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CFO of Veritas Misstated Education

October 04, 2002|From Times Wire Services

MOUNTAIN VIEW, Calif. — For one chief financial officer, truth Thursday was not just his company's name. It was his undoing.

Veritas Software Corp. is headquartered in Silicon Valley and, in Latin, veritas means truth. That didn't stop Kenneth Lonchar from lying about having a master's degree in business administration from nearby Stanford University.

Veritas officials said a member of the board of directors had received an unsolicited, outside e-mail that said Lonchar had lied about his education. The company investigated and Lonchar was asked to resign.

"I regret this misstatement of my educational background," Lonchar said in a statement released by the firm. He was not available for comment.

It's unclear whether Lonchar attended Stanford at all, or whether he received a degree elsewhere. A Veritas spokeswoman declined to elaborate on Lonchar's education.

Hoping to limit the damage, Veritas Chief Executive Gary Bloom hastily arranged a conference call.

"This unfortunate situation has no bearing on our financial situation nor on our internal controls," Bloom said, adding that he is confident that second-quarter results certified by Lonchar are accurate. The company had net income of $26 million, or 6 cents a share, in the second quarter.

But Bloom's efforts were for nought, as the company's shares dropped as much as 20% before closing down $2.77 to $11.73 on Nasdaq.

Analysts agreed that investors are shaken after scandals at companies such as Enron Corp., where the ex-CFO is charged with fraud, and Tyco International Ltd., where executives are charged with looting more than $600 million.

"Here you have a CFO who signed the certifications and was inaccurate about his personal history; that casts some doubt on the numbers they reported," said William Rutherford, who manages $25 million for Rutherford Capital Management in Portland, Ore. "Everybody is skittish."

In a note to clients, Merrill Lynch analyst Scott Phillips said: "Our first concern is that the CFO's falsification of his educational credentials could suggest the financials are suspect." The news of Lonchar's resignation prompted Merrill to cut its rating on Veritas to "neutral" from "buy."

Veritas said any deceit appeared to be confined to Lonchar's educational credentials. It stood by its forecasts for third-quarter revenue of between $350 million and $370 million and earnings, excluding a range of special accounting items, of 11 cents to 13 cents a share.

Lonchar joins a list of corporate personalities who have had resume trouble. Ex-Salomon Smith Barney analyst Jack Grubman said he attended Massachusetts Institute of Technology, when he in fact studied at Boston College. And like Lonchar, Hong Kong dot-com entrepreneur Richard Li falsely claimed to have earned a Stanford degree.

Veritas said Lonchar will be replaced on an acting basis by Chief Administrative Officer Jay Jones. It will name a new CFO by the end of the year.

Bloom said Lonchar joined Veritas through a merger with OpenVision in 1997--a time when both companies were small and internal corporate controls such as background checks were handled informally.

Lonchar won CFO Magazine's Excellence Award for Managing External Stakeholders in 2001.

During the conference call, Bloom said it was unlikely there would be additional scrutiny of the company's accounting results, given that Veritas recently completed a review as part of the Securities and Exchange Commission requirement that top executives certify results.

Bloomberg News and Reuters were used in compiling this report.

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