It’s no wonder Mr. Harmon was able to talk anyone into anything… I wonder if the E&Y partner was a woman? Was she “duped?”
The company, which provides management software for broadband and mobile communications services, detailed in an 8-K filing some of the issues it encountered with Ernst & Young. An E&Y partner disagreed with Motive’s accounting for four software license agreements with four different customers under a reseller agreement between Motive and another company it was acquiring called BroadJump.
E&Y also told Motive that the company did not have effective internal controls over financial reporting when E&Y was preparing to do an audit. E&Y complained of “management’s intentional misrepresentation and omission from the financial statements of material facts surrounding a reseller transaction.”
“A law firm’s investigation into Austin software company Motive Inc. found that some members of the company’s former leadership, including charismatic former CEO Scott Harmon, created a culture of “excessive management pressure” to make sales with little regard for proper accounting and financial reporting.
Motive on Monday disclosed a summary of the report — done for its board by Austin law firm Graves, Dougherty, Hearon & Moody — as it updated investors on the company’s still-unresolved accounting issues and out-of-date financial reports.
The report portrays Motive’s former top executives as willing to cut corners while the company was in an aggressive “growth mode” in 2004 and 2005…
By January 2006, the law firm report said, the board of directors decided to fire Paul Baker, its longtime chief financial officer, and ordered then-CEO Harmon to “disassociate himself from any involvement” in the company’s financial statements or reporting. Harmon resigned the next month…
Harmon is CEO of Austin network-management startup AlterPoint Inc., which he joined in June 2006, four months after leaving Motive. Both companies were backed by venture-capital firm Austin Ventures. He co-founded Motive in 1997 and became known for a hard-driving style — encouraging his employees to take martial arts classes — and a devotion to writer Ayn Rand, a champion of individualism and unfettered capitalism.
“We’re not warm and fuzzy, there’s not a lot of cheerleading, and we don’t give back rubs on Fridays,” he told Forbes magazine in 2003.
The report could provide new material for plaintiffs suing Motive — and a number of its former executives and board members — over claims that they misled investors about the company’s prospects. Motive also faces an ongoing formal Securities and Exchange Commission investigation into the reporting of its financial results. The report was part of a regulatory filing Monday in which Motive said its board of directors’ audit committee had completed its investigation.
The filing also said Motive had fired the Austin office of Ernst & Young as its independent auditor, effective Friday. The document contains a chronology of disputes between Motive executives and Ernst & Young over accounting issues. Alfred Mockett, who took over as CEO in February 2006, said that without an auditor, Motive can’t predict when it will release audited financial statements. He said Motive would release unaudited financial statements for 2005, 2006 and the first half of 2007 by Aug. 31. Motive also plans to restate financial results going back to 2001.
Mockett has recruited an entirely new group of top managers who “in general come from much larger public companies,” he said. Mockett said the company “has not lost a single customer as a direct result” of the delays in restating financial results…The company lost its listing on the Nasdaq market in 2006 because of overdue financial reports.”