FORMER GATEWAY, INC. CEO SETTLES FRAUD SEC CHARGES

The following excerpt is from the SEC website:

On January 25, 2012, final judgments were entered against Jeffrey Weitzen, former CEO of Gateway, Inc., and Robert D. Manza, former controller of Gateway. Weitzen and Manza consented to entry of the final judgments without admitting or denying the allegations made by the Securities and Exchange Commission that they engaged in fraud and other violations of the federal securities laws in connection with Gateway’s recognition of revenue in the third quarter of 2000.

The SEC alleged that the defendants falsely represented Gateway’s financial condition in the third quarter of 2000 in order to meet financial analysts’ earnings and revenue expectations. Among other transactions, the SEC alleged that the defendants caused Gateway to record $47.2 million in revenue from a one-time sale of fixed assets to Gateway’s third-party information technology services provider in violation of Generally Accepted Accounting Principles (GAAP), and that Manza and defendant John J. Todd, then Gateway’s CFO, caused Gateway to recognize an additional $21 million in revenue from an incomplete sale of computers to a second entity, also in violation of GAAP. The SEC alleged that absent either of these transactions, Gateway would not have met analysts’ expectations with regard to its third quarter revenue.

Weitzen consented to a final judgment permanently enjoining him from violations of the antifraud provisions of Section 10(b) of the Exchange Act and Rule 10b-5 thereunder, and payment of a $110,000 civil penalty. Manza consented to a final judgment permanently enjoining him from violations of the antifraud provisions of Section 10(b) and Rule 10b-5 thereunder, and from violations of SEC Rule 13b2-2, which prohibits making misrepresentations and omissions of material fact to company auditors, as well as from aiding and abetting the issuer reporting provisions of Section 13(a) of the Exchange Act and Rules 12b-20, 13a-1 and 13a-13 thereunder. Manza further consented to be barred for five years from acting as an officer or director of a public company, and to pay disgorgement of $85,150, constituting his salary and bonus for the relevant quarter, together with prejudgment interest thereon of $75,551.43 totaling $160,701.43, and a $110,000 penalty.

Previously, on March 7, 2007, a jury had rendered a unanimous verdict finding Manza and defendant Todd liable for fraud, making false representations to auditors, aiding and abetting issuer reporting violations and other violations following a three week trial. On May 30, 2007, the Honorable Roger T. Benitez overturned the jury verdict as to the fraud and certain other claims. The SEC appealed that ruling, as well as the District Court’s prior August 1, 2006, grant of summary judgment to Weitzen dismissing the SEC’s case as to Weitzen. On June 23, 2011, the Ninth Circuit reversed those rulings and remanded the matter to the District Court.

The case remains pending as to defendant Todd.