In re TIMOTHY EDWIN

 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 74626 / April 1, 2015 
 
ACCOUNTING AND AUDITING ENFORCEMENT  
Release No. 3649 / April 1, 2015 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-16471 
 
 
In the Matter of 
 
TIMOTHY EDWIN 
SCRONCE 
 
Respondent. 
 
 
 
 
ORDER INSTITUTING CEASE-AND-DESIST 
PROCEEDINGS PURSUANT TO SECTION 
21C OF THE SECURITIES EXCHANGE ACT 
OF 1934, MAKING FINDINGS, AND 
IMPOSING A CEASE-AND-DESIST ORDER  
   
 
I. 
 
 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-
and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 
Exchange Act of 1934 (“Exchange Act”) against Timothy Edwin Scronce (“Scronce” or 
“Respondent”).   
 
II. 
 
 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 
of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 
purpose of these proceedings and any other proceedings brought by or on behalf of the 
Commission, or to which the Commission is a party, and without admitting or denying the findings 
herein, except as to the Commission’s jurisdiction over him and the subject matter of these 
proceedings, which are admitted, and except as provided herein in Section V, Respondent consents 
to the entry of this Order Instituting Cease-And-Desist Proceedings, Pursuant to Section 21C Of 
The Securities Exchange Act of 1934, Making Findings, And Imposing A Cease-And-Desist Order 
(“Order”), as set forth below.   
 

 
2 
III. 
 
 On the basis of this Order and Respondent’s Offer, the Commission finds
1
 that  
Summary 
 
1. This case involves a fraudulent scheme directed by Respondent, the owner of four 
private telecommunications companies (collectively, “TelWorx”) to inflate the value of assets that 
the companies sold to PCTEL, Inc. (“PCTEL”), a public company, and its wholly owned subsidiary 
PCTelWorx, Inc. (“PCTelWorx”).  The scheme had two main components:  first, to inflate the value 
of inventory and to prematurely recognize revenue prior to the sale in order to fraudulently inflate 
the sale price; and second, to conceal these facts from PCTEL by prematurely recognizing revenue 
after the asset purchase.  As a result of this scheme, TelWorx provided PCTEL materially false 
financial statements which were incorporated in a Commission filing.   
 
Respondent 
 
2. Timothy Edwin Scronce, age 49, is a resident of Winston-Salem, North Carolina.  
He was the majority owner and CEO of TelWorx Communications, LLC and controlled the day-to-
day operations of TowerWorx, which were two of the TelWorx entities.  After the sale of assets to 
PCTEL, Sconce became a Vice President of PCTEL and the general manager of PCTelWorx until 
he resigned on December 19, 2012.  Previously, Respondent was the President and Chief 
Operating Officer of a publicly traded company. 
Other Relevant Entities 
 
3. PCTEL, Inc. is a Delaware corporation with its principal place of business in 
Bloomingdale, Illinois.  The company provides products and services for wireless communication 
networks.  Its stock is traded on the NASDAQ (ticker symbol PCTI). 
4. PCTelWorx, Inc. was a wholly owned subsidiary of PCTEL.  PCTEL merged 
PCTelWorx into PCTEL on June 30, 2014.   
Background 
 
5. In the first and second quarters of 2012, PCTEL and PCTelWorx negotiated with 
Respondent to acquire the assets of TelWorx.  PCTEL and PCTelWorx relied, in part, on 
TelWorx’s earnings before interest, taxes, depreciation, and amortization (“EBITDA”) to determine 
the price it would pay to acquire the assets.   
                                                 
1
  The findings herein are made pursuant to Respondent's Offer of Settlement and are not 
binding on any other person or entity in this or any other proceeding.  

 
3 
6. Consequently, Respondent understood that artificially increasing TelWorx’s 
earnings would benefit him by increasing TelWorx’s purchase price. 
7. In July of 2012, PCTEL and PCTelWorx acquired TelWorx’s assets for a total of 
$18 million, consisting of cash and an earn-out payment, based on PCTEL’s 2013 financial 
performance and payable in PCTEL’s common stock.   
8. After the acquisition, Respondent operated and managed PCTelWorx similarly to 
the way he had operated and managed TelWorx. 
9. In the third and fourth quarter of 2012, PCTEL’s publicly-filed, consolidated 
financial statements included PCTelWorx’s financial results, and Respondent was aware of this fact.   
Revenue Forecasts 
 
10. Prior to the acquisition, Respondent provided PCTEL and PCTelWorx with 
TelWorx’s revenue forecasts for the second quarter of 2012.   
11. After the acquisition, PCTEL received PCTelWorx’s revenue forecasts from 
Respondent on a quarterly basis.  Respondent knew that it was important to PCTEL’s business that 
PCTelWorx meet or exceed the quarterly revenue forecasts he provided to PCTEL.   
Before The Acquisition, False Entries In  
TelWorx’s General Ledger Inflated Revenue and EBITDA 
 
