continued Such red flags of phony accounting abounded. Gardner told the board that the company was "borrowing from the future to make the present happen" and granting "extraordinary terms" to buyers so the company could please Wall Street with supposedly billowing sales. Later, it turned out the company was keeping the books open long after quarters closed and even bribing a distributor with a sack of money to commit to buying software.
In October of 2001, a sales executive sent a stinging e-mail to Gardner, saying the company was booking revenue from noncontracts. "Where's the commercial substance to these so-called 'contracts?' " he demanded to know. Gardner passed the memo to Moores, who gave a curious, disjointed response: "I can't figure out why [sic] the hell is complaining about." It was deliberately reckless conduct, according to the suit, but Quinn says the statement shows Moores did not understand what was going on. The whistle-blower was fired and then e-mailed Moores and others, saying that the booking of phantom sales was "unethical, immoral, and unconscionable."
At the same time, Moores knew the company was critically short of cash, according to the Cera suit, and even remarked, "We're the largest company in the world that lives hand-to-mouth."
But both suits emphasize that the company did not publicly disclose such accounting irregularities and financial woes, and insiders went on merrily dumping their shares. Quinn, however, says the charges won't stick, partly because the plaintiffs are "selectively quoting" from the Gardner reports.
The defense claims that Moores was an outside director. But Peregrine records show that an office of the chairman, including Moores, called corporate signals, and one of the company's own presentations identified Moores as a member of the senior management team. Moores absolutely controlled the company, says the federal suit -- a charge denied by Quinn.
When Judge Jones rejected most of the charges in the federal suit last November, he wanted more specificity and claimed the evidence did not show conclusively that the defendants knew that revenue was improperly recognized. I have read 400 pages of these complaints, and I can't see how any judge could reach either of those conclusions this time around. A jury must pass judgment on these very detailed charges. Says Cera, "There is a very, very stringent standard, and our complaint is now sufficient to meet it."