The U.S. Securities and Exchange Commission (SEC) announced charges against OCZ Technologies' founder and former CEO Ryan Petersen, along with the previous CFO, Arthur Knapp.

"In a complaint filed in the Northern District of California, the SEC alleges that OCZ's former CEO Ryan Petersen engaged in a scheme to materially inflate OCZ's revenues and gross margins from 2010 to 2012. It separately charged OCZ's former chief financial officer Arthur Knapp for certain accounting, disclosure, and internal accounting controls failures at OCZ... The SEC's litigation continues against Petersen," stated an SEC press release.

The SEC contends that Ryan Petersen mischaracterized sales discounts as marketing expenses and instructed employees to create false documentation to conceal the scheme as the company entered into a tailspin due to NAND market volatility and mismanagement. The fact that other employees were involved in the scheme, and the resultant cover-up, is important.

We have reached out to OCZ Storage Solutions, now a Toshiba Group Company, for comment on whether those employees are actively employed by OCZ Storage Solutions, and whether they are cooperating with authorities. We will update our readers as soon as a statement is released.

The SEC alleges that Petersen signed and certified filings that intentionally misrepresented the state of the company, and that he personally profited from the scheme by selling OCZ stock and receiving a bonus during the period of time that the inflated public filings were active.

The SEC also charged Arthur Knapp for instituting and maintaining policies that caused OCZ to record transactions not in accordance with accepted accounting principles, such as reclassifying costs of goods, failing to capitalize labor and overhead costs in regards to inventory, filing shipped products as revenue prior to their actual sale, and understating OCZ's product accruals for product returns. He is also accused of failing to implement accounting controls to prevent misclassification of sales discounts as marketing expenses and significantly overstating its revenues and gross profits.

Finally, the SEC charged Petersen with:

Violating the antifraud, certification, books and records, internal controls, and clawback provisions of the federal securities laws.

It also charged him with lying to accountants and aiding and abetting OCZ's violations of the reporting, books and records and internal controls provisions. The complaint seeks a permanent injunction, payment of his allegedly ill-gotten gains plus prejudgment interest, a civil penalty, an officer and director bar, and forfeiture of Petersen's stock sales profits and bonus.

Arthur Knapp has agreed to disbarment from acting as an officer or director of any public company, and to pay a total of $130,000 in penalties, along with foregoing all claims against OCZ for an unpaid compensation of $170,000.

The story isn't over yet, though; the SEC investigation is ongoing. Arthur Knapp's settlement with the SEC is likely indicative of his cooperation with authorities, which doesn't bode well for Petersen.

Petersen is not new to the justice system. Copperfield Research released a report in April 2011 that disclosed the following information.

“A national criminal records search shows the CEO was arrested and/or charged in various Courts for: Grand Theft, Forgery, Unlawful Entry Motor Vehicle, Theft-1, Drug Violations, and Traffic in Stolen Property."

Within days of the disclosure by Copperfield Research, Seeking Alpha, a financial analyst website, wrote a detailed piece on OCZ Technology and its CEO, Ryan Petersen. The company's stock plummeted nearly 40 percent by the end of the week.

Petersen tried to contain the damage by calling a journalist at Bloomberg to explain the situation. He stated that his criminal record is out there if someone wants to find it. He elaborated further stating:

“My only felony conviction was for trafficking in stolen property in exchange for marijuana."

At the time of the revelations, Petersen was in negotiations with Seagate in an attempt to sell OCZ Technology to the company. The deal fell through when Petersen held out for a board position at Seagate. OCZ Technology was in a bad position at the time. NAND flash shortages hurt the company, and it was forced to purchase NAND on the spot market without contractual agreements in place for guaranteed supply.

Petersen resigned as the company inched closer to bankruptcy, but it was rumored he was forced out by the board. Around the same time, OCZ Technology's board learned of accounting issues that revolved around RMA products not being recorded, and other issues with stuffing the company's largest retailer (presumably Newegg) with more product than it could sell, and then counting the unsold items as revenue.

It was around this time that the Silicon Valley rumor mill started buzzing that Petersen's house and cars were listed at fire sale prices. Soon after, we learned that Ryan Petersen had left the country to seek shelter in Panama with his wife, who is from that country. Peterson allegedly remains in Panama; the country has an extradition treaty with the United States, but the treaty becomes fuzzy for citizens of the country and their spouses.

Computer enthusiasts tend to either love or hate OCZ, with much of the distaste stemming from rampant SSD failures and a perception of unsavory RMA and business practices. OCZ eventually was forced to accept high-interest loans, but then began to miss key loan payments as its situation worsened. In the end, NAND manufacturer Toshiba purchased the company. This was the best scenario for OCZ, as a guaranteed NAND supply addressed one of the key failings of the company. Since its purchase, the company has worked diligently to repair its reputation through a continued focus on quality products and above-par customer service and warranties.

Despite the accusations, what Petersen accomplished was nothing short of a miracle. He brought the company up from what was essentially a computer store in Northern Indiana to one that competed at the highest levels with mega corporations. OCZ Technology didn't win every battle, but it managed to carve out a large portion of the pie. It's too bad ill-gotten gains were involved to crumble the success story.

The saga is far from over, as presumably criminal charges will soon follow.

Paul Alcorn is a Contributing Editor for Tom's IT Pro, covering Storage. Follow him on Twitter and on Google+.

Chris Ramseyer is a Contributing Editor for Tom's Hardware, covering Storage. Follow him on Twitter and Facebook.

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