Peregrine Systems, Inc. was a leading provider of Enterprise Service Desk software. Founded in 1981, Peregrine Systems, Inc. led its industry until an accounting scandal was uncovered in late 2002. The company when public in 1997 with its IPO on the NASDAQ listing shares at $9 a share. The company remained on the market until August 30, 2002 when it was delisted. The company’s external auditor just happened to be Arthur Andersen, one of the large accounting firms that no longer exists today. Peregrine Systems, Inc. later filed for bankruptcy and was eventually bought by HP, which still operates a portion of its company today.
Suspicion into Peregrine Systems, Inc. arose when the company reported 17 consecutive quarters of revenue growth that met or exceeded Wall Street analysts’ expectations. In 1999 Stephen Gardner, CEO made $4.5 million, the highest paid CEO in all of San Diego. In March of 2000 the stock price topped $79.50. Less than one month later the stock price was just $26.06 a share. Two years later, shares are trading at a low of $7 a share, being hit hard by the tech crash. On May 7th, 2002, Peregrine revealed that its books have been manipulated. That same day, Stephen Gardner the CEO and Matthew Glass, the company’s CFO both resign. That evening the stock closes at a minimal 89 cents.
On September 22, 2002, Peregrine Systems, Inc. filed for bankruptcy protection. This essentially cancelled all of its common stocks, which lead to a loss of over $4 billion dollars in shareholders equity.
The long SEC complaint alleges the company engaged in numerous fraudulent activities, which included filing material incorrect financial statements for 11 straight quarters between April 1999 and December 2001. Th...
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...tement to a federal official and was sentenced to 90 days of home detention and 200 hours of community service. John Benjamin, former Peregrine Treasurer was sentenced to probation after pleading guilty to conspiracy to commit wire fraud. Ilse Cappel, former Peregrine assistant Treasurer was sentenced to probation as well after he pled guilty to conspiracy to commit bank fraud. Finally, Peter O’Brien, former Peregrine Director of Alliances pled guilty to obstruction of justice and was sentenced to probation.
A 2005 HP press release documents the sale of Peregrine Systems to HP. HP acquired Peregrine in a cash merger for $26.08 per share, adding to a combined $425 million. Today, Peregrine’s software is sold through the arm of HP OpenView’s business unit in order to create the industry’s most comprehensive distributed enterprise management software solution.
Grand Metropolitan PLC is the world’s largest wine and spirits seller. It mainly operated in London, USA. In 1991, it beats market expectation with a 4.8% increase in pretax profits, and the company Chairman stated that company’s goal “to constantly improve on”. Despite the great performance in the world recession in 1991, the price of GrandMet shares was 10% below the average price/earnings ratio of the companies in the Standard & Poor’s 500 index. And more important, rumors had that GrandMet, valued at more than $14 billion in the stock market, maybe a takeover target. The management dilemma is to understand why the company’s stock is traded below of what considered being the right price and whether the company is truly being undervalued by the market or there are consistent issues with negative NPV projects and lines of businesses.
Bear Stearns went from a market value of billions to being worth $2 a share in a few weeks. They would have been acquired for that very price if a legal screw up did not force their acquirers to up their ante to $10 per share. The mighty can fall quick but lawyers will make money either way even if they screw up.
Not only were millions of Americans been put out of work due to these manager’s actions, the American financial markets themselves were pushed to the brink of collapse. Despite the fact that the global financial markets, in reality, are not perfectly efficient, there is a corrective mechanism built into the day-to-day trading in the market. When prices are driven down by large sells, either by large investors or a movement in a stock, there are usually new buyers for these stocks at the cheaper price. Managers of...
Madura, Jeff. What Every Investor Needs to Know About Accounting Fraud. New York: McGraw-Hill, 2004. 1-156
In modern day business, there can be so many pressures that can cause managers to commit fraud, even though it often starts as just a little bit at first, but will spiral out of control with time. In the case of WorldCom, there were several pressures that led executives and managers to “cook the books.” Much of WorldCom’s initial growth and success was due to acquisitions. Over time, WorldCom discovered that there were no more opportunities for growth through acquisitions when the U.S. Department of Justice disallowed the acquisition of Sprint.
Is The Tyranny Of Shareholder Value Finally Ending? N.p., n.d. Web. The Web.
