SEC Charges Former Logicon Executive With Aiding and Abetting Financial Accounting Fraud at Legato Systems

FOR IMMEDIATE RELEASE
2003-108

Washington, D.C., Sep. 8, 2003 -- The Securities and Exchange Commission today charged an executive who worked for a customer of Legato Systems, Inc. with aiding and abetting Legato's financial accounting fraud. Named in the Commission's complaint was Vincent Steckler, a former vice president of sales at Logicon, Inc., now Northrop Grumman Information Technology, a division of Northrop Grumman, Inc. According to the complaint, Steckler, 43, of Great Falls, Va., helped former Legato sales executives improperly record revenue on a sale to Logicon when Logicon was not committed to pay for the product. Recording this revenue caused Legato to overstate its 1999 third quarter operating income by 146%. The Commission previously charged Legato, its former chief financial officer and two former Legato sales executives in connection with the company's restatement of its financial results for the last three quarters of 1999.

Helane L. Morrison, District Administrator for the Commission's San Francisco District Office, said, "Sales executives who book phony deals often rely on assistance from people who work for their customers. Today's action highlights the Commission's resolve to hold such persons responsible when they knowingly assist in fraudulent revenue recognition practices."

The Commission's complaint alleges that Steckler assisted two former Legato sales executives in drafting a side letter in connection with an order by Logicon to purchase Legato software for resale to the U.S. Air Force. The side letter granted Logicon the right to cancel the transaction, and noted that the cancellation provision could not appear on the face of Logicon's purchase order "because of the impact on revenue recognition." Unaware of the side letter and the cancellation provision, Legato's finance department caused the company to recognize revenue on the order. As a result of this transaction, Legato's original Form 10-Q for the Sept., 30, 1999, quarter improperly overstated the company's net income by approximately $2 million (146%). Legato later restated this income, and the transaction was ultimately cancelled following the discovery of the side letter.

The complaint charges that Steckler aided and abetted Legato and certain of its former officers in violating the antifraud provisions of the securities laws, Section 10(b) of the Securities Exchange Act of 1934 and Rule 10b-5 thereunder; provisions prohibiting the circumvention of Legato's internal accounting controls and falsification of its records, Section 13(b)(5) of the Exchange Act and Rule 13b2-1thereunder; and provisions requiring the company to provide accurate periodic reports and make and keep accurate books and records Sections 13(a) and 13(b)(2)(A) of the Exchange Act and Rules 12b-20 and 13a-13 thereunder. The complaint seeks a permanent injunction against future violations by Steckler, as well as monetary penalties.

In May 2002, the Commission sued Legato's former executive vice president of worldwide sales, David Malmstedt, and its former vice president of sales for North America, Mark Huetteman, for securities fraud for their roles in causing Legato to overstate its financial results for fiscal 1999. At the same time, Legato and its former chief financial officer, Steven Wise, consented to the issuance of a Commission order directing that they cease and desist from violations of the books and records, internal controls and periodic reporting provisions of the federal securities laws.

For more information, please contact:

Helane L. Morrison
District Administrator
Tel: (415) 705-2450

Robert L. Mitchell
Assistant District Administrator
Tel: (415) 705-2351

U.S. Securities and Exchange Commission
San Francisco District Office