When Peregrine Systems Inc. ousted its top management amid an accounting scandal in May, the San Diego software company turned to the man who built it from a tiny firm to a $13-billion enterprise: John J. Moores.
The multimillionaire owner of the San Diego Padres baseball team seemed like a natural choice. A self-described computer nerd, he had served on the board for 13 years, including a decade-long stint as chairman. Moores took the company public after buying a controlling stake and personally co-signed on corporate loans.
But now that the company has filed for Chapter 11 bankruptcy protection; been accused of "possible fraud" by one of its former auditors, KPMG; received a subpoena from the Justice Department and also faces an investigation by the Securities and Exchange Commission, the choice of tapping Moores as corporate savior raises a critical question: Is the man brought in to help clean up Peregrine partly responsible for the mess?
The company's records show that the questionable accounting that landed Peregrine in federal Bankruptcy Court last week started on Moores' watch. Peregrine is restating its finances from April 1999 through December 2001 and says revenue may have been inflated by as much as $250 million.
For 16 of those 33 months, Moores was chairman of the company. Over that span, he sold nearly $371 million in Peregrine stock. All told, Moores and entities affiliated with him have sold nearly $611 million in Peregrine shares, reducing their stake in the company from 62.5% at the time of its public offering in 1997 to about 3% today.
The stock, which peaked at more than $80 a share in 2000, closed Monday at 6 cents in over-the-counter trading.
Citing pending litigation, Moores declined to discuss his current or previous tenure as Peregrine's chairman, or the allegations of fraud at the company. Peregrine officials say that its board, which typically met once a quarter, had no idea about the company's financial troubles.
A recent internal investigation, led by law firm Latham & Watkins and the accounting forensic team of PricewaterhouseCoopers, found "that the outside directors were in the dark about the accounting improprieties," said Meryl Young, a Gibson, Dunn & Crutcher attorney who is representing Peregrine and its outside board members in a series of lawsuits filed by shareholders.
Peregrine has sued former auditor Arthur Andersen for not catching the accounting shenanigans sooner and alerting the board. When Moores and other board members were finally told of the problems last April, "they immediately did all the right things," Young added. "They're fulfilling their job now."
But the shareholder lawsuits paint a picture of a company where, at the very least, Moores ignored his responsibilities as chairman. And some critics are incredulous that Moores is being positioned today as the one who can resurrect Peregrine.
"Moores wouldn't know what a white horse looks like, let alone do what it takes to be a company's savior," said Bert Hochfeld, managing director at Montauk Capital Markets Group and a former employee who resigned from BMC Software Inc., a Houston company that Moores started in 1980.
For Moores, the stakes are huge.
Several of the 40 lawsuits filed against Peregrine name Moores as a defendant. One of San Diego's most well-known--and controversial--citizens, the 58-year-old Moores is a generous philanthropist and also serves as chairman of the UC Board of Regents. As chairman of the Padres, he found himself at the center of a political corruption scandal involving the team's new downtown sports stadium; he was cleared in the case, though a city councilwoman who received gifts from Moores was forced to resign and pleaded guilty to two misdemeanor counts of not reporting the items.
If Moores is implicated in the scandals at Peregrine, shareholders' lawyers conceivably could go after his personal assets. San Diego attorney Jeffrey Krinsk said he intends to ask a federal judge this month to put Moores' holdings, including the Padres, into a "constructive trust," which does not freeze a person's assets but pools them together to ensure that they are not drained.
"I don't know that he sat late at night with his cohorts by a dim lamp and mapped out a way to convert shareholder money to his benefit," Krinsk said. Nonetheless, Krinsk maintains that Moores may be liable because he failed to recognize the accounting problems.
For their part, current and former employees--many of whom refuse to speak on the record for fear of being sued by Peregrine--tell of a corporate culture that pushed the rules. The company's financial statements, these employees said, were built in part on an unorthodox accounting procedure known as "burn." Burning is the practice of booking sales months before they close, and often for far more cash than they actually bring in, to help a company hit its quarterly revenue target.