Frankly, I don't have the time or the smarts to thoroughly explain what Dallas-based i2 Technologies Inc. is or what happened to its former chief executive officer, Gregory Brady. For the former, all you need to do is go to the company's Web site, where you'll find the company describes itself as a provider of "supply chain management solutions," and, yeah, right there, ya lost me.
But there is a far more interesting answer to the latter, because, you see, Brady's downfall, which began some four years back, has been pretty interesting. How so? Well, today, Unfair Park received a notice from Toby M. Galloway of the Securities and Exchange Commission concerning the government's settling a rather massive federal civil case with one Greg Brady.
What's this all about? Well, here's the short version from this Web site: "The [i2] management oversold and overhyped the software, and then when the software didn't work, the customers got angry." This was about four years ago, a little before the Dallas Business Journal described Brady in this comeback story as the "high-profile, sometimes-controversial former chief executive of i2 Technologies."
Well, after that celebratory piece, things got real ugly for Greg Brady.
In July 2005, the SEC brought a federal suit against Brady, who was also i2's former president; William M. Beecher, i2's former chief financial officer; and Reagan L. Lancaster, i2's former executive vice president of worldwide sales and, later, its president of field operations. The men were accused of:
"...securities fraud, insider trading and other federal securities law violations relating to alleged accounting improprieties involving materially misstated software license revenues. According to the complaint, for the four years ended December 31, 2001 and the first three quarters of 2002 (the 'restatement period'), the defendants intentionally or recklessly participated in a scheme to misstate approximately $1 billion of software license revenues, including over $125 million of revenues that should never have been recognized; to conceal from investors the true nature of certain reciprocal, or 'barter,' transactions i2 entered into; and to hide grave customer problems i2 was experiencing..."
So, yeah, a big deal -- worth more than $1 billion. That I can understand.
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SHOW ME HOW
Well, today, the suit's no more: In the settlement sent our way by the SEC, it says he can't serve as an officer for a public company for five years and has to fork over about $8.3 million. And, of course, it says Brady will do this without admitting to or denying the allegations made in the 2005 federal suit.
The document does make for some interesting reading. Which is why we're including it at the end of this post. C'mon, you got something better to do than read SEC releases? Course not. --Robert Wilonsky
UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C.
LITIGATION RELEASE NO. _________ / February 15, 2007
ACCOUNTING AND AUDITING ENFORCEMENT RELEASE NO. ____/ February 15, 2007
SEC SETTLES CHARGES AGAINST FORMER i2 TECHNOLOGIES CEO GREGORY A. BRADY
Securities and Exchange Commission v. Gregory A. Brady, et al., Civil Action No. 3:05-CV-1416-D, United States District Court for the Northern District of Texas, Dallas Division.
On February 15, 2007, the Commission settled civil charges against Gregory A. Brady, the former chief executive officer of Dallas-based i2 Technologies, Inc. and a defendant in the Commission's July 2005 enforcement action against three former i2 officers arising from an alleged scheme to overstate i2's revenues. Without admitting or denying the Commission's allegations, Brady has consented to the entry of a final judgment enjoining him from violating or aiding and abetting violations of the antifraud, record-keeping, reporting, internal-controls and false-statements-to-auditors provisions of the federal securities laws. He also has consented to an order barring him from serving as a public company officer or director for a period of five years, and to pay a civil penalty and disgorgement, with prejudgment interest, totaling approximately $8.3 million. The settlement is subject to approval by United States District Judge Sidney A. Fitzwater.
The Commission's Complaint alleges that, over the four years ended December 31, 2001 and the first three quarters of 2002, i2 misstated approximately $1 billion of software license revenue, including over $125 million of revenue it never should have recognized. The Complaint further alleges that Brady participated and assisted others in a fraudulent revenue-recognition scheme by, among other things, signing i2 public filings containing the misstated financial statements, providing representation letters to i2's external auditors certifying the misstated financial statements and the quality of i2's internal controls, and approving earnings releases and participating in public conference calls at which materially false and misleading financial information was provided. The Commission's complaint also alleges that Brady profited by trading i2 securities on the basis of material nonpublic information.
The proposed Judgment to which Brady has consented, without admitting or denying the Commission's allegations, enjoins him from violating or aiding and abetting violations of Section 17(a) of the Securities Act of 1933 and Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B) and 13(b)(5) of the Securities Exchange Act of 1934 and Rules 10b-5, 12b-20, 13a-1, 13a-13, 13b2-1 and 13b2-2 thereunder. The proposed Judgment also prohibits Brady from serving as an officer or director of a public company for five years, and orders him to pay disgorgement and prejudgment interest of $7,800,344 and a third-tier civil penalty of $500,000. The Commission intends ultimately to move the Court to establish a Fair Fund under Section 308 of the Sarbanes-Oxley Act of 2001, to hold the civil penalty, disgorgement and accrued interest, for ultimate distribution to injured i2 investors.
For further information about the Commission's action against the former i2 executives, see Litigation Releases Nos. 19306 (July 18, 2005), 19624 (March 28, 2006) and 19871 (October 16, 2006) and Accounting and Auditing Enforcement Releases Nos. 2279 (July 18, 2005), 2400 (March 28, 2006) and 2494 (October 16, 2006)