In April 1999 the top executives at Peregrine Systems Inc. met with the company’s board of directors. On the table that day was a critical decision for the San Diego-based software business. Peregrine CFO David Farley asked the directors to decide whether to adopt aggressive accounting methods that would allow the company to make its numbers, or use a more conservative approach and miss its quarterly goals. The board resolved to make Wall Street happy and pump up the revenue. But, oddly enough, there was no mention of this key decision in the minutes of that meeting. Why didn’t the company’s general counsel and corporate secretary, Richard Nelson, record the board’s decision? Nelson, who was Farley’s prot�g�, later said he couldn’t explain the omission.

Nelson provided this account of the board meeting in 2002, when he was interviewed by Latham & Watkins lawyers hired by Peregrine’s audit committee to conduct an internal investigation. A lot has happened in the four years since Latham completed its confidential report, a copy of which was obtained by Corporate Counsel. Peregrine filed for bankruptcy in September 2002. Five months later it restated its financial results, acknowledging that over a period of nearly three years, 38 percent of its revenue was improperly booked. The company emerged from bankruptcy in August 2003, and was acquired last December by Palo Alto, Calif.-based Hewlett-Packard Company for $425 million.