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Peregrine Systems was founded in 1981 inIrvine, California. The original founders are Chris Cole, Gary Story, Ed Beck, Kevin Keyes and Richard Diederich. Peregrine System develops enterprise solutions that enable organizations to address specific business problems and evolve their IT service and asset management practices for reduced costs, improved productivity and service, and lower risk. Peregrine has sustained a longstanding tradition of delivering solutions with superior functionality to a broad segment of the global enterprise customer market. There Headquartered is in San Diego, Calif., the company conducts business from offices in the Americas, Europe and Asia Pacific.
PEREGRINE SYSTEM'SACCOUNTING FRAUD
PURPOSE OF FRAUD DONE IN PEREGRINE SYSTEM
StevenSpitzer, a member of Peregrine's sales team admitted to meet regularly withsenior managementnear the end of the quarter to determine how much revenue was needed to exceed Wall Street's expectations. So the primary fraud committed by Peregrine was inflating revenue by booking revenue when sales never occurred. By recognizing revenue from sales that never occurred, theaccounts receivablebalance and net income were fraudulently overstated; theaccounts receivablewould never be collected, because the merchandise was never sold. To cover up their high, outstanding,accounts receivablebalance as a result of booking sales that did not occur, Peregrine fraudulently engaged in financial agreements with banks and made them to repay the funds to bank, which was not possible. This made the company showed their accounts fraud to the people.
ACCOUNTING SCANDALS DONE IN PEREGRINE SYSTEM
Peregrine Systems increased its revenues by pressuring distributors and resellers to build up their inventories. According to GAAP,revenue recognitionon the sale of software requires evidence that an arrangement must exist, delivery must have occurred, vendor's fees must be fixed or determinable, and collectibility must be probable before recognizing revenue. Peregrine falsely recorded this transfer of inventory to distributors and resellers as revenue, and as much as $225 million by falsely recognizing revenue in this way and recording it as a "non-substantial transaction," which was in violation of GAAPrevenue recognitioncriteria for software sales. Peregrine accumulated a large number of receivables on its balance sheet that would not or could not be paid. To remove the receivables from the balance sheet, Peregrine assigned almost $141.6 million of itsaccounts receivablebalance to a bank. In my opinion, Peregrine recorded the "factoring" and assignment of their receivables as a factoring agreement and recorded the transaction as a sale of the receivables. Peregrine had an agreement with the bank that they would collect the receivables from the customers and, subsequently, submit the paymentsto thebank. Obviously, when the customers did not pay Peregrine, Peregrine either repurchased the receivables or paid back the bank. A total of $70 million of payments were recorded on the income statement as acquisition or investment relatedexpenses. This action result in onetimeexpensesrather than operating expenses. Peregrine also understated compensatingexpenses. As a result Peregrine'sfinancial statementsand books overstated cash flow from operations and understatedaccounts receivableand their liabilitiesto thebank. Peregrine also understated compensatingexpenses. They picked the lowest stock price of the period for the compensating stock options, even though the decision to distribute these options had been made in the previous period. By not complying with the GAAP and fraudulently not recognizing theseexpenses, Peregrine's expenseswere falsely understated by nearly $100 million. Peregrine also falsely recorded and recognized revenue on nonmonetary transactions and of similar assets. Peregrine exchanged software with another software company, exchanged checks, and recognized revenue even though they were equal trades. Under GAAP, the exchange of similar assets, a gain can only be recognizedto theextent that boot or cash is received. By recognizing that revenue fraud was committed, it should not have to be given when the assets have the samefair market value.
IMPACT ON SHARE PRICE AND HOLDERS OF PEREGRINE SYSTEM
Peregrine told investors and government regulators that its losses from April 1999 to December 2001 amounted to $1.54 billion. Their statement showed these losses to be $4.09 billion. The shares of Peregrine trades were near eighty dollars a share in the year 2000. It was later delisted by the NASDAQ and traded at forty-one cents on an over- the-counter stock. The fraud eventually led to many outside investors and Peregrine employees, who invested their earnings in Peregrine's internal stock plan, losing thousands of dollars. The board also sold over $800 million of shares during Peregrine's fraudulent period. The entire amount of shareholder equity lost was over $4 billion dollars.
Because of this crisis, Peregrine was filed for chapter11 protection on September 23, 2002 after Laying off majority of its employees and the company was bankrupted. The company sold the remedy division of the company to BMC Software for over $300 million dollars and used funds to pay the majority of the company's debt. Peregrine exited Chapter 11 reorganization in August 2003 but the board of Directors fired the CEO Gary Greenfield. Retired software executive John Mutch took over and eventually he sold the company for a little more than two times revenue to HP. Hewlett Packard acquired Peregrine Systems in 2005 for $425 million. Peregrine product was sold under the HP Business Technology Optimization Software brand and is part of the HP Software Global Business Unit.
Under GAAP, the information in the financial statements should be reliable and should contained relevant Information. A change in the laws and regulations to better insure accurate financial reports and the prevention of accounting fraud should be applied in practice. If Management still decides to falsify documents needs to be held more accountable for their actions and receive tougher punishments. Strict guidelines would help the people all over the world feel more confident in investing their money into the stock market.