Three Ex-Officers of O.C. Software Firm Sanctioned

The former head of Platinum Software agreed Thursday to a 10-year ban on being an executive of a public company, and two other former officers were fined $471,600 to settle federal charges they falsified the company’s books to exaggerate its financial performance.

Gerald Blackie, who founded Irvine-based Platinum and was chairman and chief executive until he resigned in April 1994, previously paid an estimated $1.25 million in restitution to settle a shareholder suit over the same issue. As a result, he was not ordered to pay any more in Thursday’s settlement.

But former chief financial officer Jon R. Erickson was assessed $100,000 and former controller Mark S. Tague was ordered to pay $371,600 Thursday in addition to the estimated $700,000 he had already paid to settle the shareholder suit filed in federal court in Santa Ana in 1994.

Terms of that settlement have never been made public, but the SEC’s suit specifies the amounts the three men made from stock trades and corporate bonuses that were based on the false sales and profit reports: $1.25 million for Blackie; $1 million for Tague and $548,000 for Erickson.

An attorney for the agency said the fines levied Thursday basically made up the difference between what the men already have paid and the total of nearly $2.8 million.

Ironically, Platinum makes software to help businesses with their accounting.

SEC attorney Daniel A. Nathan called the case an example of “the fairly egregious conduct that can go on when there is no oversight” of a company’s top officers.

Platinum was forced to take an $18-million charge in 1994 because of the improper accounting and record-keeping practices of the three men. Since then, Platinum’s financial situation has deteriorated as sales have declined. The company has laid off almost 150 employees and changed chief executives twice.

Michael J. Simmons, who replaced Erickson as Platinum’s chief financial officer in April 1994, said the company “is pleased this is finally behind us.”

Platinum, he said, has lost business because of concern in the marketplace over the status of the case and the company’s liability. Platinum was not sued by the SEC but did sign a consent agreement in January effectively promising to exercise proper control of its internal accounting practices.

Immediately after the SEC’s fraud suit was filed Thursday in U.S. District Court in Washington, Blackie, Erickson and Tague entered agreements to settle the case without going to trial. They and two former Platinum sales executives named in a related administrative action agreed to accept an SEC cease-and-desist order.

Erickson, like Blackie, was barred in Thursday’s settlement from holding office with a publicly traded company for 10 years. He also was permanently barred from working as accountant or financial officer in any capacity that would bring him before the SEC--meaning that he can use his accounting background for little but preparing tax returns or doing bookkeeping for private companies with no aspirations to issue stock.

Tague was barred for five years from appearing or practicing before the SEC as an accountant.

The SEC suit charged that Blackie, Tague and Erickson began falsifying sales records in 1993 and early 1994 in order to pump up Platinum’s quarterly sales figures and make the company’s financial situation appear stronger than it was.

For a period of at least nine months, ending early in 1994, the men backdated sales orders and reported as actual revenue fees that had not yet been received and were subject to secret cancellation agreements that the customers often exercised, the suit said.

In one case in 1993, the suit alleges, Blackie personally closed a $1.5-million software licensing deal with the Wackenhut Corp. on the day the fiscal year ended. He also executed a separate letter giving Wackenhut a 60-day right to cancel. Blackie then instructed Erickson to enter the $1.5 million as revenue in the just-completed fiscal year, even though the money had not been received.

Wackenhut later canceled the contract, the suit says, but Platinum did not disclose the cancellation or adjust for it when it later filed its annual report with the SEC.

In August 1993, with the company’s stock price rising on the strength of the falsified financial reports, Blackie, Tague and Erickson all sold large amounts of stock. Blackie profited again with a stock sale in November 1993, the SEC suit says. After the company revealed the accounting irregularities and announced Blackie’s resignation in April 1994, the stock price plummeted 64%.

The suit also says Blackie received $128,125 in performance bonuses for the nine-month period in which he was falsifying financial reports; Erickson got $50,000 and Tague received $6,000.

“If they had been any lower in the company they would never have gotten away with this for as long as they did,” said SEC attorney Nathan.