Legato Systems Case Summary

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Background Legato Systems, Inc. was a software company created in 1988 that provided data storage databases and services as an intermediary for other firms within the industry. Legato was listed on the NASDAQ exchange and was audited by Pricewaterhouse Coopers, LLC. In 2003, Legato was acquired and merged into EMC Corp., another company specializing in computer hardware and software, who later merged with Dell Technologies, Inc. in 2016. The executives allegedly responsible for the fraud were Executive Vice President of Worldwide Sales David Malmstedt and Vice President of North American Sales Mark Huetteman. The two executives had worked together for Legato for less than a year before the suspicious activity began, and individually had less than three years of experience working for Legato. When hired, both executives were offered stock incentives and bonuses for meeting sales quotas each quarter. Fraud Risk Fraud risks associated with Legato were rooted in being listed on a stock …show more content…

Mark Huetteman settled the charges in July of 2003, in which he neither admitted nor denied the SEC’s allegations. Huetteman paid $160,000 in disgorgement and $40,000 in penalties. David Malmstedt pleaded not guilty to all charges, and the jury came to the verdict of not guilty in June 2004. Malmstedt held the position that his subordinate, Huetteman, had operated the fraud outside of his knowledge and was therefore not responsible for the fraudulent activities. Legato Systems also suffered reparations as a result of the lawsuit. Legato paid $90 million in settlements to shareholders. At the time of the settlements, Legato had already been purchased by EMC, but Legato was still required to restate their financial statements since 1999.

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