'A Schnook Is No Better Than A Crook'

Email

Print

Share

July 09, 2007 9:09 AM

Corporate ethics experts are raising new questions about the role of Democratic presidential hopeful Bill Richardson in the implosion of a technology firm whose top executives are facing federal prosecution for a financial conspiracy being compared to the Enron fiasco.

Richardson sat on the board of San Diego-based Peregrine Systems for more than a year prior to its collapse in late 2002. Its top brass stands accused of conspiring to falsely inflate its revenue by more than $500 million; many have already pleaded guilty. 

Richardson, the New Mexico governor and one-time U.S. energy secretary, joined the board of San Diego-based Peregrine Systems in 2001 at the invitation of his wife's sister's husband, Peregrine CEO Stephen Gardner, a campaign spokeswoman confirmed.

Gardner pleaded guilty to conspiracy, securities fraud and obstruction of justice in federal court this March. Gardner admitted to working with other executives to overstate earnings and artificially boost the value of the firm's stock.

The scam cost investors an estimated $4 billion and threw thousands of people out of work.

Click Here for Full Blotter Coverage.

Gardner was the 11th figure to plead guilty to charges stemming from the years-long fraud; three more still face charges. A federal jury will soon begin deliberations on the fates of four other former Peregrine executives, who have pleaded not guilty to criminal charges in the case.

In a 2002 article following the company's collapse, Richardson described Gardner as a "well-respected executive," whom he saw about once a year at family events. Richardson spokeswoman Katie Roberts could not confirm whether or not her boss stays in contact with the disgraced former executive.

"In no way shape or form does he approve of what happened or any of that," Roberts said of Richardson recently. "[Gardner] is as accountable as anybody is to the letter of the law...he will have to serve for his mistakes."  Attempts to reach Gardner were unsuccessful.

Richardson has maintained he knew nothing of the bad activities of Gardner and others, and that when he suspected wrongdoing, he asked for a probe. 

"When he learned of the irregularities, he immediately wrote to the company asking for an independent investigation," said Roberts. "He was very much a part of uncovering the problems that were going on."

Richardson reportedly missed nearly half of the company's board meetings held during his tenure. He has admitted to not reading all of the company's reports and other paperwork he was given.

When asked if Richardson thought he should have known more about the company, Roberts restated her earlier comment.

"Once the governor did get information of irregularities...he made sure an independent investigation was taken up," she said.

But corporate governance experts say he should have known better.

"It's the job of the board of directors to know what's going on," said Nell Minow of the Corporate Executive Board, a longtime governance gadfly. "When you're a director, it's no better to be a schnook than a crook." 

Minow noted she has observed that former public officials rarely make good company directors.

"Government officials aren't good at what they don't know," she said. "They forget how to ask questions."

Richardson was paid $10,000 for his service on the board, according to campaign spokeswoman Katie Roberts. He received no other form of compensation, directly or indirectly, he owned no stock in the company, and he did not profit in any other way from the company, according to her.

When Richardson joined the company's board in February 2001, the company appeared to be thriving, and hopes ran high.

"He will bring a profound level of knowledge and insight to Peregrine's board," CEO Stephen Gardner said of Richardson in a press release from the time, welcoming his wife's brother-in-law to the board of directors.

In April 2002, trouble surfaced. The company switched auditors. Shortly after, it began to restate earnings and launched an internal investigation into its accounting practices.

Richardson resigned in June 2002, weeks after news of a Securities and Exchange Commission investigation into Peregrine was publicly reported. Richardson has maintained he left after winning the New Mexico gubernatorial primary, so he could focus on campaigning in the general election.

By September, the company's stock was worthless, and the firm declared bankruptcy. Angry shareholders filed a flurry of lawsuits against the firm, at least four of which named Richardson as a defendant. His name was eventually removed from the suits' lists of defendants; plaintiffs' lawyers contacted by the Blotter on ABCNews.com said they could not recall why Richardson was dropped from the suits.

Richardson spokeswoman Katie Roberts maintains her candidate bore no fault for what happened at Peregrine.

"In his role, he's always made sure to protect the innocent and citizens from being taken advantage of," she told ABCNews.com. "When he saw there was any indiscretion...he blew the horn to protect innocent victims of all this."

Do you have a tip for Brian Ross and the Investigative Team?