12. In April of 2012, Respondent directed TelWorx’s controller (the “Controller”) to 
make a false entry in TelWorx’s general ledger which improperly inflated the value of certain 
obsolete telecommunications equipment (“the Modules”) in TelWorx’s inventory and improperly 
inflated TelWorx’s EBITDA.   
13. Subsequently, Respondent instructed the Controller to send TelWorx’s accounting 
firm (the “Accountants”) an email that falsely stated that the Modules were undervalued on 
TelWorx’s general ledger and that the Controller had corrected this error.    
14. In May of 2012, Respondent also directed the Controller to invoice certain customer 
orders before those orders had shipped, but to backdate the orders to the first quarter of 2012.  The 
Controller generated invoices for these orders, which caused TelWorx to recognize revenue 
prematurely in its books and records in the first quarter of 2012.   
15. Respondent then directed the Controller to provide TelWorx’s income statements to 
the Accountants, which he did.   
16. Respondent later directed the Controller to reverse these orders, thus reversing the 
revenue generated from these orders from TelWorx’s books and records.   
17. Near the end of the second quarter, PCTEL requested estimated second quarter 
revenue from TelWorx.  Respondent instructed the Controller to send PCTEL an email providing 

 
4 
TelWorx’s actual revenue for the first two months of the second quarter and estimated revenue for 
the final month of the second quarter.   
18. Respondent then directed the Controller to re-invoice several of the orders 
Respondent had previously instructed the Controller to invoice and reverse, causing TelWorx to 
recognize revenue for these orders prematurely a second time.   
19. These false accounting entries caused material overstatements of TelWorx’s 
EBITDA and its first and second quarter 2012 revenue.   
20. Respondent caused TelWorx to provide PCTEL with financial information that 
included these overstatements.  These false accounting entries increased the purchase price which 
PCTEL paid for TelWorx.   
21. Despite these false entries, TelWorx still did not meet the second quarter revenue 
forecast that Respondent had provided to PCTEL.   
22. Shortly before the acquisition, PCTEL learned that TelWorx did not meet the second 
quarter 2012 revenue forecast.  This revenue shortfall was due, in part, to a large order that a 
customer (“Customer A”) had postponed until the third quarter of 2012.   
PCTelWorx Recorded Revenue From Two False Transactions To Conceal  
The Pre-Acquisition Inventory Write-Up and Third Quarter Revenue Shortfall 
23. After the acquisition, in the middle of the third quarter of 2012, PCTEL began 
performing inventory valuation testing at PCTelWorx, which would have included testing the 
Modules whose value Respondent directed the Controller to inflate prior to the acquisition.   
24. In order to conceal this fact from PCTEL, Respondent told the Controller that he 
planned to purchase the Modules himself.   
25. Even though Respondent was the purchaser, he subsequently instructed the 
Controller to make an entry in PCTelWorx’s books and records showing an order for the Modules 
naming a PCTelWorx’s vendor, a telecommunications company located in Taiwan (“Vendor A”), 
as the purchaser.   
26. Respondent also instructed the Controller to create an invoice for this false order.  
The Controller carried out Respondent’s instructions, which caused PCTelWorx to record a false 
order in its books and records and to recognize revenue on the false order prematurely.   
27. Respondent paid PCTelWorx’s invoice to Vendor A but concealed from PCTEL the 
fact that he had purchased the Modules himself.  PCTelWorx never shipped the Modules to Vendor 
A.   
28. Towards the end of the third quarter of 2012, Respondent realized that even with the 
revenue from Vendor A’s false order, PCTelWorx still would not meet the quarterly revenue 
forecast he had provided to PCTEL.   

