per·e·grine adj: having a tendency to wander.
peregrine n : a swift, nearly cosmopolitan falcon (Falco peregrinus) that is much used in falconry.
"When you're slapped, you'll take it and like it."
-Humphrey Bogart in The Maltese Falcon
Michele Voth, a bright, enthusiastic single mom, figured she would retire comfortably after a lifelong career at Peregrine Systems. Fresh out of community college at the wide-eyed age of 22, Voth started with the company in 1985 when it was a tiny start-up working out of modest digs in the bustling Orange County suburb of Irvine.
Voth began as an office manager at the suggestion of her sister, who worked for a financial institution down the street where Peregrine did its banking. "She said, "You should apply.' So I did and got the job," Voth recalled in a recent interview with CityBeat. "I didn't know anything about the company."
But during the next 17 years, she got to know the business-software company a whole lot better, moving steadily up the corporate ladder until her professional career and that of 1,400 of her colleagues came crashing down during the summer of 2002.
"June 18," Voth sighed. "That was official last day. We weren't really sad-more angry, really. I did get sad later, but I just stayed angry for awhile."
Only weeks before, perhaps San Diego's most visible corporate chairman and one of its most generous philanthropists, John Moores stood at a podium before more than 500 Peregrine employees who were gathered for the company's annual springtime sales-kickoff meeting. An event that in years past had been held at some of the county's swankier resorts, this one was happening just across the street from the company's sparkling campus headquarters, at a Marriott hotel.
Something seemed amiss, even while company executives assured the crowd that all would be well with Peregrine. Moores-known to despise meetings but otherwise quite comfortable speaking before large crowds-looked like hell.
"He looked disheveled," Voth recalled, "and I swear he could not put two words together, and I'm pretty sure he was working from a Tele-Prompter. He just seemed out of place, out of sorts, like he had been up all night."
No wonder. Moores had stepped down as chairman of Peregrine two years earlier, profiting by an estimated half-billion dollars after the company went public in 1997. And now, in the summer of 2002, Peregrine faced government investigations, fraud allegations by former auditors and a growing stack of shareholder lawsuits.
So, how did this corporate giant settle so ignobly back to earth? The answers, it seems, are as complex as the accounting procedures that are blamed for Peregrine's return to mortality-a road now littered with corporate carcasses like Enron, Tyco and Global Crossing, all high-fliers in the '90s.
"I think a lot of these companies reflected the hubris of the times," explained Nikhil Varaiya, chairman of the finance department at San Diego State University. "They were rewarded with high stock valuations, because people thought that they would be able to grow.... As things came to the fore about whether the growth would be coming through, I think some people tried to come up with numbers that would support the expectations."
One thing is sure. Few, if any, of the principals involved in Peregrine's market nosedive-it flew as high as $80 a share in 2000 but traded last week at a three-month high of 31 cents-are talking, at least to the media-not a surprise when a company and its former executives are facing more than 40 shareholder lawsuits.
It wasn't always this way, Voth recalled.
When she came to work at Peregrine in 1985, there were 10 other employees. The founders of the company had left IBM in the early '80s and were working on software that helped manage computer networks, a program that IBM had little interest in pursuing at the time.
"They were working on a project called Goshawk, and that product was somewhat similar to the theme of Peregrine's network-management systems," Voth said. "They thought it was a viable idea, this Goshawk, and they stayed with the bird-of-prey theme by naming their company Peregrine."
It was a close-knit group, Voth remembered, "and we really enjoyed working with each other. We all felt it was a great product. Some versions were better than others, and we sometimes even sold features that we hadn't quite yet developed, which we called vaporware. Customers would ask for something, and we'd go, "Oh yeah, we have it.' Then we'd start working on it. Eventually we would make it. Especially when you're a small company, you're just trying to close that deal."
She called the early company "a pretty testosterone-driven group," not unusual in the computer-software industry, and a company driven by some pretty nifty compensation packages. "You make a big deal, like BellSouth was one of our bigger deals back then, and the boys got a Roll Royce convertible Corniche or a Ferrari Testarossa."
Moores came into the picture prior to Peregrine's move to San Diego in 1989. Also an IBM alum, Moores had made his millions with a company he co-founded in 1980 with $1,000 called BMC Software in Houston, Texas. In 1992, he left as chairman and sold his stock in the company for $400 million.
In 1993, he told the magazine Texas Monthly that he had started BMC simply to pay his mortgage, but then realized what he had after going public eight years after its founding. "It hit like a ton bricks," the magazine quoted him as saying. His departure came, he said, because "there wasn't anything I could add to the equation. I'm not well suited to a public company."
