Gateway duo found guilty of ancient securities fraud

How not to hit the numbers

By Drew Cullen in San Francisco • Get more from this author

Posted in Law, 9th March 2007 02:09 GMT

Understand how application security is evolving

Two senior beancounters at Gateway cooked the books in 2000 in an attempt to keep Wall Street analysts happy. John Todd, the ex-chief financial officer, and Robert Manza, the PC maker's fomer controller, also illegally swept bad news about the company under the carpet.

Yesterday they were found guilty of engaging in a fraudulent revenue and earnings manipulation scheme, after a three week trial in San Diego, Calif. The court heard how Todd masterminded the scheme to "close the gap" between analysts' expectations and Gateway's anticipated revenues through a variety of improper and extraordinary transactions," The Securities and Exchange Commission (SEC) said. First up, Manza a certified public accountant, drew up financial statements, knowing that they failed to comply with generally accepted accounting principles (GAAP).

Compounding the fraud, the duo failed to disclose a big increase in lending to bad risk customers in Q2 and Q3, 2000. According to the SEC, Todd decided to offer pre-approved financing to individuals whose credit applications had been previously rejected by Gateway. Then the credit floodgates opened to even less creditworthy customers in what Gateway insiders called the DDS program. As in deep, deep shit.

Now Todd and Manza are in DDS. Sentencing comes later. ®

Understand how application security is evolving