|Wednesday, July 24
Updated: July 25, 12:46 PM ET
Moores' company part of SEC investigation
By Darren Rovell
San Diego Padres owner John Moores is part of an investigation related to alleged fraudulent accounting practices at his computer software company.
Two lawsuits, filed in May and July in U.S. District Court in California, allege that the company generated "false and misleading" financial statements that allowed Moores to sell his majority share in the company at inflated prices. Between Oct. 29, 1997 to Feb. 28, 2001, Moores sold 18,815,966 shares for $611.4 million in 100 documented trades, according to SEC filings.
Moores, who purchased the Padres for about $85 million in 1994, owned 62.5 percent of Peregrine when it went public in April 1997. But by Feb. 28, 2001, Moores had decreased his holdings to 3.2 percent. His largest trade-off was on July 26, 1999, when he sold 2.49 million shares for more than $70 million, according to SEC insider trading information.
Moores did not return calls seeking comment. Peregrine spokeswoman MeeLin Nakata said the company declined to comment on the lawsuits.
"There is no truth to the allegations that John Moores did anything wrong," Padres president and CEO Bob Vizas told ESPN.com. "He is being represented and will defend the cases. Furthermore, Peregrine has no financial interest in the Padres and John has no substantial amount of money in Peregrine."
In May, the Padres financed $165 million for its new $458 million ballpark. That released Major League Baseball from a $40 million guarantee should the team have been unable to secure financing.
"Maybe the sports world has not picked up on the fact that what is going on in the business world could affect the owners more than the current labor situation," said Michael Aguirre, a San Diego attorney who is representing the plaintiffs in two of the lawsuits.
Last week, Moores was one of a handful of Major League Baseball owners who said he would be unwilling to continually finance a team under the game's current economic system. In a May 15 article in the Wall Street Journal, Moores said the Padres lost $43 million between 1998 and 2000.
"The age of building super-expensive venues assuming there will be a never-ending cash flow and assuming that there's security in loans based on the financial statements of the sporting world's key individuals is now going to be called into question," Aguirre said.
John McHale Jr., Major League Baseball's executive vice president of administration, told ESPN.com the league does not probe the financial holdings of team owners.
"I don't think we keep track of the owners' business dealings with the exception of knowing where their primary business lies," McHale said. "And I don't think we typically could foresee the day where we would track the individual holdings of owners. That's just not our business."
Moores served as chairman from March 1990 to July 2000, but took over the role again in May after the firm's top two officers, chairman and CEO Steve Gardner and CFO Matt Gless, resigned. At that time, the company said it could have overstated its 2001 and 2002 fiscal year revenue by as much as $100 million.
Peregrine has worked with three accounting firms this year, including beleaguered Arthur Andersen LLP, which was found guilty of obstruction of justice in June for its part in Enron's collapse.
Arthur Andersen notified Peregrine's board of directors that its financial statements and related audit reports for fiscal 2000 and 2001, as well as the unaudited reports for the first three quarters of 2002 needed, were unreliable. In May, Andersen was replaced by KPMG, which informed the SEC that management was not cooperating with its independent audits and that 2001 and 2002 fiscal year earnings reports could have been exaggerated by $100 million. Last month, PriceWaterhouseCoopers became the company's new auditors.
The latest lawsuit, filed July 8 on behalf of stock-holding employees, alleges that Peregrine's influential officers, including Moores, and auditor Arthur Andersen "engaged in fraudulent accounting practices such as secret side deals and software swaps that were fraudulent."
Every annual report over the past three full fiscal years -- 1999, 2000 and 2001 -- was signed by Moores, according to the lawsuit.
Last Wednesday, the company began turning over documents to the House Energy and Commerce Committee, which is investigating accounting practices of 13 companies, including Enron, Worldcom, Xerox and Peregrine. Reps. Billy Tauzin (R-La.), the committee chairman, and James Greenwood (R-Pa.) reportedly sent letters to the companies to turn over documents, dating back five years, concerning the company's top officials and their related stock holdings reports.
"After surveying the landscape, these 13 companies are the ones that jumped out at us," said Ken Johnson, spokesman for the House Energy and Commerce Committee. "Our job is to determine whether there is any common thread that connects these companies and their accounting practices."
Peregrine (NASDAQ: PRGNE) had an "E" recently added to its symbol as a result of delinquent earnings reports. The stock, which faces the possibility of being delisted, reached an all-time low of 30 cents on June 28. It closed at 41 cents on Tuesday.
Vizas said the lawsuits should be put into context, given that Aguirre is a longtime critic of the Padres.
"In May, he said that we'd have trouble financing the ballpark because of Peregrine and it didn't affect the financing at all," Vizas said.
Aguirre originally campaigned for the Padres' $1 billion ballpark and redevelopment plan, but later criticized the team for not living up to its part of the bargain. He also filed two lawsuits against the San Diego Chargers. One he filed this year seeking to block city officials from holding closed meetings that could determine the team's future. In 1997, Aguirre failed to block the expansion of Qualcomm Stadium, where both the Chargers and Padres play.
Aguirre also has attempted four runs at public office: city council losses in 1987 and 1993, a Democratic primary loss for Congress in 1982 and, most recently, a loss in the race for district attorney in 2002.
Darren Rovell, who covers sports business for ESPN.com, can be reached at Darren.email@example.com