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U.S. drops charges against ex-Peregrine accountant

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A former Peregrine Systems Inc. accountant and an ex-outside auditor tried twice for an alleged fraud that destroyed the company had their charges dropped after juries deadlocked.

U.S. District Judge Thomas Whelan in San Diego approved the dismissals in an order Tuesday. Federal prosecutor Eric Beste Monday moved to drop the case against Patrick Towle, 39, a former revenue-accounting manager at the San Diego-based software company, and Daniel Stulac, 43, who was a partner at now-defunct accounting firm Arthur Andersen, according to court papers. A mistrial was declared in their fraud case March 20. A different jury in July also couldn't decide on the charges against them.

"This was an example of government overreaching," Towle's lawyer, Kathryn Thickstun, said in an interview Tuesday. "It was, 'He was there, he should have known and he was an accountant."'

Prosecutors charged 18 people in a fraud that sent Peregrine, once valued at $4.72 billion, into bankruptcy in 2002. Twelve pleaded guilty, including former Chief Executive Officer Stephen P. Gardner and ex-Chief Financial Officer Matt Gless.

Former Peregrine President Gary Lee Lenz, who pleaded guilty Jan. 15, was to have been retried with Towle and Stulac after a jury failed to reach a verdict against the three men and former Vice President Joseph Reichner in July. Prosecutors decided not to retry Reichner.

Lenz is to be sentenced April 29. He pleaded guilty to one count of making a false statement, and faces as much as five years in prison and a fine of $250,000.

"My client is extremely gratified and relieved that the government has finally done the right thing and dropped all the charges against him," Stulac's attorney Michael Attanasio said in an interview Tuesday. "He was caught up in a net that was cast too wide and in a case where the U.S. attorney wanted to make an example out of a gatekeeper."

Attanasio is a partner at Cooley Godward Kronish in San Diego.

Debra Hartman, a spokeswoman for the San Diego federal prosecutor's office, declined to comment.

The government charged Towle and Stulac in 2004 with taking part in a multimillion-dollar accounting scam to falsely inflate profits and boost Peregrine's stock. The alleged fraud involved the sales of licenses for business-management software, which helped companies track assets such as computers and vehicles.

Peregrine booked sales on a previous quarter's results, backdating or whiting out the dates from fax headers, prosecutors claimed. The company also booked revenue from resellers in which the contracts had no end-user, they said.

Towle and Stulac each faced one count of conspiracy and one count of securities fraud. Towle faced four counts of wire fraud and Stulac two counts of wire fraud. The maximum possible sentence against Towle if found guilty was 35 years in prison. The possible maximum term for Stulac was 25 years.

"Some of the jurors thought the defendants didn't know what was going on and others thought that they should have known because they were CPAs and all that," jury foreman Jimmy Staton said after jurors were dismissed last month.

The trial dates for three other former Peregrine executives haven't been set.

The day after Peregrine filed for court protection, its shares fell to 8 cents. In 2000, the stock traded as high as $80.63. Thousands of Peregrine employees lost their jobs.

The company sold most of its operations to Palo Alto, Calif.-based Hewlett-Packard Co. (NYSE: HPQ) after shedding about $537 million of debt and exiting bankruptcy in 2003. That same year, Peregrine settled with the U.S. Securities and Exchange Commission after restating $509 million in revenue.

The company first sold stock to the public in April 1997 at $9 a share. Peregrine reported 17 consecutive quarters of growth that met or exceeded analysts' estimates, according to the indictment.

The case is U.S. v. Gardner, 04-cr-2605, U.S. District Court, Southern District of California (San Diego).

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