Three former Gateway Inc. executives were accused Thursday of manipulating the struggling computer maker's financial results to please Wall Street.
The Securities and Exchange Commission filed a civil fraud complaint against former Chief Executive Jeff Weitzen, former Chief Financial Officer John Todd and former Controller Robert Manza, alleging that they took improper steps to mask declining sales in 2000.
At the same time, the SEC said it concluded a wider investigation into Gateway's accounting without taking any action against the Poway, Calif.-based company or accusing any current executives of wrongdoing.
The SEC claims that Weitzen, Todd and Manza realized Gateway would not meet Wall Street forecasts and altered the company's financial results to "close the gap."
In the second quarter of 2000, for instance, the company allegedly boosted sales by offering preapproved financing to consumers whose credit applications previously had been rejected.
Todd then authorized a series of improper moves, including adding sales that would not be recognized under generally accepted accounting principles; misstating revenue from America Online subscriptions sold with computers; and making other illegitimate financial adjustments, according to the complaint filed in U.S. District Court in San Diego.
In the third quarter of 2000, Gateway said it met analysts' earnings expectations of 46 cents a share. In fact, Gateway's per-share profit was overstated by 6 cents.
Gateway restated its 2000 results in February 2001. In April of this year, the company restated portions of 1999, 2000 and 2001.
The SEC is seeking a return of all wages, bonuses and gains the three executives received while at Gateway. The agency also wants to ban them from holding executive or director positions at publicly traded companies.
Attorneys for the three men denied the allegations.
"We've seen no document or testimony that implicates my client in any improper activity," said Richard Marmaro, who is representing Weitzen, 47. "The atmosphere today is to try to attribute any alleged misdeeds that may have gone on in a company to the head of the company, and it's simply not fair."
Todd's attorney, Robert Rose, also criticized regulators' zeal in pursuing the case.
"The enthusiasm of the SEC in sending messages to corporate America has gone too far," he said. The 43-year-old Todd "did nothing to hurt Gateway or its shareholders."
In 2000, Weitzen received a $1-million salary and a bonus of $880,000. He also exercised stock options twice, taking in an additional $4.95 million, according to the SEC. Weitzen served as Gateway's CEO for 13 months.
Todd received a salary of $412,500 and a bonus of $224,500. Manza, 42, earned a salary of $235,000 and a bonus of $105,600.
All left Gateway in early 2001, after founder Ted Waitt returned to run the company.
"We are very pleased to put this issue from our past behind us," Waitt said in a statement. "We are a completely new Gateway."
Gateway shares rose 14 cents to $4.90 on the New York Stock Exchange.