Peregrine Systems Files for Chapter 11
After months of struggling to shed its financial and legal woes, San Diego-based software company Peregrine Systems Inc. filed for Chapter 11 bankruptcy protection Sunday and said it would sue accounting firm Arthur Andersen for more than $250 million.
Peregrine--whose chairman is John J. Moores, owner of the San Diego Padres--blames its failure on Arthur Andersen, which it accuses of engaging in fraud, corporate negligence and failure in its auditing and accounting duties.
In a bid for help, Peregrine also said it would turn to Moores’ former company, Houston-based BMC Software Inc., which has agreed to buy Peregrine’s Remedy unit for $350 million. Remedy is a leading maker of software that identifies and fixes glitches in corporate computer networks.
Peregrine said it expected to file the suit against Arthur Andersen LLP, Arthur Andersen Germany, Arthur Andersen Worldwide and Daniel Stulac, the auditor on the account, in San Diego Superior Court today.
Stulac could not be reached for comment. Arthur Andersen officials scoffed at the news Sunday, claiming that Peregrine’s claims lacked merit.
“This looks, smells and tastes like a hysterical board of directors looking for a scapegoat to cover up their failures and the failures of their handpicked executives,” said Patrick Dorton, spokesman for Arthur Andersen. “This is really outrageous, even in this season of blaming the auditors.”
Dorton said the auditing firm, which had not seen a copy of the pending lawsuit as of late Sunday, would “respond accordingly” after the litigation was filed.
Peregrine’s bankruptcy filing, which was filed in U.S. Bankruptcy Court in Delaware, is the latest chapter in the saga of a software company that has ridden both the highs and lows of the dot-com boom.
The once-aggressive e-commerce business started out by making software that tracks a company’s technical infrastructure. By 1998, Peregrine had begun to branch out and went on a buying spree, snapping up 12 companies over four years and spending billions of dollars in the process.
Peregrine’s downhill slide started as far back as 2000--the year, executives said Sunday, that its financial statements could no longer be relied upon.
That year, signs emerged that the technology bubble could not be sustained and that the economy was headed for a slowdown. Dot-com companies began to go under, unable to attract enough paying consumers to its Web-based businesses. That dragged down sales of everything from computers that serve up Web pages to Internet infrastructure gear such as routers and switches.
Peregrine is “in the same crunch as everybody else,” said Tim Bajarin, president of Creative Strategies, a technology consulting firm in Silicon Valley. “The industry itself has been hit hard.”
But Peregrine has had an added problem, Bajarin noted: its accounting.
This past spring, the company acknowledged that it had launched an internal investigation into “potential accounting inaccuracies” and fired Arthur Andersen as its auditor.
Accounting firm KPMG, hired to fill the spot, later discovered that Peregrine’s revenue had been inflated, and the company said it would erase nearly $100 million in sales from the previous three years--much of it generated from software deals made through partners, consultants and retailers when products were returned.
Peregrine eventually fired KPMG, saying that $35 million in revenue that had to be restated was drawn from sales through KPMG’s former consulting unit. Peregrine said keeping KPMG, which had spun off its consulting arm in 2001, would clash with U.S. auditor independence rules. KPMG, which insisted it didn’t know about the sales until after it was hired, sent a letter to the Securities and Exchange Commission alleging that Peregrine may have committed fraud.
In late May, the SEC launched a formal probe into the company’s accounting practices.
In the midst of the turmoil, Steve Gardner stepped down as chairman and chief executive of Peregrine, and Matt Gless resigned as chief financial officer and executive vice president of finance. Gary Greenfield, formerly president and CEO of the e-business development company Merant, replaced Gardner as chief executive.
Explaining the need to file for Chapter 11 protection, Greenfield said Sunday: “We have recognized a big responsibility to our creditors, and we wanted to find the best way to fulfill our obligations.”
Moores, Peregrine’s chairman, couldn’t be reached for comment Sunday.
One of America’s wealthiest men, Moores is a software guru who made much of his initial wealth in real estate and as founder of BMC Software, a document-management firm. He left BMC’s board in 1991.
A longtime baseball fan, Moores bought the Padres in December 1994, amid what club officials had described as the triple whammy of baseball’s labor dispute, the Southern California recession and the community perception that the previous owners had not been fully committed to the franchise.
“Everyone gets a historical footnote, and I suspect mine will be that I was the only person ever to buy a baseball team in the middle of a strike,” Moores told The Times in an earlier interview.
By the late 1980s, Moores had become a well-known figure among San Diego’s tech community. He joined Peregrine’s board in March 1989 and held the position of chairman from March 1990 to July 2000. He rejoined the company when Gardner stepped down.
Since joining Peregrine, Moores and Greenfield have tried to curtail the company’s troubles by spinning off or selling many of its businesses. Its core focus is to remain its tracking software, which customers use to manage technology resources and other assets.