 
5 
29. Respondent also knew that PCTelWorx still had not received the large order from 
Customer A that he had forecast for the third quarter.  So Respondent decided to improperly use an 
intermediate purchaser for Customer A’s anticipated order to conceal the revenue forecast shortfall.   
30. Respondent proposed that the intermediate purchaser eventually would resell the 
products to Customer A at a profit.  Respondent planned to offer the intermediate purchaser 
extended payment terms so that it could collect the full purchase price from Customer A before 
having to pay PCTelWorx’s invoice.   
31. Respondent identified a vendor that provided services to – but that had not 
previously purchased a large order from – PCTelWorx (“Vendor B”) as a potential intermediate 
purchaser. 
32. Respondent instructed PCTelWorx’s Vice President of Sales and Tech Services (the 
“Vice President”) to ask Vendor B if it would act as the intermediate purchaser for this order.   
33. The Vice President followed Respondent’s direction and obtained a purchase order 
from Vendor B with the same terms as the order that PCTelWorx expected eventually to receive 
from Customer A.   
34. Using the purchase order obtained by the Vice President, Respondent instructed a 
PCTelWorx employee (“Employee A”) to record Vendor B’s order in PCTelWorx’s books and 
records and to indicate that the order had been shipped to Vendor B and that Vendor B had been 
invoiced.  These actions resulted in improper, premature revenue recognition in PCTelWorx’s 
books and records during the third quarter.   
35. PCTelWorx never shipped the products listed on the false order to Vendor B, nor did 
it send Vendor B the invoice for the false order.   
PCTelWorx Created False Documents In The  
Fourth Quarter To Conceal The Fake Orders From PCTEL 
36. In the middle of the fourth quarter of 2012, PCTEL asked PCTelWorx to provide it 
with all of the records concerning Vendor A’s order.  Because it was a false order, most of the 
requested records, such as the purchase order and shipping records, did not exist.   
37. In order to conceal the fact that Vendor A’s order was false, Respondent instructed 
the Controller to request certain records for Vendor A’s order by email from a PCTelWorx 
employee (“Employee B”).  The Controller sent the email as Respondent instructed.  However, 
Respondent knew that the records described in that email did not exist.   
38. Respondent then created several false records concerning Vendor A’s order that 
PCTEL had requested.  He provided these records to Employee B, and instructed Employee B to 
email the records and other false information concerning Vendor A’s order to the Controller, who 
then provided the false information and documents to PCTEL.   

 
6 
39. Midway through the fourth quarter, Customer A still had not placed the order with 
PCTelWorx as expected by Respondent.  In addition, PCTelWorx’s books and records indicated 
that Vendor B’s payment for the order was due and unpaid.  Respondent became concerned that 
PCTEL would attempt to collect on the overdue invoice to Vendor B, detect the false order in its 
books and records and determine that PCTelWorx had recognized revenue prematurely in the third 
quarter.    
40. Respondent decided to conceal from PCTEL the false third quarter order from 
Vendor B by reversing it from PCTelWorx’s books and records and recording a new false 
transaction that matched an actual purchase order from another PCTelWorx customer (“Customer 
B”).  According to Respondent’s plan, Customer B’s order would be cancelled on PCTelWorx’s 
books, but Customer B would pay for the order placed by Vendor B.     
41. Respondent instructed the Vice President to obtain a revised, false purchase order 
from Vendor B that was identical to the order that PCTelWorx had received from Customer B.   
42. Respondent and the Vice President, at Respondent’s direction, then instructed 
Employee A to cancel Customer B’s order and to reverse Vendor B’s false order from the third 
quarter in PCTelWorx’s books and records.  Respondent and the Vice President, at Respondent’s 
direction, also instructed Employee A to enter Vendor B’s revised, false purchase order into 
PCTelWorx’s books and records.   
43. Ultimately, the items supposedly ordered by Vendor B pursuant to the revised, false 
purchase order were shipped to – and paid for – by Customer B.   
After The Acquisition, PCTEL Filed A Form 8-K/A That  
Included TelWorx’s Materially Overstated Second Quarter Revenue 
44. PCTEL informed Respondent that it was required to file with the Commission pro-
forma financial statements that included financial information for both PCTEL and TelWorx as if 
PCTEL had owned TelWorx for the first two quarters of 2012 and that it had retained the 
Accountants to prepare compilations of TelWorx’s financial statements.  Respondent agreed to 
release TelWorx’s compiled financial statements to PCTEL for filing with the Commission.    
45. On September 24, 2012, PCTEL filed a Form 8-K/A which reported TelWorx’s 
audited financial statements for 2010 and 2011, an unaudited compilation of TelWorx’s financial 
statements as of June 30, 2012, and PCTEL’s unaudited pro forma consolidated financial 
statements that included financial information for both PCTEL and TelWorx as if PCTEL had 
acquired TelWorx as of January 1, 2011.   
46. The Form 8-K/A materially overstated revenue on TelWorx’s financial statements 
due to the false accounting entries made, at Respondent’s direction.  
47. On March 13, 2013, PCTEL issued a Form 8-K/A disclosing these irregularities.   

