The United States Attorney's Office for the Northern District of California announced that a federal jury convicted the President and Chief Executive Officer of Unify Corporation all 10 counts of securities fraud and conspiracy charges alleged in the indictment following a 10-week trial in San Francisco federal court.  The defendant, Gholamreza Mikailli, also known as Reza Mikailli, was convicted after little more than a day of deliberations of causing fraudulent entries to be made in the company financial books and records of the corporation in order to meet Wall Street projections and to defraud investors in the company.  Unify is a software company that, at the time of the fraud, was based in San Jose and Sacramento and had approximately 135 employees.

Mr. Mikailli, 52 years old and a resident of Saratoga, California, was the President and CEO of Unify from approximately April 1995 until June 2000 when he was placed on medical and then administrative leave.  The jury convicted the defendant on one count of conspiracy in violation of Title 18 United States Code, Section 371 and nine counts of securities fraud in violation of Title 15, United States Code, Sections 78j(b), 78ff, and 78m(b)(2).

U.S. District Court Judge Illston presided over the 10-week trial in San Francisco federal court.  Mr. Mikailli was first indicted by a federal grand jury on May 16, 2002.  The indictment alleged that Mr. Mikailli and others, including Unify's CFO at that time, Gary Pado, conspired to commit securities fraud by overstating Unify's software license sales and service revenue from approximately April 1999 until June 2000.

The evidence at trial proved that Mr. Mikailli caused Unify to deliberately overstate quarterly software license sales and service revenues by: (i) recognizing revenue on contracts that were conditioned on "side agreements" that permitted customers to cancel; (ii) recognizing  revenue from transactions in which Unify purchased the same amount of product from a customer that the customer was purchasing from Unify; (iii) recognizing  revenue from transactions in which Unify invested in a customer in order to provide the funding needed by the customer to purchase Unify products; (iv) recognizing revenue from transactions in which Unify provided funding to a customer ostensibly for software development work in order to provide the customer with the funds necessary for it to buy Unify products; and (v) recognizing revenue on purchase commitments Mr. Mikailli and others knew were beyond the customers' ability to pay.

In one example, under Mr. Mikailli's direction, Unify agreed to purchase a subsidiary of Fujisaki Department Store in Japan, promising to pay an extra $1.3 million to buy the subsidiary.  In return, the subsidiary agreed to buy $1.3 million in Unify products which the Fujisaki subsidiary did not need or in fact want.  Moreover, the subsidiary used Unify's money to pay for the purchase.  In another deal, Mr. Mikailli backdated a stock certificate in an effort to cover up a personal investment in one of Unify's customers.  The evidence at trial showed that the defendant paid himself $400,000 in unauthorized "commissions" for fraudulent deals, and then hid these deals and his commissions from Unify's Board of Directors.

Mr. Mikailli also caused fraudulent entries to be made in the company books and records. In one case, the defendant wire transferred his own money into Unify's accounts so that the company's auditors would be fooled into thinking that a Central American customer was current in its obligations, then arranged for Unify to reimburse him with interest after the quarter ended, the revenue had been booked, and the auditors had left.

The United States proved at trial that the defendant secretly transferred hundreds of thousands of shares of stock to his ex-wife as part of a divorce settlement without notifying anyone in the company or making required disclosures to the SEC.  In May of 2000, just after Unify announced its year-end financial results, but before the official audit was complete, Mr. Mikailli sold all of his remaining shares in the company, claiming that he needed the money to "pay for his taxes."  Mr. Mikailli realized proceeds of more than $4 million before the company announced an internal investigation which led to a restatement.

United States Attorney Kevin V. Ryan said, "Top officers at public companies who violate the trust of investors and break the law will be brought to justice.  This case demonstrates that juries in San Francisco understand the significance of what it means for corporate officers to fraudulently manipulate the books and trade on inside information."  Mr. Ryan, a member of President Bush's Corporate Fraud Task Force, noted that securities fraud prosecutions are complex, and thanked the FBI for its diligent work on the case.

Unify's former CFO, Gary Pado, previously pled guilty to a felony conspiracy to commit securities fraud, but has yet to be sentenced.  Mr. Mikailli is to be sentenced on February 27, 2004 at 11 a.m. before Judge Illston in San Francisco.

Mr. Mikailli faces maximum statutory penalties for each count of securities fraud of 10 years in prison, a fine of up to $1 million, three years supervised release, and restitution.   On the conspiracy charge against Mr. Mikailli, he also faces a maximum statutory sentence of five years imprisonment, a $250,000 fine, and three years of supervised release plus restitution. However, the actual sentence will be dictated by the Federal Sentencing Guidelines, which take into account a number of factors, and will be imposed in the discretion of he Court.

The conviction is the result of a three-year investigation by the Federal Bureau of Investigation. Jeffrey L. Bornstein and Anne-Christine Massullo are the Assistant U.S. Attorneys who prosecuted the case with the assistance of legal technicians Linda Woo, Lori Lucchetti, and Robin Barber.

The Securities and Exchange Commission filed a civil suit Mr. Mikailli which is still pending.