In re MICHAEL HEDRICK

 UNITED STATES OF AMERICA 
 Before the 
 SECURITIES AND EXCHANGE COMMISSION 
 
SECURITIES EXCHANGE ACT OF 1934 
Release No. 74625 / April 1, 2015 
 
ACCOUNTING AND AUDITING ENFORCEMENT 
Release No. 3648 / April 1, 2015 
 
ADMINISTRATIVE PROCEEDING 
File No. 3-16470 
 
In the Matter of 
 
MICHAEL HEDRICK, 
 
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 Michael Hedrick (“Hedrick” 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 by the owner (“the CEO”) 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.  Hedrick, at the CEO’s 
direction, recklessly inflated the value of obsolete inventory before the acquisition and recorded 
revenue prematurely both before and after the acquisition.   
Respondent 
 
2. Michael Hedrick, age 30, is a resident of Lexington, North Carolina.  From 2010 
through July 2012, he was TelWorx’s controller.  From July 2012 until January 2013, he was 
controller of PCTelWorx.  Hedrick does not have an accounting degree and is not a certified public 
accountant.  Hedrick entered into a cooperation agreement with the Division of Enforcement during 
its investigation of this matter.   
Other Relevant Entities And Individual 
 
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.   
5. The CEO was the owner and CEO of one of the TelWorx companies.  After July 
2012, the CEO became the general manager of PCTelWorx, whose responsibilities included its day-
to-day operations and providing its quarterly revenue forecasts to PCTEL.   
Background 
 
6. In the first and second quarters of 2012, PCTEL and PCTelWorx negotiated with the 
CEO to acquire the assets of TelWorx.  PCTEL and PCTelWorx relied, in part, on TelWorx’s 
                                                 
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 
earnings before interest, taxes, depreciation, and amortization (“EBITDA”) to determine the price it 
would pay to acquire the assets.   
7. The CEO informed Hedrick that he would receive a bonus for assisting with the due 
diligence related to the acquisition.  Hedrick was responsible for providing financial information to 
PCTEL and TelWorx’s accounting firm (“the Accountants”).   
8. In July of 2012, PCTEL and PCTelWorx acquired TelWorx’s assets for cash and an 
earn-out payment based on PCTEL’s 2013 financial performance and payable in PCTEL’s common 
stock.  Hedrick received a $25,000 bonus after PCTEL completed the acquisition.   
9. Thereafter, PCTelWorx began operating similarly to TelWorx using the assets 
PCTEL acquired.  The CEO operated and managed PCTelWorx and Hedrick served as its 
controller.   
10. In the third and fourth quarter of 2012, PCTEL’s publicly-filed, consolidated 
financial statements included PCTelWorx’s financial results.   
Before The Acquisition, False Entries In  
TelWorx’s General Ledger Inflated Revenue and EBITDA  
11. In April of 2012, the CEO directed Hedrick 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.  
Hedrick made the entry as directed.   
12. Subsequently, the CEO instructed Hedrick to send the Accountants an email that 
falsely stated that the Modules were undervalued on TelWorx’s general ledger and that Hedrick had 
corrected this error.  By sending the email at the CEO’s direction, Hedrick acted recklessly because 
the Modules were not undervalued.     
13. In May of 2012, the CEO also directed Hedrick to invoice certain customer orders 
before those orders had shipped, but to backdate the orders to the first quarter of 2012.  By 
generating the invoices at the CEO’s direction, Hedrick acted recklessly because the orders had not 
yet shipped.  As a result, TelWorx recognized revenue prematurely in its books and records in the 
first quarter of 2012.   
14. The CEO then directed Hedrick to provide TelWorx’s income statements to the 
Accountants, and Hedrick did so.   
15. The CEO later directed Hedrick to reverse these orders, thus reversing the revenue 
generated from these orders from TelWorx’s books and records.  Hedrick reversed the orders as 
directed. 
16. Near the end of the second quarter, PCTEL asked Hedrick to provide TelWorx’s 
estimated second quarter revenue.  The CEO instructed Hedrick 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.  Hedrick sent the email as directed. 
17. The CEO then instructed Hedrick to re-invoice several of the orders the CEO had 
previously instructed Hedrick to invoice and reverse, and Hedrick did so.  Hedrick acted recklessly 
because those orders had not yet shipped.  As a result, TelWorx recognized revenue for these orders 
prematurely a second time.   
18. These false accounting entries caused material overstatements of TelWorx’s 
EBITDA and its first and second quarter 2012 revenue.   
19. TelWorx provided PCTEL with financial information that included these 
overstatements.   
20. The false accounting entries increased the purchase price which PCTEL paid for 
TelWorx.   
PCTelWorx Recorded Revenue From A False Transaction To Conceal  
Pre-Acquisition Inventory Write-Up and Third Quarter Revenue Shortfall 
21. 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 Hedrick inflated at the CEO’s direction prior to the acquisition.   
22. In order to conceal this fact from PCTEL, the CEO told Hedrick that he planned to 
purchase the Modules himself.   
23. Even though the CEO was the purchaser, he subsequently instructed Hedrick 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 (the “Vendor”), as the 
purchaser.  Hedrick entered the order from the Vendor at the CEO’s direction, which caused 
PCTelWorx to record a false order in its books and records.   
24. The CEO also instructed Hedrick to generate an invoice for this false order.  Hedrick 
did so at the CEO’s direction, which caused PCTelWorx to recognize revenue on the order 
prematurely.   
25. However, neither the invoice, nor the Modules themselves, were ever shipped to the 
Vendor.   
PCTelWorx Created False Documents In The  
Fourth Quarter To Conceal The Fake Order From PCTEL 
26. In the middle of the fourth quarter of 2012, PCTEL asked PCTelWorx to provide it 
with all of the records concerning the Vendor’s order.  Because it was a false order, most of the 
requested records, such as the purchase order and shipping records, did not exist.   