 
7 
PCTEL Confronts Scronce With The False Entries  
in TelWorx’s And PCTelWorx’s Books and Records 
48. Notwithstanding Respondent’s efforts to conceal from PCTEL the false entries in 
TelWorx’s books and records and the false entries in PCTelWorx’s books and records, PCTEL 
discovered the false entries.   
49. PCTEL confronted Respondent about one of the false purchase orders and, shortly 
thereafter, Respondent resigned his position with PCTelWorx.  
50. PCTEL and Respondent subsequently entered into a settlement agreement pursuant 
to which Respondent paid PCTEL a total of $4.75 million, $3.2 million of which represented the 
return of a portion of the purchase price PCTEL paid for TelWorx’s assets, and gave up the right to 
receive any stock earn-out payments.   
Violations 
51. As a result of the conduct described above, Respondent violated Section 10(b) of the 
Exchange Act and Rule 10b-5 thereunder which prohibit fraudulent conduct in connection with the 
purchase or sale of securities. 
52. As a result of the conduct described above, Respondent acted through or by means 
of another person to violate Section 20(b) and 10(b) of the Exchange Act, and Rule 10b-5 
thereunder.  Section 20(b) of the Exchange Act makes it unlawful for any person, directly or 
indirectly, to do an act or thing which it would be unlawful for such person to do under the 
Exchange Act or any rule or regulation thereunder through or by means of any other person. 
53. As a result of the conduct described above, Respondent violated Section 13(b)(5) of 
the Securities Act which prohibits the knowing falsification of any book, record, or account or 
circumvention of internal controls. 
54. As a result of the conduct described above, Respondent caused PCTEL’s violations 
of Section 13(a) of the Exchange Act and Rules 13a-11 and 12b-20 promulgated thereunder, which 
collectively require issuers of securities registered pursuant to Section 12 of the Exchange Act to file 
with the Commission accurate current reports on Form 8-K that contain material information 
necessary to make the required statements made in the reports not misleading.   
55. As a result of the conduct described above, Respondent caused PCTEL’s violation 
of Section 13(b)(2)(A) of the Exchange Act, which requires Section 12 registrants to make and keep 
books, records, and accounts that accurately and fairly reflect the transactions and dispositions of 
their assets.   
56. As a result of the conduct described above, Respondent violated Rule 13b2-1 of the 
Exchange Act, which prohibits the direct or indirect falsification of any book, record or account 
subject to Section 13(b)(2)(A) of the Exchange Act. 

 
8 
IV. 
 
 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Respondent’s Offer. 
 
 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 21C of the Exchange Act, Respondent Scronce cease and desist 
from committing or causing any violations and any future violations of Section 10(b), 20(b), 13(a), 
13(b)(2)(A), 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-11, and 13b2-1 
promulgated thereunder.   
 
B. Respondent Scronce be, and hereby is, prohibited, for ten years following the date of 
the entry of this Order, from acting as an officer or director of any issuer that has a class of 
securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports 
pursuant to Section 15(d) of the Exchange Act.     
 
C. Respondent shall, within 10 days of the entry of this Order, pay disgorgement of 
$376,007, prejudgment interest of $29,212.47, and a civil money penalty in the amount of 
$140,000 to the Securities and Exchange Commission for transfer to the general fund of United 
States Treasury in accordance with Exchange Act Section 21F(g)(3).  If timely payment is not 
made, additional interest shall accrue pursuant to SEC Rule of Practice 600 or to 31 U.S.C. 3717.  
Payment must be made in one of the following ways:   
 
(1) Respondent may transmit payment electronically to the Commission, which 
will provide detailed ACH transfer/Fedwire instructions upon request;  
 
(2) Respondent may make direct payment from a bank account via Pay.gov 
through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  
 
(3) Respondent may pay by certified check, bank cashier’s check, or United 
States postal money order, made payable to the Securities and Exchange 
Commission and hand-delivered or mailed to:  
 
Enterprise Services Center 
Accounts Receivable Branch 
HQ Bldg., Room 181, AMZ-341 
6500 South MacArthur Boulevard 
Oklahoma City, OK 73169 
 
Payments by check or money order must be accompanied by a cover letter identifying 
Timothy Edwin Scronce as a Respondent in these proceedings, and the file number of these 
proceedings; a copy of the cover letter and check or money order must be sent to Paul Montoya, 
Assistant Regional Director, Chicago Regional Office, Securities and Exchange Commission, 175 
W. Jackson Blvd., Suite 900, Chicago, Illinois  60604.   

 
9 
 
 
V. 
It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 
523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 
Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 
amounts due by Respondent under this Order or any other judgment, order, consent order, decree 
or settlement agreement entered in connection with this proceeding, is a debt for the violation by 
Respondent of the federal securities laws or any regulation or order issued under such laws, as set 
forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 
 
 By the Commission. 
 
 
 
       Brent J. Fields 
       Secretary 
 
 

UNITED STATES OF AMERICA 

 Before the 

 SECURITIES AND EXCHANGE COMMISSION 

 

SECURITIES EXCHANGE ACT OF 1934 

Release No. 74626 / April 1, 2015 

 

ACCOUNTING AND AUDITING ENFORCEMENT  

Release No. 3649 / April 1, 2015 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-16471 

 

 

In the Matter of 

 

TIMOTHY EDWIN 

SCRONCE 

 

Respondent. 

