Eight former executives of Peregrine Systems Inc, the recovering infrastructure management vendor that came out of Chapter 11 in August 2003, have been charged with conspiracy to commit fraud.
A federal grand jury has indicted the eight former executives for allegedly taking part in a massive conspiracy that inflated company earnings and resulted in losses amounting to billions of dollars. Specifically, the charges relate to the overstatement of revenues by 38%, or more than $500 million, between 2000 and 2002.
A former Arthur Andersen LLP auditor, Daniel Stulac, as well as two former business partners, have also been indicted.
According to the charges, Peregrine used faked sales contracts to boost its revenues at the end of each month in order to meet or exceed Wall Street analyst expectations. Peregrine had reported 17 consecutive quarters of rising earnings from 1997 through 2002. The company floated in 1997 and its shares rose from $2.25 at that time to $79.50 by March 2000.
Among the charged men are former chairman and CEO Stephen Parker Gardner, as well as former president and COO Gary Lenz. Head of sales Douglas Powanda is also charged and is accused of inventing many of the false sales. According to the charges, Gardner sold $11 million of his stock in the company during the fraud, whereas Powanda offloaded stock worth a staggering $24 million.
Meanwhile, Peregrine’s former CFO previously pleaded guilty to conspiracy and securities fraud charges. Two other former officials also pleaded guilty to conspiracy charges. They are apparently co-operating in the government’s ongoing investigation of the San Diego software company, authorities said.
Peregrine’s problems stem back to a five-year acquisition spree during which it bought 16 companies. That led to all manner of revenue-recognition irregularities, three changes of auditors in a year, and the purging of all its top executives. In its heyday it had a workforce of about 2,800. The payroll is now 630.
Peregrine filed for bankruptcy protection in 2002 and later restated financial results for 11 quarters from 2000 through 2002, slashing more than $500 million off its previously reported revenue of $1.3 billion.