Ex-Gateway CFO Settles SEC Suit

April 18, 2012 /

A final judgment has been entered against a former CFO of Gateway, Inc. for allegedly engaging in fraud and other violations of the federal securities laws in connection with Gateway’s recognition of revenue in the third quarter of 2000.

John J. Todd consented to entry of the final judgment without admitting or denying the allegations made by the Securities and Exchange Commission. This concludes the litigation of this action, brought in 2003 against three former officers of Gateway.

The SEC alleged that Todd 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 Todd 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 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.

Todd further consented to be barred for ten years from acting as an officer or director of a public company, and to pay disgorgement of $165,000, constituting his salary and bonus for the relevant quarter, together with prejudgment interest thereon of $138,162.24 totaling $303,162.24, and a $110,000 penalty.

Previously, on March 7, 2007, a jury had rendered a unanimous verdict finding Todd and defendant Robert D. Manza, Gateway’s former controller, 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 Gateway’s former CEO, Jeffrey 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. On January 25, 2012, the Court entered final judgments against Weitzen and Manza pursuant to their consents. [LR 22244 (January 31, 2012.]


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