Gateway Reveals 2-Year-Old SEC Probe

The investigation began in December 2000, the same month that Gateway was hit by the first of six class-action securities lawsuits.

The lawsuits were eventually combined and settled earlier this year for $10.5 million, paid by company insurers. Gateway admitted no wrongdoing.

Spokesman Brad Shaw said Friday the company was not required to disclose the probe and that it expects the SEC to complete its investigation by the end of next quarter. He declined to say why the company had not revealed the probe earlier.

The SEC does not confirm the existence of an investigation until it has been completed.

Gateway restated its 2000 earnings in February 2001 and the company said it has provided the regulatory agency with information from that fiscal year.

Company founder Ted Waitt returned as chief executive officer after a 13-month hiatus in January 2001. Waitt "assembled a new management team, restructured and refocused the business, and restated fiscal year 2000 financials," Shaw said, adding that the company does not think the SEC probe will have an effect on its finances, operations or cash flow.

Computer industry analyst Joel Wagonfeld of Banc of America Securities agrees that the investigation will not likely shift the company's financial position but said "delayed disclosure is troublesome."

"We are somewhat perplexed by Gateway's decision to wait to disclose the investigation for nearly two years, given potentially material implications of SEC investigations," Wagonfeld wrote in a research brief.

Jeff Weitzen, who served as CEO in 2000, left the company along with chief financial officer John Todd when Waitt returned. Lawsuits filed by shareholders last year asked the company to sue the two for damages.

Company officials said one suit was dismissed and the other folded into the larger settlement agreement.

Allegations in the shareholder suits filed against the company's board of directors and managers included insider trading and wasteful spending on executive severance pay.

The suits also alleged that the company inflated revenue and earnings statements by temporarily moving computers to warehouses and listing them as sold.

Gateway named a new chief financial officer in September. In October, the computer maker posted a $46.8 million quarterly loss, and company officials predicted tough market conditions would widen losses for the entire year.

Shares in Gateway fell 63 cents, or 15 percent, to close at $3.56 in trading Friday on the New York Stock Exchange.

Copyright © 2002 The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten or redistributed without the prior written authority of The Associated Press.

RYAN PEARSON

Associated Press Writer

POWAY, Calif. (AP) --

Computer maker Gateway has been under investigation by the Securities and Exchange Commission for nearly two years, according to a company regulatory filing.

The investigation began in December 2000, the same month that Gateway was hit by the first of six class-action securities lawsuits.

The lawsuits were eventually combined and settled earlier this year for $10.5 million, paid by company insurers. Gateway admitted no wrongdoing.

Spokesman Brad Shaw said Friday the company was not required to disclose the probe and that it expects the SEC to complete its investigation by the end of next quarter. He declined to say why the company had not revealed the probe earlier.

The SEC does not confirm the existence of an investigation until it has been completed.

Gateway restated its 2000 earnings in February 2001 and the company said it has provided the regulatory agency with information from that fiscal year.

Company founder Ted Waitt returned as chief executive officer after a 13-month hiatus in January 2001. Waitt "assembled a new management team, restructured and refocused the business, and restated fiscal year 2000 financials," Shaw said, adding that the company does not think the SEC probe will have an effect on its finances, operations or cash flow.

Computer industry analyst Joel Wagonfeld of Banc of America Securities agrees that the investigation will not likely shift the company's financial position but said "delayed disclosure is troublesome."

"We are somewhat perplexed by Gateway's decision to wait to disclose the investigation for nearly two years, given potentially material implications of SEC investigations," Wagonfeld wrote in a research brief.

Jeff Weitzen, who served as CEO in 2000, left the company along with chief financial officer John Todd when Waitt returned. Lawsuits filed by shareholders last year asked the company to sue the two for damages.

Company officials said one suit was dismissed and the other folded into the larger settlement agreement.

Allegations in the shareholder suits filed against the company's board of directors and managers included insider trading and wasteful spending on executive severance pay.

The suits also alleged that the company inflated revenue and earnings statements by temporarily moving computers to warehouses and listing them as sold.

Gateway named a new chief financial officer in September. In October, the computer maker posted a $46.8 million quarterly loss, and company officials predicted tough market conditions would widen losses for the entire year.

Shares in Gateway fell 63 cents, or 15 percent, to close at $3.56 in trading Friday on the New York Stock Exchange.

Copyright © 2002 The Associated Press. All rights reserved. The information contained in the AP News report may not be published, broadcast, rewritten or redistributed without the prior written authority of The Associated Press.