 

 

 

 

ORDER INSTITUTING CEASE-AND-DESIST 

PROCEEDINGS PURSUANT TO SECTION 

21C OF THE SECURITIES EXCHANGE ACT 

OF 1934, MAKING FINDINGS, AND 

IMPOSING A CEASE-AND-DESIST ORDER  

   

 

I. 

 

 The Securities and Exchange Commission (“Commission”) deems it appropriate that cease-

and-desist proceedings be, and hereby are, instituted pursuant to Section 21C of the Securities 

Exchange Act of 1934 (“Exchange Act”) against Timothy Edwin Scronce (“Scronce” or 

“Respondent”).   

 

II. 

 

 In anticipation of the institution of these proceedings, Respondent has submitted an Offer 

of Settlement (the “Offer”) which the Commission has determined to accept.  Solely for the 

purpose of these proceedings and any other proceedings brought by or on behalf of the 

Commission, or to which the Commission is a party, and without admitting or denying the findings 

herein, except as to the Commission’s jurisdiction over him and the subject matter of these 

proceedings, which are admitted, and except as provided herein in Section V, Respondent consents 

to the entry of this Order Instituting Cease-And-Desist Proceedings, Pursuant to Section 21C Of 

The Securities Exchange Act of 1934, Making Findings, And Imposing A Cease-And-Desist Order 

(“Order”), as set forth below.   

 



 2 

III. 

 

 On the basis of this Order and Respondent’s Offer, the Commission finds1 that  

Summary 

 

1. This case involves a fraudulent scheme directed by Respondent, the owner of four 

private telecommunications companies (collectively, “TelWorx”) to inflate the value of assets that 

the companies sold to PCTEL, Inc. (“PCTEL”), a public company, and its wholly owned subsidiary 

PCTelWorx, Inc. (“PCTelWorx”).  The scheme had two main components:  first, to inflate the value 

of inventory and to prematurely recognize revenue prior to the sale in order to fraudulently inflate 

the sale price; and second, to conceal these facts from PCTEL by prematurely recognizing revenue 

after the asset purchase.  As a result of this scheme, TelWorx provided PCTEL materially false 

financial statements which were incorporated in a Commission filing.   

 

Respondent 

 

2. Timothy Edwin Scronce, age 49, is a resident of Winston-Salem, North Carolina.  

He was the majority owner and CEO of TelWorx Communications, LLC and controlled the day-to-

day operations of TowerWorx, which were two of the TelWorx entities.  After the sale of assets to 

PCTEL, Sconce became a Vice President of PCTEL and the general manager of PCTelWorx until 

he resigned on December 19, 2012.  Previously, Respondent was the President and Chief 

Operating Officer of a publicly traded company. 

Other Relevant Entities 

 

3. PCTEL, Inc. is a Delaware corporation with its principal place of business in 

Bloomingdale, Illinois.  The company provides products and services for wireless communication 

networks.  Its stock is traded on the NASDAQ (ticker symbol PCTI). 

4. PCTelWorx, Inc. was a wholly owned subsidiary of PCTEL.  PCTEL merged 

PCTelWorx into PCTEL on June 30, 2014.   

Background 

 

5. In the first and second quarters of 2012, PCTEL and PCTelWorx negotiated with 

Respondent to acquire the assets of TelWorx.  PCTEL and PCTelWorx relied, in part, on 

TelWorx’s earnings before interest, taxes, depreciation, and amortization (“EBITDA”) to determine 

the price it would pay to acquire the assets.   

                                                 
1
  The findings herein are made pursuant to Respondent's Offer of Settlement and are not 

binding on any other person or entity in this or any other proceeding.  



 3 

6. Consequently, Respondent understood that artificially increasing TelWorx’s 

earnings would benefit him by increasing TelWorx’s purchase price. 

7. In July of 2012, PCTEL and PCTelWorx acquired TelWorx’s assets for a total of 

$18 million, consisting of cash and an earn-out payment, based on PCTEL’s 2013 financial 

performance and payable in PCTEL’s common stock.   

8. After the acquisition, Respondent operated and managed PCTelWorx similarly to 

the way he had operated and managed TelWorx. 

9. In the third and fourth quarter of 2012, PCTEL’s publicly-filed, consolidated 

financial statements included PCTelWorx’s financial results, and Respondent was aware of this fact.   

Revenue Forecasts 

 

10. Prior to the acquisition, Respondent provided PCTEL and PCTelWorx with 

TelWorx’s revenue forecasts for the second quarter of 2012.   

11. After the acquisition, PCTEL received PCTelWorx’s revenue forecasts from 

Respondent on a quarterly basis.  Respondent knew that it was important to PCTEL’s business that 

PCTelWorx meet or exceed the quarterly revenue forecasts he provided to PCTEL.   

