When an obscure Silicon Valley company bought the big semiconductor plant in Roseville last spring, it was hailed as a savior.
Telefunken Semiconductors International not only prevented a possible shutdown of the 600-employee plant. It also promised a big expansion.
Now, the expansion is on hold and the company is dealing with a financial scandal. Telefunken is suing its two top former executives, saying they defrauded the firm out of more than $20 million and jeopardized the health of the Roseville plant.
In a pair of blockbuster lawsuits, Telefunken says former CEO Subbarao Pinamaneni and Raj Johal, the ex-president, committed "wholesale theft" that brought the business "to the brink of insolvency."
The company's majority owner is trying to stabilize the business following Pinamaneni and Johal's dismissals earlier this year. The investor, Semiconductor Ventures of New York, "has stepped up with additional financing," said Telefunken attorney V. David Rivkin.
"We're optimistic about the way it's going," he said Wednesday. The company did impose a dozen layoffs at a facility in New Hampshire, he said.
In the lawsuits, Telefunken alleges that the company and the Roseville plant, its main operating facility, were nearly ruined by Pinamaneni and Johal.
At one point, the plant failed to pay $1.6 million in utility bills to the city, "risking a technically and financially catastrophic shutdown" that could have bankrupted the company, according to one of the lawsuits.
And, without telling the company's investors, Pinamaneni and Johal sold off vital plant equipment, the suits say. That equipment could have been used in the expansion that was promised by company officials last year but hasn't yet materialized.
Telefunken's allegations were a shock to Roseville city officials, who gave the San Jose company a hero's welcome when it bought the troubled former NEC Electronics plant last spring.
Telefunken quickly became a major presence in the tech community. It was honored at the Sacramento Area Commerce and Trade Organization's annual "Salute to New Industry" luncheon earlier this year.
"These accusations concern us since Telefunken is a major employer in our city and a major customer of our utilities," said Roseville City Manager Ray Kerridge in a statement issued by the city. "We will be closely monitoring these new developments."
The city wouldn't discuss the company's alleged nonpayment of its utility bills. Rivkin said the plant worked out a plan with the city "and is making payments in accordance with that plan." He also said the company hasn't ruled out expanding production capacity in Roseville, a project contemplated when Telefunken first took over the facility.
"Expansion is not imminent, but it is still a goal," the attorney said. "Under the circumstances, it's not right around the corner."
The company sued Johal in March in Delaware Chancery Court. Last week it sued Pinamaneni, also in Delaware.
The allegations are essentially the same. Telefunken says the duo started siphoning cash out of the company just weeks after the takeover of the Roseville plant last May. Pinamaneni is listed in court papers as a 30 percent owner of Telefunken, while Johal owns 10 percent.
Nearly $19 million was allegedly wired to a German semiconductor company controlled by Pinamaneni and Johal. That company is also called Telefunken but isn't connected to the firm that owns the Roseville plant, according to the lawsuits. Another $4 million was sent to the German company's suppliers to pay bills, the suits say.
The suits allege that Pinamaneni threatened to fire employees if they didn't carry out the transfers.
Contacted by The Bee, Pinamaneni said Wednesday: "All I can tell you, it is false." He said his lawyers will respond to the allegations in court.
Johal couldn't be reached for comment.
Pinamaneni and Johal were fired earlier this year, Rivkin said.
The suits say the pair's allegedly fraudulent activity left Telefunken struggling to make payroll last fall. The company says it defaulted in February on a $10 million line of credit, prompting the lender to seize Telefunken's revenue and bank account.
The Roseville plant, opened by NEC in 1984, has been one of the mainstays of Sacramento's tech sector. During the dot-com boom in the late 1990s, it employed 1,800 workers making chips for computers and cars.
But employment plummeted in the early 2000s, and by the time NEC merged with a company called Renesas Electronics in 2010, employment was down to 600.
Telefunken bought the plant from Renesas for $53 million. Officials with Telefunken said Renesas probably would have closed the plant down, but the new owners said the facility could thrive.
"This is ideally suited for what we do," Johal told The Bee last July.
He vowed to triple the plant's production capacity and double its employment within three years.
While Rivkin said an expansion "is still an objective," city records show that Telefunken so far has only added a loading dock and conducted some remodeling to accommodate that addition.