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— In 1999, a vice president of San Diego's Peregrine Systems, holding out an envelope containing between $25,000 and $50,000 in cash, approached the president of a small reseller of Peregrine software. The loot would go to the president of the small company, Barnhill Management, if he would simply commit his company to buying $3 million of Peregrine software.

Barnhill didn't have the funds to make such a commitment, and Peregrine knew it. But the president was told that his company wouldn't have to pay the $3 million until it had sold the software to an end user. Under accounting rules, Peregrine could not consider this shaky and smelly $3 million commitment a sale. But Peregrine was trying to impress Wall Street with seemingly billowing sales. So it deceitfully counted the $3 million commitment -- and another $12 million in other secretive Barnhill agreements -- as revenue.

The next year, knowing that Barnhill would never resell the software, and wanting to cover its backside, Peregrine simply bought Barnhill. According to a former Peregrine executive, the company had no intention to integrate Barnhill into its operations. It wrote off the cover-up purchase as an acquisition cost -- another instance of improper accounting.

This story and many others are in the main civil suit in U.S. district court against former officers and boardmembers of Peregrine Systems, the software company that has already admitted to cooking its books by more than half a billion dollars over a period of nearly three years. There is an ongoing criminal probe in the matter, as well as investigations by Congress and the Securities and Exchange Commission.

Early this month, a bankruptcy court settlement bolstered shareholders' chances to recover some of their losses through that suit, according to the lead attorney, Solomon B. Cera of San Francisco. Among many things, the settlement requires Peregrine to turn over all the materials that were submitted to the Department of Justice, U.S. Congress, and other federal investigators, says Cera.

Cera won the right to appoint the litigation trustee, who will have a pool of $3 million that will permit the current board to sue the former board, particularly Padres majority owner John Moores, the big winner in the fraud. Cera expects the litigation trustee to file a suit and says that shareholders "are entitled to get everything that may be recovered from Moores, et al."

But will Peregrine officials be held responsible for the malodorous conduct already identified by government investigators? Not if Newt Gingrich has anything to say about it.

Newt Gingrich? Isn't he a fossil? Yes, but his legacy -- anti-investor legislation -- lives on and might prevent beleaguered Peregrine investors from recovering a just portion of the money they lost.

Newt and his fellow salamanders -- wallowing in ample corporate grease -- passed the Private Securities Litigation Reform Act of 1995. President Clinton vetoed it, but the Senate, despite being Democratic, overrode the veto.

Among many things, the legislation required investors to file suit within a year of when the fraud was committed -- a very difficult barrier. The statute of limitations was shortened. Plaintiff attorneys have to provide a slew of details.

The worst feature is the so-called "safe harbor" provision. Companies can attach a disclaimer to any projection, shielding executives from liability for knowingly making excessively optimistic projections. Executives such as Kenneth Lay of Enron have invoked it.

Back in 1995, critics said the law would open the door to widespread fraud. Whether the act is totally to blame, massive fraud certainly became pervasive. "Investor protection is now back to where it was before 1929," says San Diego securities attorney Michael Aguirre.

In fact, Peregrine's defense attorneys are now using 1995 act provisions in trying to get the consolidated Peregrine suit -- a compilation of dozens of suits -- thrown out of court. It will be some time before it is all sorted out.

Of course, Peregrine's sins are already a matter of public record. In criminal confessions, executives have pleaded guilty to cooking the books in multifarious ways, including engaging in side deals with software resellers such as Barnhill.

The civil suit goes into great detail on such matters. As their lawyers fight to have the case dismissed on technical grounds, the various defendants, including Moores, claim they have no liability in the transgressions.

The lawyers who have put the consolidated civil case together have done an excellent job interviewing former Peregrine employees and piling up evidence of massive wrongdoing. One aspect that comes through loud and clear is that the fraud reached well down into management levels -- as well as up to the board ranks.

The practice of giving oral and written side letters to resellers, telling them they had no obligation to pay Peregrine until the product was sold to the end user, "was known throughout the company," according to the suit. Indeed, the company tracked the difference between reseller commitments and actual end-user sales and called it "the burn rate." One former regional sales director told researchers that the burn rate "was commonly and openly discussed in the management ranks. This was a house of cards waiting to blow up."

One reseller is quoted saying, "I became aware in my dealings with Peregrine of what it meant to work off the 'burn.'... Peregrine had improperly recognized these transactions as revenue. Personally, as one of the stronger resellers pushing Peregrine software, I became a trusted insider, or 'in the club'...they told me things that they would not say to others."

Resellers were involved in "wink and nod" transactions, he said. "Peregrine would offer kickbacks to the resellers -- sometimes things such as tickets and box seats to sporting events and more complex transactions that involved cash."

As the criminal cases reveal, Peregrine brass would hold a meeting just before the end of the quarter, figuring out how much to cook the books to meet Wall Street's sales expectations. "All of a sudden at the end of a quarter...there was always some deal that came from nowhere," chuckled a former employee cynically.

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