 
5 
27. In order to conceal the fact that the Vendor’s order was false, the CEO instructed 
Hedrick to request certain records for the Vendor’s order by email from another PCTelWorx 
employee (the “Employee”).  Hedrick knew that most of the records the CEO had him request did 
not exist, but sent the email as the CEO instructed.  
28. The CEO then created several false records concerning the Vendor’s order that 
PCTEL had requested.  He provided these records to the Employee, and instructed the Employee to 
email the records and other false information concerning the Vendor’s order to Hedrick.  Hedrick 
provided the false information and false documents to PCTEL.   
After The Acquisition, PCTEL Filed A Form 8-K/A That  
Included TelWorx’s Materially Overstated Second Quarter Revenue  
29. 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.  
30. The Form 8-K/A materially overstated revenue on TelWorx’s financial statements 
due to the false entries Hedrick made in TelWorx’s general ledger at the CEO’s direction.  
31. Hedrick signed a representation letter to the Accountants in which he stated he had 
no knowledge of any fraud by TelWorx’s management in connection with income statements 
TelWorx provided to the Accountants. 
32. PCTEL discovered the false entries in TelWorx’s books and records and the false 
entries in PCTelWorx’s books and records.  Hedrick provided PCTEL with information about what 
had occurred.  PCTEL issued a Form 8-K/A on March 13, 2013, disclosing these irregularities but 
did not restate any financial information it previously reported.   
Violations 
33. As a result of the conduct described above, Hedrick caused violations of Section 
10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, which prohibit fraudulent 
conduct
2
 in connection with the purchase or sale of securities.   
34. As a result of the conduct described above, Hedrick 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. 
35. As a result of the conduct described above, Hedrick caused PCTEL’s violations of 
Section 13(a) of the Exchange Act and rules 13a-11 and 12b-20 promulgated thereunder, which 
                                                 
2
  A knowing or reckless disregard of the truth is sufficient to establish the necessary scienter for 
a violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  Aaron v. SEC, 446 
U.S. 680, 691 (1980).   

 
6 
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.   
36. As a result of the conduct described above, Hedrick 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.   
37. As a result of the conduct described above, Hedrick 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. 
IV. 
 
In view of the foregoing, the Commission deems it appropriate to impose the sanctions 
agreed to in Hedrick’s Offer. 
 
 Accordingly, it is hereby ORDERED that: 
 
 A. Pursuant to Section 21C of the Exchange Act, Hedrick cease and desist from 
committing or causing any violations and any future violations of Sections 10(b), 13(a), 
13(b)(2)(A), and 13(b)(5) of the Exchange Act and Rules 10b-5, 12b-20, 13a-11, and 13b2-1 
promulgated thereunder.   
 
B. Hedrick shall pay disgorgement of $25,000 and prejudgment interest of $2,072.62 
to the Securities and Exchange Commission for transfer to the general fund of the United States 
Treasury in accordance with Exchange Act Section 21F(g)(3).  Payment shall be made in five 
equal installments within 10, 90, 180, 270, and 360 days of the entry of the Order.  If any payment 
is not made by the date the payment is required by this Order, the entire outstanding balance of 
disgorgement and prejudgment interest plus any additional interest accrued pursuant to SEC Rule 
of Practice 600 shall be due and payable immediately, without further application.  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:  
 
  

 
7 
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 
Michael Hedrick 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.   
 