Before The Acquisition, False Entries In  

TelWorx’s General Ledger Inflated Revenue and EBITDA 

 

12. In April of 2012, Respondent directed TelWorx’s controller (the “Controller”) to 

make a false entry in TelWorx’s general ledger which improperly inflated the value of certain 

obsolete telecommunications equipment (“the Modules”) in TelWorx’s inventory and improperly 

inflated TelWorx’s EBITDA.   

13. Subsequently, Respondent instructed the Controller to send TelWorx’s accounting 

firm (the “Accountants”) an email that falsely stated that the Modules were undervalued on 

TelWorx’s general ledger and that the Controller had corrected this error.    

14. In May of 2012, Respondent also directed the Controller to invoice certain customer 

orders before those orders had shipped, but to backdate the orders to the first quarter of 2012.  The 

Controller generated invoices for these orders, which caused TelWorx to recognize revenue 

prematurely in its books and records in the first quarter of 2012.   

15. Respondent then directed the Controller to provide TelWorx’s income statements to 

the Accountants, which he did.   

16. Respondent later directed the Controller to reverse these orders, thus reversing the 

revenue generated from these orders from TelWorx’s books and records.   

17. Near the end of the second quarter, PCTEL requested estimated second quarter 

revenue from TelWorx.  Respondent instructed the Controller to send PCTEL an email providing 



 4 

TelWorx’s actual revenue for the first two months of the second quarter and estimated revenue for 

the final month of the second quarter.   

18. Respondent then directed the Controller to re-invoice several of the orders 

Respondent had previously instructed the Controller to invoice and reverse, causing TelWorx to 

recognize revenue for these orders prematurely a second time.   

19. These false accounting entries caused material overstatements of TelWorx’s 

EBITDA and its first and second quarter 2012 revenue.   

20. Respondent caused TelWorx to provide PCTEL with financial information that 

included these overstatements.  These false accounting entries increased the purchase price which 

PCTEL paid for TelWorx.   

21. Despite these false entries, TelWorx still did not meet the second quarter revenue 

forecast that Respondent had provided to PCTEL.   

22. Shortly before the acquisition, PCTEL learned that TelWorx did not meet the second 

quarter 2012 revenue forecast.  This revenue shortfall was due, in part, to a large order that a 

customer (“Customer A”) had postponed until the third quarter of 2012.   

PCTelWorx Recorded Revenue From Two False Transactions To Conceal  

The Pre-Acquisition Inventory Write-Up and Third Quarter Revenue Shortfall 

23. After the acquisition, in the middle of the third quarter of 2012, PCTEL began 

performing inventory valuation testing at PCTelWorx, which would have included testing the 

Modules whose value Respondent directed the Controller to inflate prior to the acquisition.   

24. In order to conceal this fact from PCTEL, Respondent told the Controller that he 

planned to purchase the Modules himself.   

25. Even though Respondent was the purchaser, he subsequently instructed the 

Controller to make an entry in PCTelWorx’s books and records showing an order for the Modules 

naming a PCTelWorx’s vendor, a telecommunications company located in Taiwan (“Vendor A”), 

as the purchaser.   

26. Respondent also instructed the Controller to create an invoice for this false order.  

The Controller carried out Respondent’s instructions, which caused PCTelWorx to record a false 

order in its books and records and to recognize revenue on the false order prematurely.   

27. Respondent paid PCTelWorx’s invoice to Vendor A but concealed from PCTEL the 

fact that he had purchased the Modules himself.  PCTelWorx never shipped the Modules to Vendor 

A.   

28. Towards the end of the third quarter of 2012, Respondent realized that even with the 

revenue from Vendor A’s false order, PCTelWorx still would not meet the quarterly revenue 

forecast he had provided to PCTEL.   



 5 

29. Respondent also knew that PCTelWorx still had not received the large order from 

Customer A that he had forecast for the third quarter.  So Respondent decided to improperly use an 

intermediate purchaser for Customer A’s anticipated order to conceal the revenue forecast shortfall.   

30. Respondent proposed that the intermediate purchaser eventually would resell the 

products to Customer A at a profit.  Respondent planned to offer the intermediate purchaser 

extended payment terms so that it could collect the full purchase price from Customer A before 

having to pay PCTelWorx’s invoice.   

31. Respondent identified a vendor that provided services to – but that had not 

previously purchased a large order from – PCTelWorx (“Vendor B”) as a potential intermediate 

purchaser. 

32. Respondent instructed PCTelWorx’s Vice President of Sales and Tech Services (the 

“Vice President”) to ask Vendor B if it would act as the intermediate purchaser for this order.   

33. The Vice President followed Respondent’s direction and obtained a purchase order 

from Vendor B with the same terms as the order that PCTelWorx expected eventually to receive 

from Customer A.   

