Ex-Gateway executives found liable in accounting fraud

Four years after federal regulators first accused two former Gateway Inc. executives of manipulating earnings, a jury found the men liable for violating fraud and recordkeeping laws and making false statements, the Securities and Exchange Commission said Thursday.

The jury reached a decision Wednesday in the civil trial against former Chief Financial Officer John J. Todd and former Controller Robert D. Manza.

“The desire to meet Wall Street analysts’ expectations is no excuse for accounting tricks and other deceptive practices,” said Randall R. Lee, director of the SEC’s Pacific regional office in Los Angeles.

Todd’s attorney, Bob Rose, said he would ask U.S. District Judge Roger T. Benitez to review the evidence to determine if it was sufficient to prove liability. Other elements of the case were thrown out last year because of insufficient evidence, he said.

The case was tried in U.S. District Court in San Diego, where the computer maker was based before moving to Irvine in 2004.

Gateway ousted both men in early 2001. The company was not named in the current case.

The SEC claims, filed in 2003, covered the second and third quarters of 2000. The agency accused the executives of booking sham sales and relying increasingly on loans to customers with shaky credit during that time to close the gap between Wall Street’s expectations and actual results.

The agency said accounting irregularities inflated revenue by 6.5%, or $154 million, during the third quarter of 2000.

A third defendant, former Gateway Chief Executive Jeffrey Weitzen, was cleared of securities fraud allegations last year.

Lee said Benitez would decide on possible sanctions against the two men. The next hearing was set for April 26.

The agency plans to press for repayment of any financial gains such as performance bonuses, undetermined civil penalties and an order barring the men from future service as officers or directors of a public firm, Lee said.