In keeping with TSC's editorial policy, he doesn't own or short individual stocks, though he owns stock in TheStreet.com. He also doesn't invest in hedge funds or other private investment partnerships. He welcomes your feedback at

herb@thestreet.com. Greenberg also writes a monthly column for Fortune.

Mark Martinez assisted with the reporting of this column.