A federal appeals court agreed Monday to reinstate a securities fraud lawsuit against outside directors of former software firm Peregrine Systems, including the former San Diego Padres owner John Moores.
The 9th U.S. Circuit Court of Appeals allowed a former director of Harbinger, an Atlanta-based business software firm that merged with Peregrine in 2000, to amend his class action to include former board members of Peregrine in the suit naming the firm’s auditing company, Arthur Anderson.
Peregrine Systems, a high-flying software firm before the dot.com bubble burst, was brought down during an accounting scandal in 2002 and filed for bankruptcy. It was eventually sold to Hewlett Packard.
A former director of an Atlanta-based business software company, Harbinger, merged with Peregrine in 2000, before the scandal broke.
The Securities and Exchange Commission accused Peregrine of “a massive financial fraud” in a 2003 complaint, charging the firm inflated its revenue and stock price. The complaint accused the firm of filing materially false financial statements to the SEC for 11 consecutive quarters between April 1999 and December 2001.
Shareholders lost $3 billion and four former executives went to prison for their part in the scandal, including former CEO Stephen Parker Gardner, CFO Matthew Gless, former Executive Vice President Douglas Powanda and former Vice President Jeremy Reeve Cook.
Hildes, a former Harbinger director whose 1.3 million stock shares suffered in the Peregrine deal, should be allowed to revise his class action lawsuit to add a claim against the Peregrine’s outside directors, according to the 9th Circuit.
Judge Carlos Lucero said that although Hildes agreed to have his Harbinger shares voted in favor of the Peregrine merger, he did not irrevocably commit to exchange the shares for Peregrine shares prior to the filing of SEC registration statements.
Hildes argued that if those statements had contained accurate information the merger would have been called off.
“Accordingly, Hildes sufficiently alleged that the material misstatements caused his losses and thus amending the complaint would not be futile,” Lucero wrote.
Hildes sought to add Peregrine outside directors at the time, including Moores, Charles Noell, III, Richard Hossley, Norris Van Den Berg and Christopher Cole.
In 2009, press accounts say Moores sold as much as $650 million in Peregrine stock through the period he was involved with the company.
Moores, who was chairman of the board, was never charged with wrongdoing in the Peregrine collapse.
The 9th Circuit panel ordered the securities case back to the district court for amendment, to include Arthur Anderson, Moores and the other directors.
Lucero is a visiting judge from the Denver-based 10th U.S. Circuit Court of Appeals. He was joined by Judges Stephen Trott and William Fletcher.
Case: Hildes v. Arthur Anderson, No. 11-56592