U.S. Securities and Exchange Commission
Litigation Release No. 18290 / August 14, 2003
Accounting and Auditing Enforcement Release No. 1845
Securities and Exchange Commission v. Peregrine Systems, Inc., Civil Action No. 03 CV 1276 (S.D. Cal.) (July 23, 2003)
FINAL JUDGMENT ENTERED IN SEC'S FINANCIAL FRAUD CASE AGAINST PEREGRINE SYSTEMS, INC.
The Securities and Exchange Commission announced that on July 23, 2003, the United States District Court for the Southern District of California entered a final judgment in the Commission's civil action against San Diego-based software company Peregrine Systems, Inc.
The final judgment-to which Peregrine consented without admitting or denying the complaint's allegations-permanently enjoined Peregrine from violating certain antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5), and from violating certain reporting, books and records, and internal controls provisions (Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, and 13a-13).
The final judgment also directed Peregrine to: (1) comply, on an accelerated basis, with the rules regarding management's report on internal controls, implementing Section 404 of the Sarbanes-Oxley Act of 2002, (2) retain an Internal Auditor to ensure that Peregrine's financial results are accurately reported in Peregrine's public financial statements, (3) appoint a Corporate Compliance Officer to perform an ongoing review of Peregrine's corporate governance policies and practices, (4) commence a training and education program for Peregrine's officers and employees, to prevent violations of the federal securities laws, and (5) disclose the current condition of Peregrine's internal controls and financial reporting procedure, when a reorganization plan under Chapter 11 of the Bankruptcy Code became effective.
The court also approved the Commission's decision not to require Peregrine to pay a civil money penalty or disgorgement in this action.
The Commission filed its complaint against Peregrine on June 30, 2003, alleging that Peregrine-through certain officers, employees, and certain others-committed a massive financial fraud that spanned 11 quarters (Litigation Release No. 18205A). According to the complaint, the purpose of the fraudulent scheme was to inflate the company's revenue and stock price. To achieve that end, Peregrine filed materially incorrect financial statements with the Commission concerning the quarter ended June 30, 1999, through the quarter ended December 31, 2001. In 2003 Peregrine restated its financial results for those quarters. In its restatement, Peregrine reduced previously reported revenue of $1.34 billion by $509 million, of which at least $259 million was reversed because the underlying transactions lacked substance.
Peregrine filed a voluntary petition to reorganize under Chapter 11 of the U.S. Bankruptcy Code on September 22, 2002, approximately four months after its accounting problems were made public. Peregrine's Plan of Reorganization became effective on August 7, 2003, and on that date Peregrine disclosed the current condition of its internal controls and financial reporting procedure in a Form 8-K filed with the Commission.
The Commission's case against Peregrine is the fourth civil action it has filed in this investigation. In November 2002, the Commission filed a civil injunctive action against Ilse Cappel, the former senior treasury manager at Peregrine (Litigation Release No. 17859A). In April 2003, the Commission filed a civil injunctive action against Matthew C. Gless, Peregrine's former chief financial officer (Litigation Release No. 18093). In June 2003, the Commission filed a civil injunctive action against Steven S. Spitzer, a former vice president of sales at Peregrine (Litigation Release No. 18191).
The Commission's investigation of participants in this financial fraud is continuing.
The Commission thanks the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation for their cooperation in this matter.