Eight former executives of asset management and service
management supplier Peregrine Systems have been indicted by a
federal grand jury for what prosecutors say was a conspiracy to
commit a multibillion-dollar securities fraud.
US attorney general John Ashcroft and other officials said a
former outside auditor of Peregrine and two outside business
partners of the company were also indicted.
"The indictment charges these defendants with a massive
conspiracy that had at its core one corrupt goal - to hit the
numbers quarter after quarter, no matter what," Ashcroft said in a
statement.
"The betrayal of the public trust alleged in this indictment
extended from the chief executive officer who headed the scheme to
the independent auditor who knowingly certified the company's false
financial statements and allegedly made the continuing fraud
possible."
Named in the indictments were former Peregrine CEO Stephen P
Gardner; former executive vice-presidents for worldwide sales
Douglas S Powanda and Andrew V Cahill Jr; former vice-president for
Europe and emerging markets Jeremy R Crook; former president and
chief operating officer Gary L Lenz; former senior vice-president
of alliances Joseph G Reichner; former vice-president of finance
and chief accountant Berdj J Rassam; and former revenue manager
Patrick J Towle.
Also indicted were former KPMG Consulting managing director
Larry A Rodda; former president of Barnhill Management Michael D
Whitt; and former Arthur Andersen audit partner Daniel F Stulac.
All of the defendants were charged with conspiracy to commit
securities fraud, wire fraud, bank fraud and falsifying books and
records.
One former Peregrine executive, Peter J O'Brien, the company's
onetime director of alliances, pleaded guilty today to obstruction
of justice charges in connection with the case.
In its indictments, the government alleges that the defendants
conspired between March 1999 and May 2002 "to deceive the investing
public about Peregrine's true financial performance and condition"
by improperly booking software licence revenue on back-dated,
impaired or sham transactions and by fraudulently deceiving
financial institutions into extending credit based on false
financial and accounts receivable data.
The actions allowed the company to "deceptively improve its
financial appearance, concealing Peregrine's mountain of
uncollectible accounts receivable by keeping bad debts associated
with these deals off the books", according to the government.
The indictments come more than a year after Peregrine was
charged in July 2003 with "massive fraud" by the US Securities and
Exchange Commission for allegedly falsifying sales and exaggerating
revenue, then covering up the scheme.
In March 2003, Peregrine restated its financial results,
chopping its previously stated 1999-2001 revenue by $509m. The
restatement followed the company's Chapter 11 bankruptcy
reorganisation filing in September 2002.
John Mutch, who took over as Peregrine's CEO and president in
August 2003 during the federal investigation into the accounting
irregularities, said his company "fully cooperated with the
government in its investigations and will continue to do so.
"These indictments stem from historical events that took place
nearly two and a half years ago, and none of the individuals
indicted are current employees of the company," Mutch said. "In the
last two and a half years, we have streamlined operations, retained
customer loyalty and accelerated product innovations.
"Our immediate priorities are to become current on our financial
filings, so that all stockholders can have access to the company's
progress, and to build stockholder value by strengthening our
leadership in the asset and service management market."
Three other former company executives previously entered guilty
pleas in connection with the case, according to the justice
department. Former chief financial officer Matthew C Gless pleaded
guilty to conspiracy and securities fraud; former vice-president of
sales Steven S Spitzer pleaded guilty to conspiracy to commit
securities fraud; and former assistant treasurer Ilse Cappel
pleaded guilty to conspiracy to commit bank fraud.
Todd R Weiss writes for
Computerworld