- The Washington Times - Thursday, November 13, 2003

The Securities and Exchange Commission yesterday charged three former top executives of Gateway Inc. with securities fraud for engineering the company’s books to meet Wall Street expectations during the tech stock bubble of 2000.

Gateway, one of the country’s top personal computer makers, also settled accusations that it broke federal accounting rules in an agreement that requires it to cooperate with the SEC but does not subject the firm to fines or penalties.

The SEC filed fraud charges in San Diego against former Chief Executive Officer Jeffrey Weitzen, 47, former Chief Financial Officer John Todd, 43, and former Controller Robert Manza, 42, for making false statements and manipulating Gateway’s books to hide a decrease in personal-computer sales in the second and third quarters of 2000.

Gateway restated its 2000 results in 2001, lowering its sales and profits figures to reflect investment losses and bad loans not previously disclosed. The SEC began its investigation in 2000, and the U.S. Justice Department opened a criminal fraud investigation of the company’s accounting on May 14.

The SEC said Mr. Todd was the principal architect of the accounting scam, and Mr. Manza helped by initiating certain one-time transactions and preparing financial statements that he knew didn’t comply with generally accepted accounting principles.

Despite the accounting legerdemain, Gateway’s shares dropped 70 percent during the 13 months Mr. Weitzen was CEO. He and Mr. Todd quit the company in January 2001, leading Gateway’s chairman and biggest shareholder, Tim Waitt, to name new senior managers.

“We will hold accountable individuals who produce deceptive financial results, no matter what means they use,” said Stephen Cutler, the SEC’s enforcement director.

Richard Marmaro, an attorney for Mr. Weitzen, called the charges “baseless.” Robert Rose, Mr. Todd’s attorney, said the accusations are “outrageous.” He said the SEC questioned Mr. Todd for six days and that no one who worked with him accused him of doing anything wrong.

The SEC is seeking antifraud injunctions, civil money penalties and the return of ill-gotten gains from the three officers. The agency also wants the men banned from serving as officers or directors of public companies.

The SEC said it agreed to settle with Gateway after taking into account its promise of future cooperation, as well as remedial measures recently put into place by the management and board of directors. In exchange, the company agreed to cooperate with the SEC in its investigation, litigation and other proceedings.

“The company’s cooperation was not exemplary during the early stages of the staff’s investigation,” but improved over time, the SEC said.

The SEC’s cease-and-desist order against Gateway found the company violated antifraud, reporting and record-keeping provisions of federal securities laws. Gateway also violated its internal controls by “failing to observe consistent quarter-end cutoff dates and times, which caused it to have accounting periods of different lengths from quarter to quarter,” the SEC said.

“We are very pleased to put this behind us,” Gateway spokesman Bob Sherbin said.

This story is based in part on wire service reports.


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