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Sunday, Feb 25, 2024

Former Peregrine executive indicted

A federal grand jury in San Diego delivered an indictment of Richard T. Nelson, 46, the former chief executive and general counsel of Peregrine Systems Inc., alleging that he was involved in the extensive accounting fraud that ultimately resulted in the local software company declaring bankruptcy in 2002.

Nelson, who worked at Peregrine from 1995 to 2002, was hired as the firm’s chief counsel, but was named acting CEO when the company revealed in 2002 that it was conducting an internal accounting investigation regarding possible overstatements of its revenues.

Subsequently, Peregrine Systems revealed it had inflated its sales during three fiscal years by more than $507 million, and discounted its net losses in the same period by more than $3 billion.

According to the federal indictment filed July 19, Nelson helped manipulate Peregrine finances by a number of actions, including erasing accounts receivable from its books through a series of acquisitions; causing Peregrine to fraudulently book revenue through the use of “swap” transactions; misrepresenting the company’s financial condition to acquisition targets and potential suitors; and concealing evidence of the fraud from investigators.

In October 2004, a federal grand jury handed up an indictment of eight former Peregrine executives, and three other executives who did business with Peregrine. The executives were charged with conspiracy to commit securities fraud; securities fraud; wire fraud; bank fraud; and falsifying books and records.

Since then, two outside defendants, Larry Alan Rodda, a KPMG managing director, and Michael Whitt, president of Barnhill Management Corp., pleaded guilty. Most recently, Douglas Powanda, the company’s director of worldwide sales, pleaded guilty.

The remainder of the defendants are scheduled for a jury trial that should begin next year. They are former CEO Stephen Gardner; former Executive Vice President Vincent Cahill; former Vice President Jeremy Crook; former Chief Operating Officer Gary Lenz; former Senior Vice President Joseph Reichner; former Vice President Berdj Rassam; former revenue manager Patrick Towle; and former audit partner Daniel Stulac.

Peregrine was among the most successful high-tech companies in San Diego during the late 1990s, and in early 2000 it boasted a market capitalization of more than $9 billion as a result of its stock price of $79. As of 2001, it had more than 4,500 employees worldwide.

The bankruptcy process wiped out more than $4 billion in shareholder equity, federal prosecutors allege.

In September, the company that emerged from bankruptcy in 2003 was sold to Hewlett-Packard Co. for $425 million in cash.

, Mike Allen


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