U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 19068 / February 8, 2005
Accounting and Auditing Enforcement
Release No. 2183 / February 8, 2005
Securities and Exchange Commission v. David Malmstedt, Civil Action No. C-02-2427 JW (N.D. Cal.)
The Securities and Exchange Commission announced that on June 10, 2004, following a seven-day trial, a jury in San Jose, California, returned a verdict in favor of the defendant, David Malmstedt. The Commission alleged that Malmstedt had engaged in financial reporting fraud in violation of the antifraud provisions of the federal securities laws (specifically, Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rule 10b-5), violated the document falsification provision (Section 13(b)(5) of the Exchange Act), and aided and abetted violations of the reporting and the recordkeeping provisions (Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20, 13a-13, and Rule 13b2-1). The Commission's complaint alleged that during the relevant time period, Malmstedt was an officer in charge of sales for Legato, Inc., then a Silicon Valley company that created data-storage management software and whose stock was quoted on the NASDAQ National Market System.
This action was filed on May 21, 2002 against Malmstedt and Mark Huetteman, also a former salesman at Legato. Prior to the jury trial, the Commission settled its action against Huetteman, when he consented to a Final Judgment that enjoined him from future violations of the securities laws described above, and ordered him to pay $162,812 in disgorgement and a $40,000 civil monetary penalty.
The Commission's complaint alleged that Malmstedt, Huetteman and others caused Legato fraudulently to record millions of dollars in revenue on sales orders, resulting in Legato materially overstating its revenue during three fiscal quarters of 1999 and for the fiscal year 1999.
For more information, see Litigation Release No. 17524 (May 21, 2002); Litigation Release No. 18209 (July 2, 2003).