Andersen Points Blame at Bosses of Software Firm

Nov. 14–Accounting firm Arthur Andersen, in its answer to a $1 billion lawsuit filed by San Diego's Peregrine Systems, contends the software company's senior officers orchestrated its financial fraud.
Andersen's 12-page response, filed Oct. 30 in San Diego Superior Court, says, “Peregrine repeatedly lied to Andersen in documents provided to Andersen in the course of its work.”

As a legal defense, Andersen said, “Because Peregrine perpetrated the very fraud about which it complains, Peregrine cannot seek to recover damages for its fraud from Andersen.”

Andersen also disclosed for the first time that Peregrine's financial irregularities were uncovered by Ernst & Young. The accounting firm was scrutinizing Peregrine's books for Texas-based BMC Software, which was then negotiating a buyout of Peregrine in a deal valued at between $1.6 billion and $1.9 billion.

Like Peregrine, BMC specializes in so-called enterprise software used by businesses to manage various operations.

In a related filing, lawyers for Andersen moved to transfer the dispute from the state court to federal court in San Diego.

Peregrine fired Andersen in early April. The proposed buyout fell apart. The software company later announced it would have to restate financial results dating to January 2000. By August, Peregrine acknowledged it had inflated revenue by at least $250 million.

Peregrine's financial meltdown has drawn widespread interest, due partly to an outbreak of corporate scandals nationwide and to its chairman, Padres owner John Moores. His sale of more than $370 million of Peregrine shares during the restatement period have made him a lightning rod in the case.

The filing represents Andersen's formal reply to a suit Peregrine filed Sept. 23, alleging that Andersen “permitted, encouraged and consented” to improper accounting practices. Peregrine's suit also asserts that its senior executives, board of directors and audit committee knew nothing of the fraud.

Andersen says Peregrine's senior executives, including president and chief executive Stephen Gardner and chief financial officer Matthew Gless, were responsible for the fraud. Andersen contends they lied in formal representation letters to outside auditors, which assured Andersen that Peregrine believed it had prepared its financial statements in accordance with generally accepted accounting principles.”

Daniel Stulac, who was Andersen's audit partner in charge of the Peregrine account, denied Peregrine's allegations in a separate legal filing.

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