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Wednesday, May 08, 2002

March of the Lawyers

by: Tony Pennino

In Westerns, there is frequently the image of buzzards circling over some potential prey lost and alone in the desert. That is what it must be like over at Peregrine Systems (Nasdaq: PRGN), which suddenly finds itself facing a number of class action lawsuits. These lawsuits revolve around allegations that the San Diego software company improperly reported revenues in order to inflate the price of common stock.

The alleged period of improper reporting was from July 19, 2000 to the present. The lawsuits also target company executives Stephen Gardner, Matthew Gless, and John Moores. On May 6, Gardner, the ceo, and Gless, the cfo, resigned. The stock price for Peregrine Systems shares is the lowest it has been in 52 weeks. Arthur Andersen, the accounting firm, is a codefendant as well in some but not all of the suits.

The law firms, not an exclusive list, that have filed class action lawsuits (and are no doubt jockeying to be lead counsel), are as follows:
  • Cauley Geller Bowman & Coates,
  • Entwistle & Cappucci,
  • Slotnick, Shapiro & Crocker,
  • Schiffrin & Barroway,
  • and Chitwood & Harley.
Peregrine is accused of violating Sections 10(b) and 20(a) of the Securities and Exchange Act of 1934. The Cauley Geller filing can be viewed here.

Also on May 6, the Peregrine board of directors ordered its audit committee to initiate an internal investigation into the potential accounting inaccuracies.

"This is not just a case of a stock price falling and slapping them with a lawsuit. There are serious irregularities at Peregrine. There two top guys are gone. There is an internal audit going on," Stephen Oestreich, partner at Slotnick, Shapiro, told the MutualFundWire.com.

Slotnick, Shapiro is not one of the firms that has named Andersen has a codefendant. "They are defendants in so many suits right now -- Global Crossing, Enron -- not to mention their own obstruction of justice case, that there probably isn't going to be much of them left by the time we get to our case. We can always name them later as codefendants," Oestreich explained.

Oestreich explained that there are a number of steps between today and the first day of trial. There will be pre-trial motions, the naming of lead counsel, and discovery. As this is a class action lawsuit, the door is open wide to other investors who want to add their names as plaintiffs. "This is an opportunity not just for the individual investor, but for institutions such as mutual fund companies as well. The law was designed to protect all investors alike regardless of whether they are individual or institutional," the attorney added.

A number of fund families own shares of Peregrine Systems including: Fidelity, Vanguard, Putnam, T. Rowe Price, and MFS. A complete list can be found here.

The lawsuits have been filed in federal district court in San Diego. 

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