SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 17353 / February 5, 2002
Accounting and Auditing Release No. 1504 / February 5, 2002
Securities and Exchange Commission v. David A. Thatcher and Timothy J. Ganley, Civil Action No. C-02-0621 (SBA) (N.D. Cal.) (Feb. 5, 2002)
SEC CHARGES TWO FORMER CRITICAL PATH EXECUTIVES
WITH SECURITIES FRAUD
The Securities and Exchange Commission filed a civil action today charging two former executives of Critical Path, Inc., a California company that provides e-mail services, with participating in a scheme to inflate the company's revenues and earnings for fiscal 2000. Named in the complaint were David A. Thatcher, 46, of Rancho Santa Fe, California, the former president of Critical Path, and Timothy J. Ganley, 45, of Aptos, California, a former vice-president of sales at the company. Separately, the Commission instituted and settled an administrative proceeding against Critical Path charging the firm with violations of the periodic reporting, books and records, and internal control provisions of the Securities Exchange Act of 1934.
The complaint filed in the civil action alleges that during 2000 and early 2001 Thatcher and other Critical Path employees caused Critical Path to record revenue from eight fictitious, contingent, or backdated transactions in the third and fourth quarters of fiscal 2000. As a result, Critical Path improperly recorded revenue totaling approximately $10.8 million during fiscal 2000. During part of that period Thatcher was the acting Chief Financial Officer for the company. As a result of the conduct, the net loss reported by Critical Path in its Form 10-Q for the third quarter of 2000 was understated by over 50 percent. On January 18, 2001, Critical Path issued a press release announcing its financial results for 2000, and the improperly recorded revenue was included in the results released, causing Critical Path's net loss for the year to be understated by over 27 percent. Before Critical Path filed its annual report on Form 10-K for fiscal 2000, the scheme unraveled, and in February 2001, the company announced that it would revise its previously reported results to reverse improperly recorded transactions. Following that announcement, Critical Path's share price plunged approximately 70 percent.
The Commission's complaint also charges that Ganley participated in one of the eight transactions, a fictitious sale for which Critical Path improperly recorded revenue of $2 million, and alleges that Ganley then illegally sold 1,300 shares of Critical Path stock in January 2001 based on information he possessed about the fraud and the company's true financial condition.
Simultaneously with the filing of the Commission's complaint, without admitting or denying the Commission's allegations, Thatcher and Ganley consented to the entry of final judgments imposing the relief detailed below.
As to Thatcher:
- A permanent injunction from violating Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act and Exchange Act Rule 13a-13;
- Payment of a $110,000 civil penalty for his participation in the financial fraud; and
- A five-year bar from acting as an officer or director of a public company.
In addition, Thatcher has agreed to the issuance of a Commission order, pursuant to Rule 102(e) of the Commission's Rules of Practice, denying him the privilege of appearing or practicing before the Commission as an accountant, based on the entry of the injunction.
As to Ganley:
- A permanent injunction from violating Sections 10(b) and 13(b)(5) of the Exchange Act and Exchange Act Rules 10b-5 and 13b2-1, and from aiding and abetting violations of Sections 13(b)(2)(A) and 13(b)(2)(B) of the Exchange Act;
- Payment of over $105,900 in penalties and disgorgement, as follows:
- disgorgement of the $27,950 loss he avoided by engaging in insider trading, plus prejudgment interest;
- a $27,950 civil penalty for insider trading; and
- a $50,000 civil penalty for his participation in the fictitious transaction that was part of the financial fraud.
In the related administrative proceeding against Critical Path, without admitting or denying the Commission's findings, Critical Path consented to an order finding that the company violated the periodic reporting, books and records, and internal control provisions of the Exchange Act. The order directs Critical Path to cease and desist from committing or causing violations of Sections 13(a), 13(b)(2)(A), and 13(b)(2)(B) of the Exchange Act and Exchange Act Rule 13a-13. In the Matter of Critical Path, Inc., Exchange Act Release No. 34-45393, February 5, 2002.
In a related matter, the United States Attorney's Office for the Northern District of California today announced criminal charges against Thatcher and Ganley.
The Commission thanks the U.S. Attorney's Office for the Northern District of California and the Federal Bureau of Investigation for their cooperation in this matter.
The Commission's investigation in this matter is continuing.