The major groups that were directly affected are investors, employees, and suppliers. Here we should make the distinction between different types of investors. There are two major types of investors: insiders and outside investors. Insiders are the investors who know the information that is not known publicly and may benefit them in some way. Outside investors are the investors who only know publicly known information. In our case, outside investors was the group that lost the most. On the other hand, insiders, notably Mickey Monus and David Shapiro, were the one that gains millions on IPO. The group who suffered was employees of Phar-Mor. After the scandal was revealed, most of the stores were closed to cover up losses. As a result, thousands of employees got fired. Another party that was damaged by the scandal was Coopers&Lybrant, the firm that did the audit for Phar-Mor, lost its reputation as a firm who does an audit with integrity. The secondary effect of the scandal was the overall mistrust among investors. They thought that if a giant retailer can forge its accounting books, why smaller companies wouldn’t do the same. As a result, investors became reluctant in investing into businesses that caused harm to the economy as a whole. The last but not least group that was affected by the scandal is Phar-Mor’s suppliers. Mickey Monus was fiercely fighting with them to make the chipset deals to cover up his losses, sometimes using inappropriate pressure and causing suppliers making unprofitable deals. In additions, Monus forced them to pay fees and sponsor his basketball League using buyer power of his company. In addition, a lot of bills for supplies were unpaid for months by Phar-Mor. Some suppliers said that they hated doing business with Phar-Mor, but had no choice since it had an access to vast amount of customers.
Rather than being sticklers for following GAAP accounting principles and internal controls, this company took unethical behavior to a whole new level. They lied when the truth would have been easier to tell. It is almost as if they had no comprehension that the meaning of the word ethics is “the principles of conduct governing an individual or a group (professional ethics); the discipline dealing with what is good and bad and with moral duty and obligation”, (Mirriam-Webster, 2011). To be ethical all one has to do is follow laws, rules, regulations and your own internal moral compass, all things this company seemed to know nothing about.
Wall Street's demand for high growth motivated Peregrine Systems' executives, to fraudulently inflate revenues and stock prices. According to the SEC, "Peregrine filed materially incorrect financial statements with the commission for 11 consecutive quarters." Steven Spitzer, a member of Peregrine's sales team admitted to meeting regularly with senior management near the end of the quarter to determine how much revenue was needed to exceed Wall Street's expectations. The primary fraud committed by Peregrine was done by inflating revenue by booking revenue when sales never occurred. By recognizing revenue from sales that never occurred, the accounts receivable balance and net income were fraudulently overstated; the accounts receivable would never be collected, because the merchandise was never sold. To cover up their high, outstanding, accounts receivable balance as a result of booking sales that did not occur, Peregrine fraudulently engaged in financial agreements with banks.
Nortel was a telecommunications company in Canada that’s success was noticed by everyone world wide and many investors including a large role in the U.S. Nortel was the prime example of economic success in Canada and was praised for their stock exchange value compared to the other larger firms of the world. Their downfall was quicker than their rise that was led by a series of unwise acquisitions, scandal, fraud, greed and unethical business tactics hidden all from the public for too long. Multiple unethical business factors were described to be the result for Nortel’s downfall.
It’s sad to say the founder CEO’s paved the way for a new CEO quite late. The reasoning behind this accusation is that the company had already lost-majority of its once devoted customers. Steps should have been put in place to handle such a loss before it occurred. The executive team should have had strategies put in place to handle the stock loss once they saw it declining.
Most of Scrushy’s alleged misconduct occurred prior to the enactment of Sarbanes-Oxley (SOX). To sum...
For many years, IBM succeeded in holding a very good market position. In fact, the company achieved a very high market share and huge profits. However, this situation did not last forever. In 1990, IBM experienced its first quarterly loss of $2billion due to some unexpected accounting charges. However, revenues increased from $62.7 billion in the previous year to $96 billion. In 1991, the c...
Sandberg, J., Solomon, D., & Blumenstein, R. (2002, June 27). Accounting Spot-Check Unearthed A Scandal in WorldCom's Books. Retrieved from The Wall Street Journal: http://online.wsj.com/article/SB102512901721030520.html
The Tyco accounting scandal is an ideal illustration of how individuals who hold key positions in an organization are able to manipulate accounting practices and financial reports for personal gain. The few key individuals involved in the Tyco Scandal (CEO Kozlowski and CFO Swartz), used a number of clever and unique tactics in order to accomplish what they did; including spring loading, manipulating their ‘key-employee loan’ program, and multiple ‘hush money’ payouts.