MiniScribe: From Innovation to Scandal and Beyond

MiniScribe was a pioneering company in the field of hard disk drives, founded in 1978 by a team of engineers at a small startup in California.

The company's first product, the MiniScribe 5.25-inch floppy disk drive, was released in 1980 and quickly gained popularity due to its high capacity and reliability.

The MiniScribe 5.25-inch floppy disk drive was also notable for its use of a unique "voice coil" actuator, which allowed for more accurate and efficient tracking of data on the disk.

MiniScribe's innovative designs and technologies helped establish the company as a leader in the burgeoning hard disk drive industry.

Miniscribe was founded in 1980 by Terry Johnson, a 20-year veteran of the hard drive business, in Longmont, Colorado.

Terry Johnson's vision led to rapid growth, with the company booking $81,000 in sales in 1981 and jumping to $5 million in 1982.

The turning point came in 1983 when Miniscribe secured the contract to supply the 10-megabyte hard drive used in IBM's PC/XT computer.

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This led to a huge growth spurt, with Miniscribe's sales jumping to $77 million in 1983.

However, the PC/XT didn't sell as well as expected, and IBM drastically cut back its orders, causing Miniscribe's sales to slip to $125 million in 1984.

The company's stock value plummeted, and Johnson left the company, with Roger Gower taking over as CEO.

Venture capital firm Hambrecht & Quist bought 12 percent of Miniscribe for $20 million, bringing QT Wiles on board as CEO.

Miniscribe's reported revenues jumped to $185 million for 1986, $362 million for 1987, and $603 million in 1988, making it seem like the company was on a roll.

However, this growth was a mirage, and the company was actually cooking its books, with the first indicator of this being a suspicious January 1987 inventory.

The company's executives, including Taranta, even went so far as to hide 26,000 bricks in the warehouse to avoid an audit.

Miniscribe reported a record profit for 1987 of $31.1 million.

Profits continued into 1988, but the numbers didn't add up. Miniscribe's directors questioned why inventory was growing at the same time profits were growing.

A 20-megabyte drive retailed for around $280 in 1988, while a 40-megabyte drive retailed for around $400.

Profits and losses were a major issue for Miniscribe in the late 1980s. The company reported a record profit of $31.1 million in 1987, but this was followed by a decrease in demand for hard drives in 1988.

Miniscribe's profits for the first three quarters of 1988 were a result of Wiles' scheme, which required profitable quarters to work. However, these profits were not based in reality, as the company was actually spending money faster than it could borrow.

The inventory pileup at Miniscribe was a major problem, with the company selling drives at capacities ranging from 20 megabytes to 380 megabytes. Wiles insisted on increasing production of the high-end, multi-hundred-megabyte drives, which was a costly mistake.

A 20-megabyte drive retailed for around $280 in 1988, while a 40-megabyte drive retailed for around $400. In contrast, Wiles was swinging for the fences with his 380-megabyte drives, which retailed for a whopping $1,700.

Miniscribe's financial situation quickly deteriorated, with the company maxing out its credit line with Bank of America and then taking on a $90 million credit line with Standard Chartered Bank. This money quickly ran out, and Standard Chartered refused to loan more.

As a result, Miniscribe started having trouble paying suppliers, and employee paychecks began to bounce. The company's financial woes culminated in a loss of $14 million for the last quarter of 1988, rather than the reported $40 million loss.

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New management at Miniscribe quickly discovered the massive fraud that had been going on.

They took six months to get to the bottom of it, but when they did, they reported revised results for 1986 to 1989.

A November 2, 1989 article in The Colorado Springs Gazette revealed the true state of the company, with $8 million in working capital and a negative net worth of $88 million.

Miniscribe's reputation was severely damaged, and the company faced 20 lawsuits as a result of the fraud.

Competing hard drive manufacturer Maxtor purchased Miniscribe's assets for $46 million in cash and stock in April 1990.

Miniscribe ceased to exist as a viable company after the sale, but it still had to deal with the lawsuits.

