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Eight former Peregrine Systems execs indicted

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


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