34. Using the purchase order obtained by the Vice President, Respondent instructed a 

PCTelWorx employee (“Employee A”) to record Vendor B’s order in PCTelWorx’s books and 

records and to indicate that the order had been shipped to Vendor B and that Vendor B had been 

invoiced.  These actions resulted in improper, premature revenue recognition in PCTelWorx’s 

books and records during the third quarter.   

35. PCTelWorx never shipped the products listed on the false order to Vendor B, nor did 

it send Vendor B the invoice for the false order.   

PCTelWorx Created False Documents In The  

Fourth Quarter To Conceal The Fake Orders From PCTEL 

36. In the middle of the fourth quarter of 2012, PCTEL asked PCTelWorx to provide it 

with all of the records concerning Vendor A’s order.  Because it was a false order, most of the 

requested records, such as the purchase order and shipping records, did not exist.   

37. In order to conceal the fact that Vendor A’s order was false, Respondent instructed 

the Controller to request certain records for Vendor A’s order by email from a PCTelWorx 

employee (“Employee B”).  The Controller sent the email as Respondent instructed.  However, 

Respondent knew that the records described in that email did not exist.   

38. Respondent then created several false records concerning Vendor A’s order that 

PCTEL had requested.  He provided these records to Employee B, and instructed Employee B to 

email the records and other false information concerning Vendor A’s order to the Controller, who 

then provided the false information and documents to PCTEL.   



 6 

39. Midway through the fourth quarter, Customer A still had not placed the order with 

PCTelWorx as expected by Respondent.  In addition, PCTelWorx’s books and records indicated 

that Vendor B’s payment for the order was due and unpaid.  Respondent became concerned that 

PCTEL would attempt to collect on the overdue invoice to Vendor B, detect the false order in its 

books and records and determine that PCTelWorx had recognized revenue prematurely in the third 

quarter.    

40. Respondent decided to conceal from PCTEL the false third quarter order from 

Vendor B by reversing it from PCTelWorx’s books and records and recording a new false 

transaction that matched an actual purchase order from another PCTelWorx customer (“Customer 

B”).  According to Respondent’s plan, Customer B’s order would be cancelled on PCTelWorx’s 

books, but Customer B would pay for the order placed by Vendor B.     

41. Respondent instructed the Vice President to obtain a revised, false purchase order 

from Vendor B that was identical to the order that PCTelWorx had received from Customer B.   

42. Respondent and the Vice President, at Respondent’s direction, then instructed 

Employee A to cancel Customer B’s order and to reverse Vendor B’s false order from the third 

quarter in PCTelWorx’s books and records.  Respondent and the Vice President, at Respondent’s 

direction, also instructed Employee A to enter Vendor B’s revised, false purchase order into 

PCTelWorx’s books and records.   

43. Ultimately, the items supposedly ordered by Vendor B pursuant to the revised, false 

purchase order were shipped to – and paid for – by Customer B.   

After The Acquisition, PCTEL Filed A Form 8-K/A That  

Included TelWorx’s Materially Overstated Second Quarter Revenue 

44. PCTEL informed Respondent that it was required to file with the Commission pro-

forma financial statements that included financial information for both PCTEL and TelWorx as if 

PCTEL had owned TelWorx for the first two quarters of 2012 and that it had retained the 

Accountants to prepare compilations of TelWorx’s financial statements.  Respondent agreed to 

release TelWorx’s compiled financial statements to PCTEL for filing with the Commission.    

45. On September 24, 2012, PCTEL filed a Form 8-K/A which reported TelWorx’s 

audited financial statements for 2010 and 2011, an unaudited compilation of TelWorx’s financial 

statements as of June 30, 2012, and PCTEL’s unaudited pro forma consolidated financial 

statements that included financial information for both PCTEL and TelWorx as if PCTEL had 

acquired TelWorx as of January 1, 2011.   

46. The Form 8-K/A materially overstated revenue on TelWorx’s financial statements 

due to the false accounting entries made, at Respondent’s direction.  

47. On March 13, 2013, PCTEL issued a Form 8-K/A disclosing these irregularities.   



 7 

PCTEL Confronts Scronce With The False Entries  

in TelWorx’s And PCTelWorx’s Books and Records 

48. Notwithstanding Respondent’s efforts to conceal from PCTEL the false entries in 

TelWorx’s books and records and the false entries in PCTelWorx’s books and records, PCTEL 

discovered the false entries.   

49. PCTEL confronted Respondent about one of the false purchase orders and, shortly 

thereafter, Respondent resigned his position with PCTelWorx.  

50. PCTEL and Respondent subsequently entered into a settlement agreement pursuant 

to which Respondent paid PCTEL a total of $4.75 million, $3.2 million of which represented the 

return of a portion of the purchase price PCTEL paid for TelWorx’s assets, and gave up the right to 

receive any stock earn-out payments.   