He began as an investor in Peregrine, loaning the company $3 million in both personal coinage and through his investment firm, JMI Equity Fund. By then, IBM had also become a competitor, and sales and product development had slowed, Voth said.
"[IBM] had a project-management system back then, and we were a no name," Voth added. "So we kept giving him stock, he kept giving us money until pretty much he owned a good portion of the company."
Voth said Moores seemed "very friendly, a nice down-to-earth guy, very intelligent and very savvy."
"I remember I was going through adult braces at one point, and he was always asking to see my teeth and their progress," she added. ""Give me a smile there, Michele!'"
After a couple of short-term corporate presidents didn't pan out, Peregrine hired Dick Earnest, later the mayor of Del Mar, to serve as president.
"So, lo and behold, in late 1989, we were told that we were moving to San Diego, because it's less expensive and there's less traffic," Voth said, "but really it was because Dick lived down there, and he didn't want to commute. So in December we moved to Carlsbad."
Moores joined the board of Peregrine that year, and Voth remembers him visiting the office quite frequently. Earnest lasted only a short time as president, and a vice president of sales and former BMC employee under Moores, Jim Butler, took over the helm.
In the meantime, the water-cooler discussions continually circled around talk of going public.
"That started back in 1985. It's always this thing that we're talking about. I remember because there were all these promised [stock] options based on tenure. That's why I stayed and put up with that BS."
By the time Peregrine went public in 1997, Moores was sitting pretty as chairman of the board and had hand-picked five of the other six members from his stable of associates from BMC or JMI affiliates.
Voth said the promised tenured options never materialized, although she received some options. "All the executives, of course, treated themselves very well," she added. "I thought I got ripped in the options, but then I thought, "Oh well, it's free money.'"
By going public, Moores had to reveal more of his Peregrine dealings than he probably wanted to, considering his earlier discomfort being associated with a public company. But, in fact, he held roughly 10 million shares-about two-thirds of the company's shares outstanding-much of it packed into Moores family trusts or held by JMI Equity Fund.
In October of 1997, Moores began shedding some of his stock, first $4 million worth, then a whopping $200 million in February of 2000 and then nearly $100 million in February 2001. By then, his ownership in Peregrine had dropped to roughly 3 percent of the company, according to legal documents filed.
Why the sell-off for a guy who had brought Peregrine into the big-time, who employees considered the cultural guru of the firm? At the time, Moores and JMI said it was only natural for a venture capitalist to begin shedding stock and that all the trades fell within federally regulated limits. His spokesperson, Francie Murphy, says Moores has not issued any statements since February, when he resigned as chairman as part of the company's bankruptcy proceedings.
Last May, San Diego lawyer Jeffery Krinsk, one of many who have filed class-action lawsuits against Peregrine, told a reporter, "The sales of stock are suspicious. It's not a coincidence. These things don't just happen."
But even into 2000, the good times were still rolling at Peregrine. The company began moving into its new corporate campus in Del Mar Heights, the county's hot spot of commercial real estate. At the time, the real estate deal-a four-building, 420,000-square-foot lease valued at more than $175 million, with an option on a fifth building-was the county's largest lease transaction in history.
The deal did bend the nose of some downtown types, who swore Moores had promised to move his company to the voter-approved ballpark district that he pushed for his San Diego Padres, which he had purchased in 1994.
The new headquarters sported some high-watermark elements, such as a state-of-the-art "executive briefing center," used to wow high-end customers, with a three-dimensional hologram that flashed company information. Employees referred to the upper executive suites as "cherry row" for the wall-to-wall cherry wood that dominated the scene.
Moores even had a custom-made chair that resembled a baseball mitt.
"We spent our money frivolously on furnishings," said Voth, who by then was the company's head of facilities.
But the shit hit the fan in May of last year, when Peregrine announced that it had discovered $100 million in accounting "irregularities" and had accepted the resignations of chairman and chief executive officer Steve Gardner and chief financial officer Matt Gless
The media spotlight got brighter then, with almost daily stories on the company. Peregrine fired Andersen as its auditor and subsequently sued the accounting giant for failing to catch the problems sooner. Peregrine said it would restate its finances-it said they could be inflated by as much as $250 million-from April 1999 through December 2001, when Moores was chairman for nearly half of that time.
Peregrine hired another auditor, KPMG, but almost immediately fired the company, arguing Peregrine officials were unaware of a potential conflict with KPMG's consulting side. KPMG, meanwhile, filed a letter with the Securities and Exchange Commission last June suggesting "possible fraud" at Peregrine.
