The Securities and Exchange Commission is bringing charges against a telecommunications equipment maker and two of its former executives for improperly recognizing as revenue over a million dollars’ worth of inventory.

The SEC’s Enforcement Division alleges that Newport Beach, Calif.-based AirTouch Communications Inc., former president and CEO Hideyuki Kanakubo, and former CFO Jerome Kaiser orchestrated a fraudulent revenue recognition scheme that violated GAAP by recognizing revenue on the inventory, which was shipped to a Florida warehouse, but never sold. They are also accused of defrauding an investor from whom they secured a $2 million loan for the company based on misstatements and omissions associated with the shipments.

When AirTouch reported net revenues of a little more than $1.03 million in its quarterly report for the third quarter of 2012, it included approximately $1.24 million in inventory that had been shipped to a company in Florida that agreed to warehouse AirTouch’s products in anticipation of future sales. The Florida company had not purchased the inventory, and AirTouch had not sold the inventory to any of its customers.

“Kanakubo and Kaiser created a facade of sales activity in AirTouch’s quarterly report to falsely depict a healthy and growing company when in fact it was struggling without any positive revenue,” said Michele Layne, director of the SEC’s Los Angeles Regional Office. “They also deceptively obtained financing from an investor based on a similar false portrayal of the company’s sales activity.”

According to the SEC’s order instituting an administrative proceeding, AirTouch shipped approximately $1.24 million of inventory to the Florida company, and Kanakubo and Kaiser reported the shipped inventory as revenue on AirTouch’s Form 10-Q, despite not having received any payment or any commitment to purchase the equipment from the Florida company or any third party. They also signed certifications falsely attesting to the accuracy of the company’s financial results.

The SEC’s Enforcement Division further alleges that Kanakubo and Kaiser made false and misleading statements and omissions to an investor they solicited for a $2 million short-term bridge loan to the company in exchange for a promissory note and a warrant to purchase common stock.  On Oct. 17, 2012, AirTouch received the loan of $2 million from the investor, and two days later Kanakubo approved a $15,000 bonus payment to Kaiser for his work on raising capital. The same day, Kanakubo authorized a $15,000 payment to himself in connection with unused vacation time.

According to the SEC’s order, Kanakubo, who lives in Irvine, Calif., and Kaiser, who lives in Chowchilla, Calif., withheld key information about the inventory shipments to the Florida entity from AirTouch’s board of directors and controller -- as well as its outside independent accountant.

The SEC’s order alleges that AirTouch, Kanakubo, and Kaiser violated the antifraud provisions of the federal securities laws, and asserts that Kaiser’s violations constituted willful conduct.