SEC Met With Ex-EMC Exec After Accounting Claim

EMC Corp.

Kenneth Todd Gresham, an EMC vice president until his resignation last year, won approval from a Boston judge last month to confer with a '"governmental agency" on Jan. 28, court papers show.

The meeting comes amid a legal battle between Gresham and Hopkinton, Mass.-based EMC.

EMC filed a lawsuit against Gresham in May, seeking to stop him from working at the U.S. operations of Eurologic Systems, a much smaller data-storage firm based in Dublin, Ireland. EMC accuses him of breaking his key employee agreement and stealing company secrets.

Gresham denies those allegations and told EMC lawyers during a deposition in May that EMC improperly booked revenue with long-time customers such as Unisys Corp., according to papers filed in Suffolk Superior Court in Boston.

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"There's absolutely no merit to these allegations," EMC spokesman Mark Fredrickson said.

When asked about the SEC inquiry, Fredrickson would not confirm or deny such a probe.

"Informal inquiries from government agencies happen from time to time," Fredrickson said. "We hear from the government on a variety of issues. We don't comment on each instance."

Fredrickson said EMC has never been the subject of an SEC investigation over its accounting practices.

An SEC spokesman declined to comment on Monday.

While details of Gresham's meeting with the SEC are unknown, his claims disclosed in court papers are potentially explosive in the wake of the collapse and scandal surrounding energy trader Enron Corp. Investors are dumping shares in companies whose accounting practices are being questioned.

EMC shares are off about 73 percent in the past year amid sharply reduced sales and operating losses. The stock rose 25 cents to $14.62 on the the New York Stock Exchange early Monday afternoon.

In November, EMC won a preliminary injunction against Gresham that restrains him from disclosing confidential company and customer information to outside parties.

But on Jan. 25, Gresham's attorneys filed an emergency motion with Suffolk Superior Court Judge Allan van Gestel seeking permission for Gresham to speak with a "particular governmental agency." The judge gave Gresham permission to meet with the agency -- identified in some court papers as the SEC, according to people who have read those filings.

The papers naming the SEC as the government agency, however, were not part of the case file last week or on Monday. Court officials told Reuters they could not locate the documents.

The SEC contacted Gresham after his revenue recognition claims surfaced in media reports about the court battle. He left EMC before EMC last year reported a third-quarter net loss of nearly $1 billion on plunging sales of data-storage systems. The loss included writing off $320 million in excess inventory.

In 2000 and the first quarter of 2001, Gresham said Unisys senior management complained to him about EMC's refusal to grant credit to Unisys for unsold EMC inventory, according to his deposition.

Unisys, a long-time reseller of EMC products, took the shipments on the condition that they could be resold to another customer, Gresham said.

"... They were sitting on inventory that was not moving, would not go anywhere, and they only took the inventory because local sales at EMC had convinced them that there was a deal or a potential deal that would come down in the very near term," Gresham said in his May 24 deposition.

EMC recorded the shipments to Unisys as revenue even though the products stayed in a warehouse for as long as a year after customer deals fell apart, charged Gresham, who worked on EMC's top reseller accounts.

Unisys was not immediately available for comment.

Some EMC customers demanded credits for the unsold products, but Gresham said he was told by his superiors that those decisions would be made by EMC's sales force.

"Upon the quarter ending and the deal falling apart, Unisys would then say, 'We took this product in good faith and we've been told that the deal is gone, and we would like our credits, please,'" Gresham explained in his deposition.

Gresham in his deposition also claims that EMC tolerated outrageous behavior by some members of its sales force. He alleges that a sales manager in New York intimidated him by swinging a baseball bat at him in 1999.

Gresham said he reported the incident to his superiors, but the sales manager, who had left the company after the alleged incident, was rehired at EMC, according to the deposition. The sales manager eventually left EMC for a start-up storage firm.

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