Former Officers at Software Firms Are Charged With Cooking Books
By JUDITH BURNS
DOW JONES NEWSWIRES
WASHINGTON -- Federal authorities brought charges against former executives at three California software companies, claiming they cooked the books to make their companies look healthier than they were.
Among those named were the former chief executive officer of Quintus Corp., the former chief executive and chief financial officers of Unify Corp., and former senior sales executives of Legato Systems Inc. The U.S. Attorney's Office for the Northern District of California announced criminal charges against former officers at Quintus and Unify for their roles in the frauds.
A grand-jury indictment unsealed in San Francisco charged Unify's former President and Chief Executive Officer Gholamreza Mikailli, 50 years old, of Saratoga, Calif., with fraud and insider trading in an alleged "round-tripping" scheme, a technique getting intense scrutiny from regulators. Round-tripping occurs when companies give customers funds to purchase their products with no reasonable hope of repayment. In Unify's case, authorities said round-tripping deals were done solely to inflate sales and deceive investors.
"All it is is their own money coming back to them," said Charles Niemeier, chief accountant in the enforcement division of the Securities and Exchange Commission. While some cash-rich dot-coms used such deals to boost sales, "no one industry has a monopoly on round-tripping," Mr. Niemeier added.
The SEC sued Unify, a Sacramento software developer, in a civil suit filed Monday in U.S. District Court in San Francisco for alleged bookkeeping violations, and charged its former CEO, claiming he helped overstate earnings by as much as 150% a quarter from May 1999 through May 2000. Unify didn't return calls seeking comment.
Criminal and civil suits also charge Mr. Mikailli made about $4 million selling Unify shares in the spring of 2000, knowing the company probably would have to restate earnings. Mr. Mikailli was placed on administrative leave in June 2000.
Former Unify Chief Financial Officer Gary Pado was criminally charged and pled guilty to a single felony count last week. He faces companion civil fraud charges filed by the SEC.
Attorneys for Mr. Mikailli and Mr. Pado weren't available to comment.
Former Quintus Chairman and CEO Alan Anderson, 40, of Walnut Creek, Calif., was charged on a single criminal count of securities fraud for allegedly fabricating orders from Ticketmaster, Sun Microsystems, Inc., AT&T, and Siemens, forging their executives' signatures to make the deals seem real.
Such conduct "can only be described as shocking," said Helane Morrison, district administrator for the SEC's San Francisco office. Assistant District Administrator Robert Mitchell said it is unusual to see a CEO doctor purchase orders and e-mails to inflate revenues, something the SEC alleges Mr. Anderson did from December 1999 through October 2000. Authorities estimate the alleged fabrications overstated Quintus's revenue by 37% to 60% a quarter. The Dublin, Calif., firm was delisted from the Nasdaq Stock Market in February 2001 and is in bankruptcy proceedings.
Quintus fired Mr. Anderson in November 2000. If convicted criminally, he faces a maximum penalty of $1 million in fines and up to 10 years in prison. The SEC is seeking to fine him, force him to return performance-based bonuses and bar him from serving as a corporate officer or director.
"Mr. Anderson devoted more than five years of his life to Quintus and is devastated by the events giving rise to these charges," said his attorney Michael Tubach. He called the alleged behavior "entirely out of character" for Mr. Anderson, and said his client is cooperating fully with authorities.
Legato Systems and former finance chief Steven Wise, 47, of Mountain View, Calif., agreed to settle SEC cease-and-desist proceedings without admitting or denying allegations of bookkeeping and reporting violations from May 1999 through December 2000. The agency also faulted Legato's internal controls.
Legato General Counsel Noah Mesel said the company is happy to settle the matter. "We've agreed not to file false financial statements with the government again," he added. Mr. Wise's attorney wasn't available to comment.
Write to Judith Burns at judith.burns@dowjones.com
Updated May 21, 2002 |
