- The Washington Times - Tuesday, October 1, 2002

The story is all too familiar. Several months ago, before WorldCom and in the wake of Enron and Global Crossing, Peregrine Systems, Inc., a lesser-known San Diego-based software company, announced it had overstated its earnings by $100 million while "independent" accounting firm Arthur Andersen was overseeing the books. Another corporation, another lie, and another investigation by the Securities and Exchange Commission and the Justice Department.

As these scandals have unraveled, the term "independent" is bearing more scrutiny. How "independent" are auditors? How "independent" are "outside" board members?

Consider the Peregrine imbroglio and one of its "outside" board members, New Mexico's Democratic gubernatorial candidate Bill Richardson. Upon the announcement of Peregrine's misdeeds last May, Bill Clinton's former energy secretary requested, through a letter to the company, an investigation into the accounting improprieties a wise political tact and the obvious first move in beginning to distance himself from a company that would soon implode. Mr. Richardson, declaring publicly his concern as an "independent" board member, seemed to clear himself of any Peregrine taint. His letter was covered in New Mexico's newspapers, and he stated outright, "I had no involvement because I was what was called an outside director." Mr. Richardson resigned from the board in June.

At issue, though, is his use of the term "outside." Mr. Richardson employed misleading statements in the manner of his former boss Bill Clinton, who, you will remember, stretched the meaning of "is" for political cover. Predictably, Mr. Richardson's duties entailed much more than those of a casual consultant. He appears to have played a key role in a variety of management issues. According to Peregrine's SEC filings, he joined the rest of the board in its unanimous decision to retain Arthur Andersen as the company's auditor. After Andersen was finally junked last April, Mr. Richardson and his fellow board members summarily dismissed Andersen's replacement, KPMG, nary a month later, after the new auditor disclosed Peregrine's infamous $100 million in overstated earnings (recently reported to be, in fact, as high as $250 million).

Mr. Richardson's signature appears on at least 10 SEC registration statements. According to Peregrine's August 2001 SEC proxy statement, all of Peregrine's directors "attended at least 75 percent of the meetings of the board of directors and any applicable committee held while they were members of [the] board of directors." He would have been paid handsomely for those innocuous get-togethers, including $2,000 for each meeting attended in person. Accounts of how many board meetings Mr. Richardson attended vary. Mr. Richardson claims he made about five meetings during his 16-month tenure as a director, while his campaign says he attended eight board gatherings. Whatever the truth, the position netted Mr. Richardson between $10,000 and $16,000 for serving as an "outside" adviser.

Interestingly, nowhere in those documents does there appear to be an express distinction between the duties of an "outside" director and those of a director serving on the management team.

The purpose of having "independent" or "outside" board members is to solicit consultation on business plans from an outside perspective one not directly influenced by longtime establishment views or relationships, or in some cases, investment in the company itself. They also serve as a check on the management team to protect investors from corporate malfeasance.

Indeed, Mr. Richardson owned no company stock; however, he did share close personal relationships with Peregrine executives. His brother-in-law, Stephen Gardner, was Peregrine's chairman at the time of the accounting troubles, and Mr. Gardner's successor, John Moores, is a major contributor to Mr. Richardson's gubernatorial campaign. Prior to replacing Mr. Gardner as chairman in May, Mr. Moores gave $5,000 to the Richardson camp. His campaign manager has suggested the contribution stemmed from his friendship with Mr. Moores. Mr. Richardson's "outside" relationship with Peregrine does not end there, though.

In December 2001, more than five months before the revelations of Peregrine's accounting woes, Mr. Richardson appeared at a Peregrine-sponsored Washington conference and endorsed its new Crisis Management Initiative, a homeland security-geared software package that would organize emergency resources during a national crisis.

Perhaps Harlan Platt, a finance professor at Northeastern University, said it best when he commented on the Peregrine scandal: "It's like asking the inmates at a prison to nominate who should be the jailers." Keeping in mind the close personal and political relationships he enjoyed with senior management who appointed him to the board in the first place, as well as his role of Peregrine product pitchman, it is far from clear how "independent" or far "outside" Bill Richardson truly was. Apparently, some of the 1,400 workers Peregrine sacked since May and stockholders are convinced that the firm's board of directors outside or otherwise are culpable for the company's plight. Indeed, Mr. Richardson is a defendant in at least five lawsuits brought by terminated Peregrine employees and disgruntled shareholders.

Considering the credible evidence that implicates Bill Richardson as another corporate malfeasant, perhaps candidate Richardson should explain his complete involvement with Peregrine, which was recently delisted from the NASDAQ and filed for bankruptcy. What did he know and when did he know it? It is the least New Mexico voters deserve.


David N. Bossie is president of Citizens United and the former chief investigator for the U.S. House of Representatives Committee on Government Reform and Oversight.

LOAD COMMENTS ()

 

Click to Read More

Click to Hide