Federal regulators claim the three inflated 2000 sales figures to mislead investors.

InformationWeek Staff, Contributor

November 14, 2003

2 Min Read

SAN DIEGO (AP) - The former chief executive of Gateway Inc. and his top lieutenants were accused of fraud by federal regulators who claim they inflated 2000 sales figures to mislead investors.

The civil suit filed Thursday in San Diego by the Securities and Exchange Commission names former chief executive Jeffrey Weitzen, 47, former chief financial officer John J. Todd, 43, and former controller Robert D. Manza, 42.

The three "were preoccupied with meeting analysts' expectations to the extent that they fraudulently reverse-engineered Gateway's financial results," said Randall R. Lee, the SEC's Pacific regional director.

Gateway ousted all three men in early 2001. The company was not charged, although it promised the SEC it would not violate securities laws in the future.

The SEC said the company's assistance "was not exemplary" early in its investigation but acknowledged Gateway's recent efforts to cooperate and improve internal controls.

"We are very pleased to put this issue from our past behind us," said Ted Waitt, Gateway's current chairman and chief executive.

All three defendants denied the charges through their attorneys.

"By casting an indiscriminately wide net, the SEC seeks to snare an executive who did nothing wrong or illegal," said Richard Marmaro, Weitzen's attorney.

Todd's attorney, Robert Rose, said he was outraged that the former chief financial officer was being sued for "technical accounting issues." He said Todd consulted Gateway's auditor, PricewaterhouseCoopers, on all important transactions.

Manza's attorney, James Sanders, said his client will defend himself vigorously in court.

The SEC charges cover the second and third quarters of 2000. The agency accuses the executives booked sham sales and relied increasingly on loans to customers with shaky credit during that time to "close the gap" between Wall Street's expectations and actual results. The agency said accounting irregularities inflated revenue by 6.5 percent, or $154 million, during the third quarter alone.

In April, Gateway restated results from 1999 to 2001 to cut revenue by $476 million, reflecting lower payments from selling America Online Internet-service subscriptions. In February 2001, the company restated results for 2000 to lower net income by $75 million, citing soured investments and accounting irregularities by a foreign unit.

None of the transactions alleged in the lawsuit would require an additional restatement, Gateway spokesman Robert Sherbin said.

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