bb's bad? Try the Nasdaq........
Now I wonder if some of the financial
firms still holding paper and rating this
company as "neutral" are some of the
same original ones that underwrit the IPO?
hmmm......talk about crooks.
February 3, 2001
Critical Path Suspends 2 Executives and Starts Financial Inquiry
By CHRIS GAITHER
AN FRANCISCO, Feb. 2 — Two weeks after it shocked Wall Street
with dreary quarterly earnings, Critical Path, a once highflying
provider of corporate e-mail systems, announced today that it
had suspended two top executives and started an internal
investigation into its financial practices.
Its board formed a committee to investigate Critical Path's
methods of recognizing revenue after it "discovered a number
of transactions that put into question the company's financial
results," the company said in a statement. The board
put David Thatcher, the company president, and William Rinehart,
the vice president for worldwide sales, on indefinite
administrative leave.
Saying it wanted more information from the company, Nasdaq
halted trading in Critical Path's stock before the exchange
officially opened, freezing the price at Thursday's
close of $10.06.
Earlier today before the Nasdaq opened, investors eager to
rid themselves of the stock had bid the price down 60 percent,
to $3.86. In after-hours trading, it dropped as low as $3.50.
Critical Path shares had traded as high as $119.50 in March.
The news of the internal investigation was the heaviest of
several recent blows. Many Wall Street analysts and investors
have accused Critical Path, which is based in San Francisco, o
f deliberately manipulating its books.
On Jan. 18, after Mr. Thatcher had repeatedly predicted the
company's first profitable quarter, Critical Path announced a
loss of $11.5 million, or 16 cents a share. Analysts had expected
a profit of a penny a share.
The company blamed a last-minute move by its auditor,
PricewaterhouseCoopers for the shortfall. Critical Path
executives told analysts that the auditors would not allow a
$7 million software licensing deal to count toward its revenue
that quarter. Instead, the revenue would have to be spread
out over several quarters.
Analysts today said the disallowed transaction involved software
acquired in Critical Path's $416 million purchase in August
of PeerLogic, a private company that made software for e-commerce
infrastructure. Analysts also said Critical Path had trouble that
quarter swallowing the costs of the PeerLogic acquisition,
which threw off the balance sheet even more.
The auditors' decision cost the company 12 percent of its
quarterly revenue, which it then reported at $52 million,
analysts were told.
Several investment companies downgraded Critical Path's
stock after the earnings announcement, but not substantially.
Most seemed willing to forgive the company for missing
its quarterly estimates, until today's announcement.
Critical Path said its quarterly earnings, which so deeply
disappointed Wall Street, may in fact be "materially misstated,"
the company said in its statement, warning that the
investigation had just begun.
"Companies miss all the time," said Bert Hochfeld, a managing
director at Josephthal & Company, an investment brokerage house
in New York. "I'm familiar with that. I'm not familiar with
being the victim of a con game."
Today, analysts with SG Cowen, Lehman Brothers and Goldman, Sachs
all lowered their ratings to neutral on Critical Path. Robertson Stephens
decided that Critical Path's future was too uncertain to call and
cut its rating to "under review."
"With this news this quarter, it's going to take a
long time to trust these guys," said Raj Seth, a research analyst
with SG Cowen.
In the most vivid example of investors' disappointment,
Mr. Hochfeld lowered his rating from strong buy to sell.
"You have two choices," Mr. Hochfeld said. "You either believe
it was incredible incompetence, misfeasance or carelessness. Or, you
think - not to put too bold a face on it - that someone was making
up revenue."
A spokesman for Critical Path did not return several phone
calls seeking comment on today's news.
In the last year, Mr. Thatcher has filed documents with
the Securities and Exchange Commission to sell more than
70,000 shares, worth nearly $4.7 million. Mr. Rinehart
has filed to sell more than 100,000 shares worth more
than $6.8 million. David C. Hayden, a company founder and chairman,
has registered to sell 770,000 shares, worth an estimated $35 million.
Critical Path said it had hired PricewaterhouseCoopers and
Wilson Sonsini Goodrich & Rosati, a law firm based in
Palo Alto, Calif., to help with the investigation.
Critical Path also dragged down some of its investor companies,
including the E*Trade Group, which owns a portion of Critical Path.
E*Trade shares fell $1.50, nearly 11 percent, to $12.38. |
