Steven S. Spitzer
Litigation Release No. 18191 / June 16, 2003
Accounting and Auditing Enforcement Release No. 1802 / June 16, 2003
Securities and Exchange Commission v. Steven S. Spitzer, Civil Action No. 03 CV 1178 IEG (NLS) (S.D. Cal.) (June 16, 2003)
SEC Charges Former Peregrine Systems Sales Vice President with Financial Fraud, Insider Trading
The Securities and Exchange Commission today filed civil fraud charges against Steven S. Spitzer for his role in an 11-quarter financial fraud at Peregrine Systems, Inc., a San Diego-based software company. The Commission's complaint alleges that Spitzer, a former vice president of sales, participated in a scheme with other senior Peregrine executives and other parties to inflate Peregrine's revenue and stock price. The complaint also alleges that Spitzer engaged in illegal insider trading of Peregrine stock.
According to the complaint, the heart of the fraud was the recording of millions of dollars of revenue in violation of Generally Accepted Accounting Principles (GAAP). Spitzer negotiated some of the largest of Peregrine's fraudulent transactions at the urging of more senior executives. These transactions consisted of non-binding sales of software licenses to resellers (or purported resellers) with the understanding that the resellers owed nothing to Peregrine unless the software was sold to an end-user. Those involved in the scheme called this "parking" the transaction. Spitzer knew, or was reckless in not knowing, that parking transactions were intended to, and did, fraudulently inflate Peregrine's revenue. Spitzer generated millions of dollars of bogus revenue through these parking transactions, enabling Peregrine to meet quarterly revenue goals.
The complaint further alleges that Spitzer, during the time he was aware of the ongoing fraud, illegally sold 185,000 shares of Peregrine common stock for proceeds of approximately $5.2 million on the basis of material, nonpublic information concerning Peregrine's true financial condition.
The Commission's complaint seeks to permanently enjoin Spitzer 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, or aiding and abetting violations of, certain reporting, books and records, and internal controls provisions (Exchange Act Sections 13(a), 13(b)(5), 13(b)(2)(A), 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13b2-1). The complaint also seeks an accounting, disgorgement of ill-gotten gains, prejudgment interest, civil money penalties, and an order prohibiting Spitzer from acting as an officer or director of any reporting company.
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 former Peregrine CFO Matthew C. Gless (Litigation Release No. 18093).
The Commission's investigation of the financial fraud at Peregrine 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.
