Litigation Release
Matthew C. Gless

Litigation Release No. 18093 / April 16, 2003

Accounting and Auditing Enforcement Release No. 1759 /April 16, 2003

, Civil Action No. 03 CV 0747 W (LAB) (S.D. Cal.) (April 16, 2003)

SEC Charges Former Peregrine CFO with Financial Fraud

   The Securities and Exchange Commission today filed civil fraud charges
   against Matthew C. Gless, the former Chief Financial Officer at San
   Diego-based software company Peregrine Systems, Inc., for his
   participation in an eleven-quarter financial fraud at the company. The
   complaint alleges that Gless and other Peregrine senior officers
   engaged in deceptive practices to artificially inflate Peregrine's
   revenue and stock price, and that Gless then took fraudulent action to
   conceal the scheme.

   According to the complaint, the heart of the fraud was the recording
   of millions of dollars of revenue despite non-binding arrangements
   with customers, in violation of Generally Accepted Accounting
   Principles (GAAP). At the ends of fiscal quarters, Gless schemed with
   other Peregrine senior officers about ways to arrange non-binding
   transactions with resellers (known as channel partners) and record
   them as revenue, so that Peregrine could meet or exceed quarterly
   revenue projections. Peregrine senior officers then purported to sell
   Peregrine's software to channel partners, even though the channel
   partners' obligations to Peregrine were frequently contingent or
   subject to other terms that made revenue recognition improper. Gless
   knew that senior officers were secretly adding material sale
   contingencies-by oral or written side agreement-to what appeared on
   their face to be binding contracts. Gless also knew that senior
   officers were using other gimmickry to inflate the company's revenue.

   The complaint further alleges that, to conceal the revenue recognition
   scheme, Gless abused the receivable financing process. When Peregrine
   booked the non-binding contracts, and the customers predictably did
   not pay, the receivables ballooned on Peregrine's balance sheet. To
   make it appear that Peregrine was collecting its receivables more
   quickly than it was, Gless directed Peregrine's senior treasury
   manager to sell receivables to banks and then remove them from the
   company's balance sheet. There were several problems with this. First,
   Gless knew, or was reckless in not knowing, that because Peregrine had
   given the banks recourse and frequently paid or repurchased unpaid
   receivables from them, Peregrine should have accounted for the bank
   transactions as loans and left the receivables on its balance sheet.