C. Respondent acknowledges that the Commission is not imposing a civil penalty 
based upon his cooperation in a Commission investigation and his agreement to cooperate in any 
related enforcement action.  If at any time following the entry of the Order, the Division of 
Enforcement (“Division”) obtains information indicating that Respondent knowingly provided 
materially false or misleading information or materials to the Commission or in a related 
proceeding, the Division may, at its sole discretion and with prior notice to the Respondent, 
petition the Commission to reopen this matter and seek an order directing that the Respondent pay 
a civil money penalty.  Respondent may contest by way of defense in any resulting administrative 
proceeding whether he knowingly provided materially false or misleading information, but may 
not:  (1) contest the findings in the Order; or (2) assert any defense to liability or remedy, 
including, but not limited to, any statute of limitations defense. 
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. 74625 / April 1, 2015 

 

ACCOUNTING AND AUDITING ENFORCEMENT 

Release No. 3648 / April 1, 2015 

 

ADMINISTRATIVE PROCEEDING 

File No. 3-16470 

 

In the Matter of 

 

MICHAEL HEDRICK, 

 

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 Michael Hedrick (“Hedrick” 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 by the owner (“the CEO”) 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.  Hedrick, at the CEO’s 

direction, recklessly inflated the value of obsolete inventory before the acquisition and recorded 

revenue prematurely both before and after the acquisition.   

Respondent 

 

2. Michael Hedrick, age 30, is a resident of Lexington, North Carolina.  From 2010 

through July 2012, he was TelWorx’s controller.  From July 2012 until January 2013, he was 

controller of PCTelWorx.  Hedrick does not have an accounting degree and is not a certified public 

accountant.  Hedrick entered into a cooperation agreement with the Division of Enforcement during 

its investigation of this matter.   

Other Relevant Entities And Individual 

 

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.   

5. The CEO was the owner and CEO of one of the TelWorx companies.  After July 

2012, the CEO became the general manager of PCTelWorx, whose responsibilities included its day-

to-day operations and providing its quarterly revenue forecasts to PCTEL.   

Background 

 

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

CEO to acquire the assets of TelWorx.  PCTEL and PCTelWorx relied, in part, on TelWorx’s 

                                                 
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 

earnings before interest, taxes, depreciation, and amortization (“EBITDA”) to determine the price it 

would pay to acquire the assets.   

7. The CEO informed Hedrick that he would receive a bonus for assisting with the due 

diligence related to the acquisition.  Hedrick was responsible for providing financial information to 

PCTEL and TelWorx’s accounting firm (“the Accountants”).   

8. In July of 2012, PCTEL and PCTelWorx acquired TelWorx’s assets for cash and an 

earn-out payment based on PCTEL’s 2013 financial performance and payable in PCTEL’s common 

stock.  Hedrick received a $25,000 bonus after PCTEL completed the acquisition.   

9. Thereafter, PCTelWorx began operating similarly to TelWorx using the assets 

PCTEL acquired.  The CEO operated and managed PCTelWorx and Hedrick served as its 

controller.   

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

financial statements included PCTelWorx’s financial results.   

Before The Acquisition, False Entries In  

TelWorx’s General Ledger Inflated Revenue and EBITDA  

11. In April of 2012, the CEO directed Hedrick 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.  

Hedrick made the entry as directed.   

12. Subsequently, the CEO instructed Hedrick to send the Accountants an email that 

falsely stated that the Modules were undervalued on TelWorx’s general ledger and that Hedrick had 

corrected this error.  By sending the email at the CEO’s direction, Hedrick acted recklessly because 

the Modules were not undervalued.     

13. In May of 2012, the CEO also directed Hedrick to invoice certain customer orders 

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

generating the invoices at the CEO’s direction, Hedrick acted recklessly because the orders had not 

yet shipped.  As a result, TelWorx recognized revenue prematurely in its books and records in the 

first quarter of 2012.   

14. The CEO then directed Hedrick to provide TelWorx’s income statements to the 

Accountants, and Hedrick did so.   

15. The CEO later directed Hedrick to reverse these orders, thus reversing the revenue 

generated from these orders from TelWorx’s books and records.  Hedrick reversed the orders as 

directed. 

16. Near the end of the second quarter, PCTEL asked Hedrick to provide TelWorx’s 

estimated second quarter revenue.  The CEO instructed Hedrick 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.  Hedrick sent the email as directed. 

17. The CEO then instructed Hedrick to re-invoice several of the orders the CEO had 

previously instructed Hedrick to invoice and reverse, and Hedrick did so.  Hedrick acted recklessly 

because those orders had not yet shipped.  As a result, TelWorx recognized revenue for these orders 

prematurely a second time.   

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

EBITDA and its first and second quarter 2012 revenue.   

19. TelWorx provided PCTEL with financial information that included these 

overstatements.   

