O.C. Software Firm’s Stock Plunges; Executives Quit
Platinum Software Corp. was plunged into turmoil Monday after four top executives quit and the company said it had overstated revenue for the past 15 months. The news sent the company’s stock plummeting by 64% in furious trading.
Platinum, a fast-growing maker of custom accounting software for large and medium-sized companies, also said it will lay off an unspecified number of its 820 employees, restate revenue for the past four quarters and report a “substantial” loss for its third fiscal quarter, which ended March 31.
“It appears to be a massive accounting fraud,” said Alan Schulman, a San Diego attorney representing some shareholders who are suing Platinum for alleged securities violations.
Bruce C. Edwards, who stepped in Monday as Platinum’s acting chief financial officer, would not comment except to say, “You would expect an attorney to say that.”
Platinum, Orange County’s largest software company, announced the executive departures and other changes in a news release that said it discovered its accounting problems as a result of its own investigation stemming from the shareholder suit.
Leading the departures was Platinum’s founder, chairman and chief executive, Gerald R. Blackie. His temporary replacement is Carmelo J. Santoro, a Platinum director and former chairman of AST Research Inc. in Irvine, the nation’s fifth-largest personal computer maker.
Santoro said a number of transactions at Platinum appear to have been recorded as revenue for quarters before the deals were actually completed.
“On a strict interpretation, we were putting revenues in the wrong place,” he said. “It’s almost impossible to conceive that, with a restatement of this nature, the SEC will not get involved.”
Officials of the Securities and Exchange Commission were unavailable for comment.
Platinum announced its news before the stock market opened Monday. By the end of the day, Platinum shares had fallen $6.44 to close at $3.56. Nearly 4 million shares changed hands, making the stock one of the most actively traded Nasdaq issues.
“Obviously, this is a very large negative surprise,” said Frank Michnoff, analyst at Prudential Securities Research in New York. “This restatement of revenue casts a shadow on the (company’s) whole future.”
Santoro and Edwards, who is chief financial officer for AST and has been on Platinum’s board since October, will now be the company’s sole directors. Santoro retired several years ago as chief executive of Silicon Systems Inc., a Tustin-based computer chip maker. He is known as an active independent board member, playing a role in the ousters of top executives at AST and database software company Ashton-Tate, just before it was acquired by rival Borland International.
Santoro said he will move fast to form a new management team.
Monday’s announcement by Platinum’s new management culminated an investigation that Santoro and Edwards began in January after the shareholder lawsuit pointed out irregularities in the timing of some reported sales.
Shareholder Ezriel Tauber filed the suit Jan. 19, a day after Platinum’s stock fell 24% when the company announced cancellation of a major order. In the suit, Tauber accused the company of withholding vital information from investors preceding the price tumble.
Santoro said Monday that the lawsuit seemed routine at the time but that, as the two directors investigated further, they grew increasingly concerned about how the company was stating its revenue. Ernst & Young completed its review on Thursday, and Arthur Andersen the next day withdrew its previous year’s accounting opinion for the fiscal year ended June 30, 1993, in which Platinum had reported sales of $65 million.
None of the departing executives were available for comment. Besides Blackie, they are Jon R. Erickson, chief financial officer; and executive vice presidents Kevin P. Riegelsberger and Timothy J. McMullen.
The company expects to report revenue of $13 million to $15 million for its latest quarter and to post a “substantial loss from operations.” The company said layoffs will result in a onetime restructuring charge of $7 million to $10 million. Revenue for the previous four quarters could be trimmed by $6 million to $10 million.
Platinum said it will also revise the way it records revenue from software licenses, or deals in which it collects royalties from companies that buy its software.
Platinum has ballooned in size since going public in October, 1992. With $22.5 million in cash from its initial stock offering, Platinum has acquired seven software firms in the past year, more than tripling its staff from 230 in December, 1992. At a seminar two months ago, Erickson said the company was moving so fast on acquisitions that it was considering two deals every week and that its executives were often on the road.
The company makes financial management software for so-called client/server computers, or networks of personal computers attached to powerful workstations known as servers, which perform common tasks. Such networks are replacing conventional centralized computers at major corporations.
Platinum’s software and consulting service, which generates hundreds of thousands of dollars from each customer, is popular because of the immense shift toward client/server computing that has taken place in the past several years.
Platinum’s Stock Trend
How shares of Platinum Software have fared since the company went public in October, 1992. Friday closing stock prices: Today’s close: $3.56
Platinum Software At a Glance
* Business: Maker of accounting and information management software
* Headquarters: Irvine
* Employees: 820
* Founder: Gerald R. Blackie
* Acting CEO: Carmelo J. Santoro
* Estimated third-quarter loss in shareholders’ equity: $13 million to $20 million
Sources: Dow Jones News Service; Bloomberg Business News
Researched by JANICE L. JONES/Los Angeles Times
