U.S. Securities and Exchange Commission
Litigation Release No. 18327 / September 8, 2003
Accounting and Auditing Enforcement Release No. 1850 / September 8, 2003
SECURITIES AND EXCHANGE COMMISSION v. VINCENT STECKLER, United States District Court for the Northern District of California, Civil Action No. C-03-4067 RMW
The Securities and Exchange Commission today filed suit in federal district court against Vincent Steckler, a former executive at Logicon, Inc., for his roles in a 1999 financial reporting fraud that caused Legato Systems, Inc. to overstate its third quarter operating income by more than 146%. The Commission's district court complaint alleges that Steckler assisted two former Legato sales executives in drafting a side letter in connection with an order by Logicon to purchase Legato software for resale to the U.S. Air Force. The side letter granted Logicon the right to cancel the transaction, and noted that the cancellation provision could not appear on the face of Logicon's purchase order "because of the impact on revenue recognition." Unaware of the side letter and the cancellation provision, Legato's finance department caused the company to recognize revenue on the order. As a result of this transaction, Legato's original Form 10-Q for the Sept 30, 1999, quarter improperly overstated the company's net income by approximately $2 million (146%). Legato later restated this income, and the transaction was ultimately cancelled following the discovery of the side letter.
The complaint charges that Steckler aided and abetted Legato and certain of its former officers in violating the antifraud provisions of the securities laws, (Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; provisions prohibiting the circumvention of Legato's internal accounting controls and falsification of its records, (Section 13(b)(5) of the Exchange Act and Rule 13b2-1; and provisions requiring the company to provide accurate periodic reports and make and keep accurate books and records (Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder). The complaint seeks a permanent injunction against future violations by Steckler, as well as monetary penalties.
In May 2002, the Commission sued Legato's former executive vice president of worldwide sales, David Malmstedt, and its former vice president of sales for North America, Mark Huetteman, for securities fraud for their roles in causing Legato to overstate its financial results for fiscal 1999. At the same time, Legato and its former chief financial officer, Steven Wise, consented to the issuance of a Commission order directing that they cease and desist from violations of the books and records, internal controls and periodic reporting provisions of the federal securities laws.
SEC Complaint in this matter