Peregrine Files For Bankruptcy, Sues Andersen For $1 Billion

Software company Peregrine Systems Inc., the self-described leading global provider of Infrastructure Management software, filed for Chapter 11 bankruptcy projection over the weekend and announced plans to file a lawsuit naming Arthur Andersen LLP, Arthur Andersen Worldwide, Arthur Andersen Germany, and Andersen audit partner Daniel Stulac and possibly others for not detecting the problems that led to the firm's bankruptcy.

Peregrine plans to claim in its lawsuit that Andersen was negligent and engaged in fraud in its audit work for the company's 2000, 2001, and 2002 fiscal years. In addition, Peregrine will claim that there was a "breach of audit and accounting duties and responsibilities," and that the impact of the conduct of Andersen and the others "has been significant."

Peregrine became an Andersen client in July 1996, eight months before becoming a public company. In the lawsuit, Peregrine claims that, "during the Andersen/Peregrine audit relationship, Andersen, Andersen Worldwide, and [Mr.] Stulac not only failed to implement procedures, protocols and evaluative mechanisms designed to protect Peregrine from inaccurate, irregular and/or unlawful accounting practices and entries, but they, in fact, promoted, crafted and encouraged Peregrine and its management to engage in accounting practices which the Defendants knew to be irregular and improper."

The suit goes on to allege that, "During the course of their malpractice, Andersen, Andersen Worldwide, and [Mr.] Stulac allowed numerous financial statements to be filed with the SEC (including 10-K's and 10-Q's) and then to be distributed to investors in the public capital markets, although Andersen, Andersen Worldwide, and [Mr.] Stulac knew that such financial statements were misleading in that the statements included, among other things, (a) overstated accounts receivable, (b) overstated revenues, (c) improperly valued stock options, (d) understated liabilities, and (e) improperly disclosed or failed to disclose the write-offs of bad receivables."

The lawsuit continues, "Andersen - a firm that has been convicted of felony conduct on June 15, 2002 - consistently engaged in a wanton and reckless, and malicious, pattern of aggressively dealing with Boards and Audit Committees to assure that its fraud is neither criticized nor uncovered. This was all done for financial gain, and out of greed."

Peregrine terminated its relationship with Andersen in April 2002, replacing the audit firm with KPMG. Soon after making the auditor switch, Peregrine fired KPMG and hired PricewaterhouseCoopers. The Securities and Exchange Commission and a congressional committee are investigating the accounting practices at Peregrine for the years in question. Many shareholder lawsuits have been filed against the company alleging securities fraud.

Peregrine stock has plummeted in the past two and one-half years from a high of $80.63 in March 2000 to $.47 last week. The NASDAQ delisted the company in August. Peregrine CEO Gary Greenfield said that all of the blame for the company's problems does not lie with Andersen, but added, "Had Andersen acted in a timely manner, we could have avoided the depth of the financial straits that we're in today."

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