Miniscribe's financial troubles were a result of a massive accounting scandal that involved over $15 million in missing inventory, including a notorious "brick" problem where the company claimed to have sold bricks as hard drives.

Gerald Goodman, Warren Perry, and Owen Taranta, three former top executives, received immunity in exchange for testifying against Wiles and Schleibaum.

The Securities and Exchange Commission fined lower-level executives for their involvement in the scandal.

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Wiles was released from prison in 1999 and kept a low profile afterward, but was still facing lawsuits at the time of his release.

He was 82 years old and living in suburban Los Angeles in 2002, according to a quote from his attorney Cary Lerman.

Prison was particularly hard on Wiles due to his age and health.

The thousands of people laid off due to Miniscribe's fraud faced their own set of challenges, including finding new jobs and paying bills.

Miniscribe's legacy is more than just the buildings it left behind. Miniscribe had been an innovator in the hard drive industry, with its drives performing well and being mentioned as the second-most drive manufacturer in a 1990 reliability roundup by PC Magazine.

Miniscribe's reliability was only average in that survey, suggesting that the high-pressure environment created by QT Wiles took a toll on quality.

The scandal surrounding Miniscribe made national headlines, but it was particularly big news in Colorado, the company's home state.

Maxtor continued operating out of Miniscribe's former operations in Colorado until 2006, when Seagate purchased its rival.

MiniScribe was founded by Terry Johnson, a seasoned expert in the hard drive business, who had a 20-year career at companies like IBM and Memorex. Johnson's experience and leadership helped the company become a major player in the industry.

The company's rapid growth led to an initial public offering in late 1983, with the stock opening for trading in January 1984. However, this success was short-lived, as slow sales of the IBM PC/XT led IBM to dramatically scale back their orders, forcing MiniScribe to lay off 26% of its staff and causing the stock to plummet.

Roger Gower, who had been recently promoted to President, took over the CEO role as well, but the company was later recapitalized with a $20 million investment from Hambrecht & Quist (H&Q), a venture capital firm.

In January 1987, Miniscribe's officers discovered an inventory shortfall of between $2 and $4 million. Managers covered up the problem by breaking into their accounting firm's lockboxes and changing counts.

The shortfall grew to $15 million by July, and the CEO, Quentin Thomas (QT) Wiles, became aware of the issue. Wiles suggested continuing to cover up the problem.

Miniscribe rented a warehouse in Colorado, purchased 26,000 bricks, and packaged them in hard drive boxes with serial numbers. The fake drives were shipped to two customers, CompuAdd and CalAbco.

The customers agreed to reject the shipments, so the drives wouldn't end up in consumer hands. The shipment was booked as $4.3 million in sales, with the returns valued at $3.66 million.

This scheme allowed Miniscribe to double-count the brick drives, effectively booking them as sales and returns in the same quarter.

MiniScribe was founded by Terry Johnson, a veteran of the hard drive business with a 20-year career at companies like IBM and Memorex. Johnson's experience helped the company become a major player in the industry.

The company's rapid growth led to an initial public offering in late 1983, with shares opening for trading in January 1984. This marked a significant milestone for MiniScribe.

However, slow sales of the IBM PC/XT led IBM to scale back their orders, forcing MiniScribe to lay off 26% of its staff and causing the value of the stock to plummet. This setback was a major blow to the company.

Johnson left the company, stating that his departure had "absolutely nothing" to do with IBM. He later reflected on the industry's high volatility, saying "It's a very low inertia industry, you can blow your way into it and get blown out of it very quickly".

The company was recapitalized with a $20 million investment from Hambrecht & Quist (H&Q), a venture capital firm. This investment helped MiniScribe regain its footing.

With the new funding, the company was able to return to profitability, with sales increasing from $114 million at the height of IBM's orders to $603 million by 1988. This was a remarkable turnaround.

Here's a brief timeline of the company's early years:

Roger Gower took over as President, and later Quentin Thomas ("QT") Wiles, a turnaround specialist, took over as CEO. Wiles' leadership helped the company recover from its slump.