ClearOne Communications, the troubled Utah maker of audio and video conferencing equipment, is facing another big financial setback.

Salt Lake City, UT (via the Salt Lake Tribune): The insurance carrier that issued a $3 million policy to protect ClearOne against financial fallout from mismanagement by its officers and directors doesn't have to pay to help the company cover a $10 million settlement with its shareholders, according to U.S. District Court.

The reason: ClearOne provided National Union Fire Insurance Co. of Pittsburg the same doctored financial statements that it gave the Securities and Exchange Commission and its stockholders. And under Utah law, an insurance provider can rescind its coverage if it relied on such misrepresentations in issuing its policy.

"We were reasonably confident going in that the court would ultimately grant a recession [of the policy]," said Salt Lake City attorney Phillip S. Ferguson, who represents National Union. "Then again, on any given day in court, you just never know."

The ruling by Judge Tina Campbell is the latest plot twist in the evolving saga that began nearly three years ago when the Securities and Exchange Commission filed a lawsuit alleging the company and two of its top executives ran a scheme to inflate ClearOne's share price by doctoring its books.

ClearOne eventually settled that dispute without receiving a fine or admitting wrongdoing but it wasn't as successful with its shareholders, many of whom participated in a class action lawsuit that raised many of the same allegations as the SEC's action. ClearOne agreed to pay $5 million in cash and issue an additional 1.2 million shares to settle with it stockholders. What is unknown is whether those ClearOne shares will have any value in the near future.

Late last month, ClearOne received a notice from the SEC's Salt Lake City office that it wants to revoke the registration of the company's stock because if failed to file current annual and quarterly reports. If SEC officials in Washington, D.C., adopt the recommendation of the Salt Lake City office, ClearOne's stock will no longer trade and its shares will become virtually worthless.

ClearOne filed a statement with the SEC detailing its reasons why it believes it isn't necessary for regulators to revoke its stock to protect shareholders. Yet the company is unwilling to reveal to its shareholders or the marketplace what logic it is using to argue against the SEC's proposal.

"That is private information," ClearOne spokeswoman DeLonie Call said. "We're not going to make it public." The company has promised its shareholders that it will complete the audit of its 2004 financial results before year end and that it will submit its 2005 documents by the end of the first quarter in 2006.

In August, after nearly two years of waiting, ClearOne finally filed its financial reports for the years questioned by the SEC in its lawsuit. And those reports revealed a company whose financial results deteriorated from a $3.6 million profit during its 2001 fiscal year to a $35.9 million loss in fiscal 2003.