Securities and Exchange Commission v. Ilse Cappel, C.A. No. 02 CV 2310 JM (LSP) (S.D. Cal.)
In connection with its investigation into a financial fraud at Peregrine Systems, Inc., a San Diego-based software company, the Securities and Exchange Commission today filed civil fraud charges against Peregrine's former Senior Treasury Manager, Ilse Cappel. The Commission's complaint alleges that in conjunction with a senior finance officer at the company and others, Cappel, a certified public accountant, fraudulently concealed accounts receivable problems that resulted from the company's improper recording of revenue. The complaint further alleges that while Cappel possessed material nonpublic information about the fraudulent activities and the company's true financial condition, she illegally sold more than 15,000 shares of Peregrine stock.
According to the complaint, beginning no later than 1999, Peregrine management engaged in a myriad of deceptive sales and accounting practices to create the illusion of growth, including secretly adding material sales contingencies to what appeared on their face to be binding contracts. As a result, the company accumulated on its balance sheet millions of dollars of aging receivables that Peregrine management knew the company would never collect. Important indicators of Peregrine's financial health were deteriorating, including days sales outstanding (DSO) - an analytical tool used by financial analysts and investors to track the age of a company's aggregate accounts receivable and to assess their quality and, ultimately, the quality of the company's revenue. In one portion of the wide-ranging fraud, Cappel engaged with other persons, including a senior finance officer at the company, in a scheme to conceal Peregrine's difficulties in collecting its accounts receivable. The scheme included, among other things, creating a false $19.58 million invoice and selling it to a bank. By selling false receivables to banks, Peregrine materially overstated its cash flow and understated its accounts receivable.
The Commission's complaint seeks to permanently enjoin Cappel from violating certain antifraud provisions of the federal securities laws (Section 17(a) of the Securities Act of 1933, Section 10(b) of the Securities Exchange Act of 1934 (Exchange Act) and Exchange Act Rule 10b-5), and from violating, or aiding and abetting violations of, certain reporting, books and records, and internal controls provisions (Exchange Act Sections13(a), 13(b)(5), 13(b)(2)(A) and 13(b)(2)(B), and Exchange Act Rules 12b-20, 13a-1, 13a-13, and 13b2-1). The complaint also seeks disgorgement of ill-gotten gains, prejudgement interest, and civil money penalties.
The Commission thanks the U.S. Attorney's Office for the Southern District of California and the Federal Bureau of Investigation for their cooperation in this matter.
The Commission's investigation of the financial fraud at Peregrine is continuing.