Peregrine then hired PriceWaterhouseCoopers as its auditor, and filed for bankruptcy in September. The Los Angeles Times in October quoted an attorney saying an internal investigation had determined that "the outside directors were in the dark about the accounting improprieties."
Shareholder lawsuits, though, suggest that even if the directors didn't know, that suggests that Moores and other shirked their responsibilities.
"Moores wouldn't know what a white horse looks like, let alone do what it takes to be a company's savior," Montauk Capital Markets Group managing director Bert Hochfeld told the L.A. Times.
"Did John Moores know? That's a hard one to know," said Varaiya, San Diego State's finance department chairman. "Did the board do its job? That's a good question to ask. In the case of Enron, the head of the audit committee was... a former dean of Stanford's business school and a professor of accounting.
"If management is intent on trying to hide things, they can certainly do so for some time, because some accounting can be very intricate. But it's hard, as we've seen, to hide those things for the long term."
Last August, Peregrine was delisted from NASDAQ. Its stock now trades on what's called the Pink Sheets. At one point, shares dropped as low as 7.3 cents.
In September, speculation arose about Moores' future as owner of the Padres, suggesting that his troubles with Peregrine might take him down the financial drain. While most people doubt such a scenario-some attorneys still believe it's possible-it should be noted that company directors are typically covered by liability insurance.
"When you become a director, you know that you can always be sued," Navaiya said, "given how watchful people are about these things. In fact, that's what is making it more and more difficult for companies to get directors on the board because of the enormous likelihood now of being sued. Remember, John Moores right now is simply a shareholder."
Moores supporters like to point out that he has given away a ton of money to various charities: the Carter Center (former President Jimmy Carter's humanitarian organization), the River Blindness Foundation and millions to cancer research.
They also say privately that he is deeply hurt by the allegations stemming from Peregrine's financial problems, which, according to published reports, now shows losses totaling more than $4 billion from April 1999 to the end of 2001. This from a company that had acquired more than a dozen companies in a five-year span and continually told investors that its growth was continual-even immediately after 9/11.
For all his generosity, however, some former employees like Voth think Moores had a duty first to the company he helped grow into an industry goliath.
"Everybody in the community looks up to him and appreciates him," Voth said. "He has done a lot for a lot of groups and organizations by donating money, which is great. But you need to treat your people right first and foremost."
Many employees were devastated, both professionally and financially, Voth added. Some have vowed never to step foot into corporate America again, instead searching for occupations that fill the soul but not necessarily the bank account. Some have taken up acting, publishing and writing.
For Voth, she said at the high time, her 401k was worth nearly $500,000. Now, she has no idea what her investment is worth, although "I have to claim it as a capital loss for 2002, I know that. This is the first year I'm going to have to hire somebody to do my taxes, it's so complicated."
She has joined a state securities-fraud suit filed by local attorney Michael Aguirre against Moores and other directors and officers-and Arthur Andersen. The bulk of the plaintiffs in Aguirre's suit hail from Texas, where many folks bought Peregrine shares based on Moores' credibility. Aguirre estimates his clients lost $12 million from the stock's plummet.
Voth said she also feels for former Peregrine accounting executive Ilse Cappel, who last November pleaded guilty to bank fraud, admitting that "she and others had conspired to fraudulently sell false and uncollectible Peregrine receivables," according the local U.S. Attorney's office, which is actively pursuing the Peregrine case. Her attorney has said Cappel intends to cooperate with officials.
"Ilse and I were pregnant at the same time," Voth said. "I was saddened to see that she got the brunt of the blame publicly for something that she was pretty much told to do. She's a very nice person."
At the time of Cappel's admission, U.S. Attorney Carol C. Lam said it was "the first criminal conviction arising from the federal criminal investigation of Peregrine Systems," suggesting that more are on the way.
Lam's office would not comment further on the ongoing investigation.
As for Voth, she is now a loan officer for a mortgage banker and is doing contract work for a friend's millworking company. She, like many of her friends from the Peregrine days, are "happier and less stressed."
While in Peregrine's heyday Voth said she would attend Padres games in Moores' skybox at least once a week, now she wouldn't think of going. Told of the speculation that his legal troubles might loosen control of the ball team from his hands, Voth appeared pleased.
"Good. Then I can finally go see a ballgame," she said. "I'm boycotting the Padres as long as he's owner. It sickens me to think about supporting anything that he has his hand in right now."
As for Peregrine's fate-it now boasts new leadership-a bankruptcy hearing later this month may be foretelling. Judging by the company's press releases, Peregrine firmly believes it will emerge from bankruptcy as a company ready to grow again-from a $160 million company out of the blocks to a $300 million firm by the year 2007.
But no talk about ever being a $13 billion behemoth again.