Former Gateway execs charged with fraud

The US Securities and Exchange Commission (SEC) has charged three former Gateway senior executives with fraud.

The US Securities and Exchange Commission (SEC) has charged three former Gateway senior executives with fraud.

Charges were filed in federal court against former chief executive officer Jeffrey Weitzen, former senior vice-president and chief financial officer John Todd and former controller Robert Manza.

The SEC is seeking an unspecified fine and orders for the defendants to pay back any money they received as a result of fraud. It also seeks orders barring the individuals from committing further fraud or taking up positions as directors or officers at public companies.

Actions by the SEC are the result of an investigation the agency that began in December 2000.

The SEC accused the three men of being so preoccupied with meeting analysts' earnings expectations that they "fraudulently reverse-engineered" Gateway's financial results for the second and third quarters of 2000.

The scheme to "close the gap" and meet earnings estimates included offering financing to customers whose credit applications were previously denied and accelerating purported revenue from a deal with America Online for bundling of the company's internet service on Gateway PCs.

The complaint alleged the former executives misrepresented or failed to disclose significant trends in Gateway's business, that PC sales growth was declining, that by the end of the third quarter only a small percentage of the company's net income came from PC sales, and that earnings and revenue included various one-time transactions.

While pursuing the individuals who allegedly manipulated Gateway's earnings, the SEC has settled with the company.

Gateway replaced its top management in early 2001 and has restated its results for the applicable periods.

The company said it was pleased to put the SEC investigation behind it and that it can now focus on its transition from being a PC company to becoming a supplier of broader technology products.

Joris Evers writes for IDG News Service

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