High-Tech Exec Charged in Stock Fraud Case

A federal grand jury on Thursday handed down the first criminal charges in a major Silicon Valley securities case, indicting the former top European sales executive at Informix Corp., according to published reports.

Walter Konigseder faced 11 counts for his alleged role in the accounting fraud scandal that caused the stock of the Menlo Park, California-based database software company to nosedive in 1997. Federal officials will reportedly seek an extradition order to force him to stand trial.

Konigseder inflated the European revenue and earnings numbers of Informix, contributing to a number of phony sales transactions in 1996. He also allegedly lied to company auditors.

The Securities and Exchange Commission (SEC) also filed a civil action Thursday against Konigseder, who currently resides in Germany, for similar allegations.

Shareholder Lawsuits

Konigseder’s exaggerated sales figures falsely ballooned Informix’s revenues by more than $25 million (US$), triggering a rash of shareholder lawsuits against the company after it announced that its 1997 first quarter revenues would be sharply lower than expected. At the time, Informix blamed the “substantial” loss on sluggish sales.

Investors, though, said that the company and some of its operating officers and directors had wrongly gauged Informix’s performance by booking revenues before end-user sales were completed, thereby allowing Informix to inflate the company’s stock price and retain a competitive edge with its rivals.

As a result of the practice, Informix announced that it would have to restate its 1994 through mid-1997 revenue and profits. For 1996 alone, the company had to rewrite its $97 million profit as a $73 million loss. Informix shares plunged 60 percent on the news, representing a $1.5 billion devaluation.

Informix and its accounting firm Ernst & Young settled the shareholder lawsuits last year, forking over $142 million to investors who had suffered a loss.

Federal Investigation Continues

Earlier this year, the SEC settled enforcement proceedings against Informix for fraudulently inflating revenues by $295 million and earnings by $244 million between 1994 and the first quarter of 1997. In its order, the commission also found that the company, which is now under new management, had also made misleading filings with the SEC and falsified its books and records during that time.

In addition, the agency found that as Informix’s fraudulent conduct was coming to light, former members of its management team sought to avoid restatement of the company’s financial statements and reportedly stamped out internal audits that might correct the practices, published reports said.

As part of its settlement with the commission, Informix agreed to pay substantial fines for future violations and to cooperate with the government’s investigation.

Although the SEC has settled with Informix, federal regulators are reportedly still probing the alleged fraud committed by other former Informix executives.