A former CFO of computer maker Gateway has settled allegations by the Securities and Exchange Commission that he engaged in fraud and other violations of the federal securities laws by improperly recognizing revenues nearly a dozen years ago.
Former CFO John J. Todd consented to the entry of a final judgment on April 10 without admitting or denying the SEC’s allegations, the commission said Wednesday.
The SEC alleged in 2003 that he and two other former executives at the company falsely represented Gateway’s financial condition in the third quarter of 2000 in order to meet financial analysts’ earnings and revenue expectations. Among other transactions, the SEC alleged that Todd caused Gateway to record $47.2 million in revenue from a one-time sale of fixed assets to Gateway’s third-party information technology services provider in violation of U.S. GAAP, and he caused Gateway to recognize an additional $21 million in revenue from an incomplete sale of computers to a second entity, also in violation of GAAP.
The SEC alleged that absent either of these transactions, Gateway would not have met analysts’ expectations with regard to its third quarter revenue.
Todd consented to a final judgment permanently enjoining him from violations of the securities laws and to be barred for 10 years from acting as an officer or director of a public company. He also agreed to pay disgorgement of $165,000, constituting his salary and bonus for the relevant quarter, along with prejudgment interest on that amount of $138,162.24 totaling $303,162.24, and a $110,000 penalty.
Previously, on March 7, 2007, a jury had rendered a unanimous verdict finding Todd and defendant Gateway’s former controller, Robert D. Manza, liable for fraud, making false representations to auditors, aiding and abetting issuer reporting violations and other violations following a three week trial.
On May 30, 2007, judge Roger T. Benitez overturned the jury verdict on the fraud and certain other claims. The SEC appealed that ruling, as well as the district court’s prior August 1, 2006, grant of summary judgment to Gateway’s former CEO, Jeffrey Weitzen, dismissing the SEC’s case as to Weitzen. On June 23, 2011, the Ninth Circuit reversed those rulings and remanded the matter to the district court. On Jan. 25, 2012, the court entered final judgments against Weitzen and Manza pursuant to their consents (see Gateway’s Ex-CEO and Controller Settle SEC Fraud Charges).
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