Securities and Exchange Commission
Litigation Release No. 17855 / November 21, 2002
Accounting and Auditing Enforcement Release No. 1671
Phillip E. White, Former Informix Corporation Chairman, CEO, and President, Charged With Fraud and Other Federal Securities Law Violations
Securities and Exchange Commission v. Phillip E. White, Civil Action No. C 02-5538 JL (N.D. Cal. Filed November 21, 2001)
The Securities and Exchange Commission ("Commission") today filed a civil action in the United States District Court for the Northern District of California against Phillip E. White ("White"), formerly President, Chief Executive Officer, and Chairman of the Board of Directors of Informix Corporation ("Informix" or "Company").1 In its Complaint, the Commission alleges that White concealed secret side agreements that rendered revenue recognition improper on certain transactions that Informix had included in its financial statements for its fiscal year ended December 31, 1996. To further his scheme, White made false statements and representations concerning the existence of these secret side agreements to members of Informix's financial staff and to Informix's independent auditors. White did this to avoid triggering a restatement of Informix's 1996 financial statements. Informix's 1996 financial statements, and the independent auditors' unqualified report thereon, were included in Informix's 1996 Annual Report, Securities and Exchange Commission Form 10-K ("Form 10-K"), which Informix had filed with the Commission on March 31, 1997. The same financial statements and unqualified audit report were incorporated by reference in Form S-8 registration statements ("Form S-8"), which Informix filed on July 16, 1997. (The Forms S-8 registered twelve million shares of Informix stock for sale to employees.) White signed the Form 10-K and Forms S-8. According to the Complaint, White violated, or aided and abetted violations of, antifraud, reporting, and record-keeping provisions of the Securities Act of 1933 ("Securities Act") and Securities Exchange Act of 1934 ("Exchange Act").
According to the Complaint, in early July 1997 (after Informix had filed its Form 10-K) White entered into and concealed a secret side agreement in connection with a software license sales contract with a Japanese company that made revenue recognition on that contract in 1996 improper. At the same time, White was also concealing a second secret side letter agreement that made revenue recognition improper on a software license sales contract with the European subsidiary of a United States company. White knew that the discovery of one or both of these side agreements by Informix's independent auditors would lead them to insist that Informix restate its financial statements. The Complaint further alleges that, while concealing the secret side agreements, White signed a letter on July 11, 1997, to Informix's independent auditors in connection with Informix's filing of the Forms S-8. In that letter, White falsely represented that no material events concerning Informix's financial results had occurred since their filing on March 31, 1997.
The Complaint alleges that, at the end of July 1997, Informix's financial staff and independent auditors discovered the secret side agreements White was concealing. Informix's Board of Directors immediately forced White to resign from the Company. Informix ultimately restated its 1996 financial statements to reflect substantial decreases in its earnings and income caused by, among other things, discovery of the two side agreements White concealed and various other side agreements. Informix's amended 1996 Form 10-K revealed that, instead of earning net income of $97.8 million as Informix originally reported, Informix suffered a net loss of $73.6 million in 1996.
The Commission seeks a Final Judgment permanently enjoining White from violating, or aiding and abetting violations of, Sections 10(b), 13(a), 13(b)(2)(A), and 13(b)(5) of the Exchange Act; Exchange Act Rules 10b-5, 12b-20, 13a-1, 13b2-1, and 13b2-2; and Section 17(a) of the Securities Act; barring White from acting as an officer or director of any public company; and requiring White to pay civil money penalties.
Separately today, the Office of the United States Attorney for the Northern District of California ("USAO") announced that it had indicted White for federal criminal securities, mail, and wire fraud. Today's civil and criminal actions are the result of investigations by the Commission, the USAO, and the San Francisco office of the Federal Bureau of Investigation.
Previously, the Commission instituted and simultaneously settled an administrative proceeding against Informix. See Informix Corp., Admin. Proc. No. 3-10130; SA Rel. No. 33-7788; SEA Rel. No. 34-42326; AAE Rel. No. 1215 (Jan. 11, 2000). The Commission also previously filed a civil complaint, and obtained a default judgment, against Walter Königseder, an Informix Vice President. See SEC v. Walter Königseder, Civil Action No. 00-3668 (MJJ) (N.D. Cal. May 17, 2001) (Order), Lit. Rel. No. 17016, AAE Rel. No. 1398 (May 23, 2001).