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Prosecutors Eager to Get Peregrine Trial Docketed

While a Houston courtroom makes daily headlines in the criminal trial of former Enron Corp. executives Kenneth Lay and Jeffrey Skilling, San Diego prosecutors working on this area’s most spectacular corporate accounting scandal, involving Peregrine Systems Inc., say defense attorneys are purposely delaying the case filed almost two years ago.

Despite indictments handed down by a federal grand jury in October 2004 against eight former Peregrine executives and three other defendants, the case is far from going to trial and has languished because of continuous delaying tactics by the defense lawyers, prosecutors state in recently filed motions.

“These defendants have delayed and dallied for months, failing to even pick up the bulk of discovery for a month,” according to a motion filed in federal court last year. “These defendants not only refuse to meaningfully discuss pretrial scheduling with the government, they now ask the court’s blessing for their attempt to hold justice for the victims of their crimes hostage while they seek to extract impossible, unwarranted disclosures.”

The government’s charges stem from the failure of Peregrine, a San Diego software company that once employed more than 4,000 people and generated more than $500 million in annual revenues. Beginning in May 2002, the company revealed its past financial reports contained “accounting inaccuracies,” and it was conducting an internal investigation.

As the company’s stock went into a tailspin and shareholder lawsuits piled up, Peregrine filed for Chapter 11 bankruptcy in September 2002, wiping out about $4 billion in shareholder equity.

In December, the reorganized Peregrine Systems was sold to Hewlett-Packard Co. for $425 million and is now a part of the Palo Alto-based firm’s OpenView business unit.

One defense attorney on the Peregrine case said there are legitimate reasons for the delays.

“This case is breaking new ground in how discovery is reviewed,” said Michael Pancer, who represents defendant Douglas Powanda, a former Peregrine executive vice president of worldwide sales. “No one is dragging their feet on this case. There’s a lot to review.”

Pancer said while the government has delivered mountains of documents, much of it is in digital form on computer hard drives and needs to be transferred to a different format. The defense needs to develop software programs that can search for relevant names and words to be reviewed, he said.

Pancer was unable to say when he thought the trial would start. The government has requested the court to set a trial date schedule at a hearing set for April 6. The government has been seeking to have a trial schedule set since February 2005.

The Peregrine defense’s delays follow a common strategy of most defendants who prefer that a criminal case is tried later rather than sooner, said Paul Pfingst, a former San Diego County district attorney now working at Higgs Fletcher & Mack.

“As a general rule, delays helps the defense,” Pfingst said. “As time passes, there’s an opportunity for documents to be lost, memories become more dim.”

In its motion attempting to persuade the court to set a trial date, prosecutors argue defense lawyers have been given all relevant documents in January 2005, including an extensive internal investigation done for Peregrine that should have been sufficient to determine how they would defend the case.

Of the 11 defendants charged some two years ago with federal securities fraud violations, only one has pleaded guilty. The remaining 10 are Stephen Gardner, Peregrine’s former chief executive officer; Powanda; Andrew Cahill; Jeremy Crook; Gary Lenz; Berdj Rassam; Joseph Reichner; Patrick Towle; Daniel Stulac; and Michael Whitt.

On the civil side, the California Court of Appeal of the 4th District in December reversed a lower court ruling that dismissed a shareholder suit against former Peregrine Chairman John Moores and other Peregrine directors. On March 16, the California Supreme Court rejected a motion filed by Moores’ attorneys to reinstate the lower court’s dismissal of the case.

The latest state Supreme Court ruling means the original lawsuit will be sent back to San Diego Superior Court to be tried.

Moores is the majority owner of the San Diego Padres and a member of the Board of Regents for the University of California.

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