|
September 24, 2004
The United States Attorney's Office for the Northern District of California announced today that Gholamreza Mikailli (also known as Reza Mikailli), President and Chief Executive Officer of Unify Corporation from approximately April 1995 until he was placed on medical and then administrative leave beginning in June 2000, was sentenced today to 51 months in prison for conspiracy and securities fraud. The sentence was handed down by U.S. District Court Judge Susan Illston following a jury trial in which the defendant was found guilty of all ten counts in the indictment as follows: 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) and 78ff; Title 15, United States Code, Sections 78m(b)(2) and 78ff; Title 17, Code of Federal Regulations, Section 240.10b-5; Title 17, Code of Federal Regulations, Section 240.13b2-2; and Title 18 United States Code, Section 2 – aiding and abetting.
Mr. Mikailli, age 52 of Saratoga, California, was indicted by a federal grand jury on May 16, 2002. Mr. Mikailli was found guilty of all ten counts following a 10 week jury trial which concluded last November.
The indictment alleged that Mr. Mikailli and others, including Unify's Chief Financial Officer (CFO) at that time, Gary Pado, conspired to and did commit securities fraud by overstating Unify's software license sales and service revenue from approximately April 1999 until June 2000. The indictment also alleged 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, thereby providing the customer with the funding it needed to purchase Unify products; (iv) recognizing revenue from transactions in which Unify provided funding to a customer, ostensibly for software development work, 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.
The indictment further alleged that Mr. Mikailli and others made fraudulent entries to company books and records at quarter-end; concealed the true nature of the improper revenue-generating transactions from outside auditors; made false statements and material omissions to outside auditors; filed materially false and misleading financial statements with the Securities and Exchange Commission; and made materially false and misleading public statements about Unify's financial performance.
Count Ten of the indictment charged Mr. Mikailli with insider trading violations when he sold his remaining 307,123 shares of Unify stock from May 26, 2000, until June 23, 2000, on the basis of confidential, material, non-public information regarding the overstated nature of Unify's software license sales and services revenue for Fiscal Year 2000, and the probability that the company would eventually need to restate those numbers. Mr. Mikailli realized proceeds totaling approximately $4,028,841.08 from these stock sales.
The parties entered into a sentencing agreement following the U.S. Supreme Court's Decision in Blakely v. Washington, which calls into question the continuing viability of the federal sentencing guidelines. Mr. Mikailli stated in the sentencing agreement that: "I take full responsibility for my conduct and its consequences. I blame no one but myself. I accept the penalty the law provides."
Judge Illston sentenced Mr. Mikailli to 51 months in federal prison, a fine of $50,000.00, and restitution in the amount of $950,000.00 to be distributed to Unify Corporation and its shareholders that were part of an earlier class action, as well as a three year period of supervised release on various conditions including the defendant not act as a fiduciary without the permission of the Probation Department. The Defendant will begin serving the sentence on January 10, 2005.
Unify's former CFO, Gary Pado, plead guilty to a one count felony criminal information of conspiracy to commit securities fraud in violation of Title 18, United States Code, Section 371. He is expected to be sentenced on October 22, 2004.
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 Paralegal Linda Woo and Legal Technician Lori Lucchetti.
A copy of this press release may be found on the U.S. Attorney's Office's website at www.usdoj.gov/usao/can. Related court documents and information may be found on the District Court website at www.cand.uscourts.gov or on http://pacer.cand.uscourts/gov.
All press inquiries to the U.S. Attorney's Office should be directed to Luke Macaulay at (415) 436-6757.
|
