U.S. Securities and Exchange Commission
LITIGATION RELEASE NO. 18682 / April 27, 2004
ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. 1992 / April 27, 2004
SEC CHARGES CANADIAN BUSINESSMAN IN FINANCIAL FRAUD CASE
SEC v. James E. Reid (United States District Court for the District of Massachusetts, Civil Action No. 04-CV-10832-JLT).
The Commission announced today that it has filed a civil fraud action against James E. Reid, a Canadian businessman, for causing Firepond, Inc., a software development company formerly based in Waltham, Massachusetts, to materially misstate its financial results for two quarters in 2002. The Commission's complaint alleges that in January and April 2002, Reid caused Firepond to make these material misstatements by fabricating license agreements with three purported customers of the software developer, forging signatures and correspondence, and engaging in an elaborate scheme with confederates and impersonators to prevent Firepond from discovering his wrongdoing. Earlier today, Reid was arrested on federal criminal charges involving the same conduct charged in the Commission's complaint and made an initial appearance in federal court in Buffalo on the criminal charges. Prior to his appearance, an indictment presented by the U.S. Attorney's Office for the District of Massachusetts and returned by a federal grand jury sitting in Boston was unsealed.
According to the Commission's complaint, Reid, who was acting vice president of North American sales at Firepond for much of the relevant period, conducted several sales meetings on behalf of Firepond with Bombardier, Inc., a large equipment manufacturer based in Montreal, Canada. Although the sales meetings stalled and Bombardier never purchased Firepond software, on December 19, 2001, Reid provided Firepond management with a purported executed license agreement between Firepond and Bombardier worth approximately $3.5 million in revenue. According to the Commission's complaint, Reid had forged the name of a high-level Bombardier executive to the agreement. Reid was paid over $156,000 in commissions for the forged Bombardier deal. The Commission's complaint also alleges that Reid used similar methods to create forged contracts with two other Firepond customers. Firepond is now headquartered in Minnesota.
In its Complaint, the Commission further alleged that, due to Reid's deception, Firepond filed materially misleading financial statements for the two fiscal quarters ended January 31, 2002 and April 30, 2002 and issued misleading press and earnings releases, all of which reported results that included revenue and other information from the agreements Reid had falsified. The Commission's complaint alleged that Reid's conduct violated certain provisions of the federal securities laws, specifically Sections 10(b) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 13b2-1 and 13b2-2 thereunder. The Commission's complaint also alleged that Reid aided and abetted Firepond's uncharged violation of Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder.
The Commission's civil case has been assigned to the Honorable Joseph L. Tauro United States District Court Judge.