20. The false accounting entries increased the purchase price which PCTEL paid for 

TelWorx.   

PCTelWorx Recorded Revenue From A False Transaction To Conceal  

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

21. 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 Hedrick inflated at the CEO’s direction prior to the acquisition.   

22. In order to conceal this fact from PCTEL, the CEO told Hedrick that he planned to 

purchase the Modules himself.   

23. Even though the CEO was the purchaser, he subsequently instructed Hedrick 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 (the “Vendor”), as the 

purchaser.  Hedrick entered the order from the Vendor at the CEO’s direction, which caused 

PCTelWorx to record a false order in its books and records.   

24. The CEO also instructed Hedrick to generate an invoice for this false order.  Hedrick 

did so at the CEO’s direction, which caused PCTelWorx to recognize revenue on the order 

prematurely.   

25. However, neither the invoice, nor the Modules themselves, were ever shipped to the 

Vendor.   

PCTelWorx Created False Documents In The  

Fourth Quarter To Conceal The Fake Order From PCTEL 

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

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

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



 5 

27. In order to conceal the fact that the Vendor’s order was false, the CEO instructed 

Hedrick to request certain records for the Vendor’s order by email from another PCTelWorx 

employee (the “Employee”).  Hedrick knew that most of the records the CEO had him request did 

not exist, but sent the email as the CEO instructed.  

28. The CEO then created several false records concerning the Vendor’s order that 

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

email the records and other false information concerning the Vendor’s order to Hedrick.  Hedrick 

provided the false information and false documents to PCTEL.   

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

Included TelWorx’s Materially Overstated Second Quarter Revenue  

29. 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.  

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

due to the false entries Hedrick made in TelWorx’s general ledger at the CEO’s direction.  

31. Hedrick signed a representation letter to the Accountants in which he stated he had 

no knowledge of any fraud by TelWorx’s management in connection with income statements 

TelWorx provided to the Accountants. 

32. PCTEL discovered the false entries in TelWorx’s books and records and the false 

entries in PCTelWorx’s books and records.  Hedrick provided PCTEL with information about what 

had occurred.  PCTEL issued a Form 8-K/A on March 13, 2013, disclosing these irregularities but 

did not restate any financial information it previously reported.   

Violations 

33. As a result of the conduct described above, Hedrick caused violations of Section 

10(b) of the Exchange Act and Rule 10b-5 promulgated thereunder, which prohibit fraudulent 

conduct
2
 in connection with the purchase or sale of securities.   

34. As a result of the conduct described above, Hedrick 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. 

35. As a result of the conduct described above, Hedrick caused PCTEL’s violations of 

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

                                                 
2  A knowing or reckless disregard of the truth is sufficient to establish the necessary scienter for 

a violation of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder.  Aaron v. SEC, 446 

U.S. 680, 691 (1980).   



 6 

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.   

36. As a result of the conduct described above, Hedrick 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.   

37. As a result of the conduct described above, Hedrick 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. 

IV. 

 

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

agreed to in Hedrick’s Offer. 

 

 Accordingly, it is hereby ORDERED that: 

 

 A. Pursuant to Section 21C of the Exchange Act, Hedrick cease and desist from 

committing or causing any violations and any future violations of Sections 10(b), 13(a), 

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

promulgated thereunder.   

 

B. Hedrick shall pay disgorgement of $25,000 and prejudgment interest of $2,072.62 

to the Securities and Exchange Commission for transfer to the general fund of the United States 

Treasury in accordance with Exchange Act Section 21F(g)(3).  Payment shall be made in five 

equal installments within 10, 90, 180, 270, and 360 days of the entry of the Order.  If any payment 

is not made by the date the payment is required by this Order, the entire outstanding balance of 

disgorgement and prejudgment interest plus any additional interest accrued pursuant to SEC Rule 

of Practice 600 shall be due and payable immediately, without further application.  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:  

 

  



 7 

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 

Michael Hedrick 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.   

 

C. Respondent acknowledges that the Commission is not imposing a civil penalty 

based upon his cooperation in a Commission investigation and his agreement to cooperate in any 

related enforcement action.  If at any time following the entry of the Order, the Division of 

Enforcement (“Division”) obtains information indicating that Respondent knowingly provided 

materially false or misleading information or materials to the Commission or in a related 

proceeding, the Division may, at its sole discretion and with prior notice to the Respondent, 

petition the Commission to reopen this matter and seek an order directing that the Respondent pay 

a civil money penalty.  Respondent may contest by way of defense in any resulting administrative 

proceeding whether he knowingly provided materially false or misleading information, but may 

not:  (1) contest the findings in the Order; or (2) assert any defense to liability or remedy, 

including, but not limited to, any statute of limitations defense. 

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