A former executive at e-mail marketer Critical Path Inc. faces a maximum of 10 years in prison and a $1 million fine after pleading guilty April 10 to insider trading.
Timothy Ganley, the former vice president of strategic sales at Critical Path, admitted he knew that top officers of the company inflated revenue to meet financial performance goals and inflate Critical Path's stock price.
Ganley, along with former president David Thatcher, faced separate criminal and civil charges stemming from Critical Path's announcement in February 2001 that the results of an internal audit found financial irregularities and that the company would have to restate earnings for third- and fourth-quarter 2000 and for fiscal 2001.
Specifically, Ganley sold 1,300 shares of Critical Path stock for $24 per share Jan. 11, 2001, despite knowing the company's dire financial situation and that its stock price would plummet when that fact became public. A month later, Critical Path's shares had fallen to about $4.
The Securities and Exchange Commission filed civil charges against Thatcher and Ganley, charging them with “participating in a scheme to inflate the company's earnings for fiscal 2000.”
Thatcher and Ganley simultaneously settled the charges as they were filed against them, the SEC said. Thatcher agreed to pay a penalty of $110,000 and was banned from acting as an officer or director of a public company for five years. Ganley was fined $105,900 in penalties.
The legal actions stem from Critical Path's reporting Jan. 18, 2001, an unexpected loss of $11.5 million for the fourth quarter. Revenue for the quarter was $52 million, up more than 500 percent from $8.2 million posted a year earlier. The company later said the results may have been materially misstated and that its actual figures were to be restated $6.5 million to $8 million lower than previously announced. The company also said that $4.2 million of that amount involved transactions that did not result in revenue.
Separately, Critical Path, San Francisco, said that all shareholder lawsuits filed against it in February and March 2002 as a result of its financial irregularities have been voluntarily withdrawn by the plaintiffs. These lawsuits are separate from ones filed in November, which Critical Path settled for $17.5 million.
The company did not say what settlement it reached with the shareholders that prompted them to drop their lawsuits.