Eight former executives of business software maker Peregrine Systems Inc. and three of their associates were indicted by a federal grand jury this week for allegedly conspiring to overstate the company's sales by more than $500 million.
Former Chief Executive Stephen Gardner, Chief Operating Officer Gary Lenz and Executive Vice President Andrew Cahill were charged Tuesday with conspiracy to commit securities fraud and falsifying records, among other things. They are to be arraigned today in San Diego on a total of 45 counts.
If found guilty on all counts, each would face a maximum sentence of more than 100 years in prison. Prosecutors are also seeking a total of $50 million in fines.
"This is a $4-billion-loss case," prosecutor Sangay Bhandari said, referring to the amount Peregrine shareholders lost when the company filed for bankruptcy protection in 2002.
Lawyers for Gardner could not be reached for comment.
Lenz also had no comment. His attorney, Mark Holscher, said his client was innocent.
"He was forced out of the company 18 months after he arrived because he was not focused enough on quarterly earnings," Holscher said.
Cahill now works for Canadian business software maker Cognos Inc. The company said he could not comment.
Not mentioned in the indictment was former Peregrine Chairman John J. Moores, owner of the San Diego Padres baseball team. He took the company public in 1997 and remained chairman until 2000.
The indicted Peregrine associates include Daniel Stulac, an auditor at the now-defunct firm Arthur Andersen. His attorney, Mike Attanasio, said Stulac was innocent and "looks forward to having his day in court."
The two other defendants are a management consultant and a Peregrine customer.
For 17 straight quarters after Peregrine's initial stock offering, the company's quarterly profit met or exceeded analysts' expectations, prosecutors said.
But in 2002, after reaching a market value of $4.7 billion, Peregrine said it was investigating possible misstatements in its financial reports. It filed for bankruptcy protection that year, and three former company executives subsequently pleaded guilty to various charges of fraud and obstruction of justice.
Joining them Tuesday was former Peregrine Director of Alliances Peter James O'Brien, who admitted withholding information about his participation in a securities fraud scheme, Justice Department officials said.
Also Tuesday, the Securities and Exchange Commission filed civil charges that could result in six former Peregrine executives having to pay back salaries, bonuses and commissions.
"This was not the biggest technology company we went after, by a long shot," said Lawrence West, an associate director of the SEC's enforcement division. "But the percentage of their revenue that was fraudulent relative to the size of the company was very, very large."
Peregrine emerged from Chapter 11 protection in July 2003. Its over-the-counter-traded shares were unchanged at $19 on Wednesday.