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Compliance Hotline

By ALM Staff | Law Journal Newsletters |
December 01, 2003

SEC Charges Former Officers of Gateway

The SEC has filed fraud charges against the former CEO, CFO, and controller of San Diego-based Gateway, Inc. for engaging in a fraudulent earnings manipulation scheme to meet Wall Street analysts' expectations, and for making false statements and concealing material information about the success of Gateway's personal computer business, in the second and third quarters of 2000. The suit seeks antifraud injunctions, civil money penalties, disgorgement of improper gains, and orders permanently barring the defendants from serving as officers or directors of public companies.

The SEC's complaint alleges that defendants misrepresented or failed to disclose significant trends in Gateway's business, such as that a material portion of Gateway's sales were generated through high-risk loan financing; that PC sales growth was declining; that, by the end of the third quarter, only a small percentage of net income was associated with PC sales; and that revenue and earnings included various one-time transactions. Through these actions, it is alleged, the defendants gave the false and misleading impression that Gateway, unlike many of its competitors, was outpacing an industry trend of decreasing sales of personal computers.

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