U.S. Securities and Exchange Commission

Litigation Release No. 18205A / June 30, 2003

Accounting and Auditing Enforcement Release No. 1808A /June 30, 2003

, Civil Action No. 03 CV 1276 K (LAB) (S.D. Cal.) (June 30, 2003)

SEC Charges Peregrine Systems, Inc. with Financial Fraud and Agrees to
Partial Settlement

   The Securities and Exchange Commission today sued San Diego-based
   software company Peregrine Systems, Inc., in the United States
   District Court for the Southern District of California, for a massive
   financial fraud at the company that spanned 11 fiscal quarters.
   Simultaneously with the filing of the complaint, the Commission
   submitted to the Court, for its approval, a partial settlement with
   Peregrine.

   According to the Commission's 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.

   The complaint alleges that Peregrine improperly booked millions of
   dollars of revenue for purported software license sales to resellers.
   These transactions were non-binding sales of Peregrine software with
   the understanding-reflected in secret side agreements-that the
   resellers were not obligated to pay Peregrine. Those involved in the
   scheme called this "parking" the transaction. Peregrine personnel
   parked transactions when Peregrine was unable to complete direct sales
   it was negotiating (or hoping to negotiate) with end-users, but needed
   revenue to achieve its forecasts. Peregrine engaged in other deceptive
   practices to inflate the company's revenue, including entering into
   reciprocal transactions in which Peregrine essentially paid for its
   customers' purchases of Peregrine software. Peregrine routinely kept
   its books open after fiscal quarters ended, and improperly recorded as
   revenue, for the prior quarter, software transactions that were not
   consummated until after quarter end. Certain Peregrine officers
   characterized these transactions as having been completed on "the 37th
   of December." Peregrine senior officers, and sales and finance
   personnel knew, or were reckless in not knowing, that the applicable
   accounting rules prohibited revenue recognition on these and other