The United States Attorney's Office for the Northern District of California announced today that David Thatcher, Kevin Clark and Jonathan Beck were sentenced yesterday afternoon for securities fraud and insider trading.  Mr. Thatcher was sentenced to one year and one day in prison for conspiracy to commit securities fraud and Mr. Clark and Mr. Beck were sentenced to three months in prison for insider trading. The sentence was handed down by U.S. District Court Judge William Alsup following a guilty pleas on counts in violation of 18 U.S.C. 371 for Thatcher and 15 U.S.C. §§ 78j(b) and 78ff(a) and 17 C.F.R. 240.10(b)(5).

Mr. Thatcher, 48, of Rancho Santa Fe, California, was charged by a Criminal Information filed on February 5, 2002.  Mr. Clark, 37, of Pleasanton, California, and Mr. Beck, 36, of Orinda, California, were charged by two separate Criminal Informations filed on August 27, 2002.  Mr. Thatcher, the former President of Critical Path, a San Francisco based high tech software and services company, was charged with conspiracy to commit securities fraud in the third and forth quarters of 2000 when he and others at the company entered into fraudulent accounting transactions to improve the revenues Critical Path reported to Wall Street and the public.  Mr. Clark and Mr. Beck, former executives in the sales department at Critical Path, were charged with insider trading for selling shares of stock they held in the company in January 2001 based on inside information that Critical Path would not meet its publicly stated goal of profitability in the forth quarter of 2000 and the public would learn of the fraudulent transactions.

According to Mr. Thatcher's plea agreement, he admitted to participating in a criminal conspiracy to commit securities fraud in violation of 18 U.S.C. § 371 with other members of Critical Path's top management team to report false revenues to meet Critical Path's predicted financial results in the third and forth quarters of 2000.  Specifically, Mr. Thatcher admitted his participation in six transactions for which Critical Path improperly recognized revenue during the third and fourth quarters of 2000.

In one fraudulent transaction, with StarMedia Network, Inc., Mr. Thatcher signed a "side letter" that gave StarMedia more time to pay for the software it was licensing from Critical Path.  Because of this payment extension, Critical Path should not have recognized revenue from the StarMedia transaction until the fourth quarter of 2000.  The payment extension was not disclosed to Critical Path's internal accounting department or external auditors, and the Company improperly accelerated its StarMedia revenues to the third quarter of 2000.

In another fraudulent transaction, with Peregrine Systems, Inc., Mr. Thatcher participated in negotiations for a nonmonetary exchange of software, a transaction also known as a "software swap."  In the software swap with Peregrine, Critical Path provided Peregrine with software and cash in return for Peregrine software.  Critical Path then accounted for the transaction as though it were a cash sale, without disclosing to investors that it had merely exchanged software with Peregrine.  The effect of this software swap was to artificially inflate Critical Path's revenues during the third quarter of 2000.  Mr. Thatcher admitted that he participated in negotiations with Peregrine's chief executive officer for the software swap.  Mr. Thatcher also admitted that he realized that Critical Path's recognition of revenue for the software swap was improper.

According to the plea agreements for Mr. Beck and Mr. Clark, Mr. Beck admitted to selling more than $600,000 in Critical Path stock on January 17 and 18, 2001 and Mr. Clark admitted to selling more than $350,000 in Critical Path stock on January 16 and 18, 2001.  Both Mr. Beck and Mr. Clark admitted to selling their Critical Path shares at a time when they were aware that the Company was recording false revenues in an ultimately unsuccessful attempt to meet its publicly stated goal of profitability during the fourth quarter of 2000.

All three defendants cooperated early in the investigation and provided the United States with substantial assistance in the Critical Path securities fraud investigation.  The cooperation agreements were included as part of their plea agreements. The Court adopted the United States' recommendation that the defendants receive lesser sentences based on the substantial assistance they provided.

Judge Alsup sentenced Mr. Thatcher to one year and one day in federal prison, a fine of $7,500, and restitution to be determined in 90 days, as well as a two-year period of supervised release. Mr. Clark and Mr. Beck were each sentenced to three months in federal prison, as well as a two-year period of supervised release. Each defendant will also be required to provide a lecture to 100 MBA students, college students, accountants, lawyers, or business executives about their involvement in the criminal justice system during each year period during the term of their supervised release and provide a report to the Court about the lectures.

The prosecution was the result of an investigation by Special Agents of the Federal Bureau of Investigation. Anne-Christine Massullo is the Assistant U.S. Attorney who prosecuted the case.