Violations 

51. As a result of the conduct described above, Respondent violated Section 10(b) of the 

Exchange Act and Rule 10b-5 thereunder which prohibit fraudulent conduct in connection with the 

purchase or sale of securities. 

52. As a result of the conduct described above, Respondent acted through or by means 

of another person to violate Section 20(b) and 10(b) of the Exchange Act, and Rule 10b-5 

thereunder.  Section 20(b) of the Exchange Act makes it unlawful for any person, directly or 

indirectly, to do an act or thing which it would be unlawful for such person to do under the 

Exchange Act or any rule or regulation thereunder through or by means of any other person. 

53. As a result of the conduct described above, Respondent violated Section 13(b)(5) of 

the Securities Act which prohibits the knowing falsification of any book, record, or account or 

circumvention of internal controls. 

54. As a result of the conduct described above, Respondent caused PCTEL’s violations 

of Section 13(a) of the Exchange Act and Rules 13a-11 and 12b-20 promulgated thereunder, which 

collectively require issuers of securities registered pursuant to Section 12 of the Exchange Act to file 

with the Commission accurate current reports on Form 8-K that contain material information 

necessary to make the required statements made in the reports not misleading.   

55. As a result of the conduct described above, Respondent caused PCTEL’s violation 

of Section 13(b)(2)(A) of the Exchange Act, which requires Section 12 registrants to make and keep 

books, records, and accounts that accurately and fairly reflect the transactions and dispositions of 

their assets.   

56. As a result of the conduct described above, Respondent violated Rule 13b2-1 of the 

Exchange Act, which prohibits the direct or indirect falsification of any book, record or account 

subject to Section 13(b)(2)(A) of the Exchange Act. 



 8 

IV. 

 

 In view of the foregoing, the Commission deems it appropriate to impose the sanctions 

agreed to in Respondent’s Offer. 

 

 Accordingly, it is hereby ORDERED that: 

 

 A. Pursuant to Section 21C of the Exchange Act, Respondent Scronce cease and desist 

from committing or causing any violations and any future violations of Section 10(b), 20(b), 13(a), 

13(b)(2)(A), 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-11, and 13b2-1 

promulgated thereunder.   

 

B. Respondent Scronce be, and hereby is, prohibited, for ten years following the date of 

the entry of this Order, from acting as an officer or director of any issuer that has a class of 

securities registered pursuant to Section 12 of the Exchange Act or that is required to file reports 

pursuant to Section 15(d) of the Exchange Act.     

 

C. Respondent shall, within 10 days of the entry of this Order, pay disgorgement of 

$376,007, prejudgment interest of $29,212.47, and a civil money penalty in the amount of 

$140,000 to the Securities and Exchange Commission for transfer to the general fund of United 

States Treasury in accordance with Exchange Act Section 21F(g)(3).  If timely payment is not 

made, additional interest shall accrue pursuant to SEC Rule of Practice 600 or to 31 U.S.C. 3717.  

Payment must be made in one of the following ways:   

 

(1) Respondent may transmit payment electronically to the Commission, which 

will provide detailed ACH transfer/Fedwire instructions upon request;  

 

(2) Respondent may make direct payment from a bank account via Pay.gov 

through the SEC website at http://www.sec.gov/about/offices/ofm.htm; or  

 

(3) Respondent may pay by certified check, bank cashier’s check, or United 

States postal money order, made payable to the Securities and Exchange 

Commission and hand-delivered or mailed to:  

 

Enterprise Services Center 

Accounts Receivable Branch 

HQ Bldg., Room 181, AMZ-341 

6500 South MacArthur Boulevard 

Oklahoma City, OK 73169 

 

Payments by check or money order must be accompanied by a cover letter identifying 

Timothy Edwin Scronce as a Respondent in these proceedings, and the file number of these 

proceedings; a copy of the cover letter and check or money order must be sent to Paul Montoya, 

Assistant Regional Director, Chicago Regional Office, Securities and Exchange Commission, 175 

W. Jackson Blvd., Suite 900, Chicago, Illinois  60604.   



 9 

 

 

V. 

It is further Ordered that, solely for purposes of exceptions to discharge set forth in Section 

523 of the Bankruptcy Code, 11 U.S.C. §523, the findings in this Order are true and admitted by 

Respondent, and further, any debt for disgorgement, prejudgment interest, civil penalty or other 

amounts due by Respondent under this Order or any other judgment, order, consent order, decree 

or settlement agreement entered in connection with this proceeding, is a debt for the violation by 

Respondent of the federal securities laws or any regulation or order issued under such laws, as set 

forth in Section 523(a)(19) of the Bankruptcy Code, 11 U.S.C. §523(a)(19). 

 

 By the Commission. 

 

 

 

       Brent J. Fields 

       Secretary