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UNITED STATES DISTRICT COURT EASTERN DISTRICT OF VIRGINIA Ti 1 0 7),-• 4760mi ALEXANDRIA DIVISION CU:My, pp3 Tn. .r:c)nr IN RE BEARINGPOINT, INC. SECURITIES Civil Action No. 1:64664:54'(TSEPTOB) LITIGATION II CLASS ACTION.
FIRST AMENDED CONSOLIDATED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS _ _ ......
THIS DOCUMENT RELATES TO; JURY TRIAL DEMANDED ALL ACTIONS
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2 • d >Odd 13rN3I —WEW2-iTT B662 - 12 fltd TABLE OF CONTENTS Eau
INTRODUCTION 1
JURISDICTION AND VENUE 11
PARTIES 12
CLASS ACTION ALLEGATIONS 16
SCIENTER ALLEGATIONS 20
BEARINGPOINT DISCLOSES THAT IT PUBLISHED FALSE FINANCIAL STATEMENTS 37
BEAR.INGPOINT'S FAILURE TO IMPLEMENT AND MAINTAIN ADEQUATE INTERNAL ACCOUNTING CONTROLS 41
GAM) VIOLATIONS 44
MATERIALLY FALSE AND MISLEADING STATEMENTS MADE DURING THE CLASS PERIOD 53
A. Year End Results For Fiscal Year 2003 53
B. Quarter Ended September 30, 2003 66
C. Three And Six Month Periods Ended December 31, 2003 73
E. Quarter Ended Ivlarch 31, 2004 84
F. Quarter Ended June 30, 2004 91
G. Quarter Ended September 30, 2004 98
H. March 17, 2005 SEC Form 8-K And Form 12b-25 106
NO SAFE HARBOR 108
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TABLE OF CONTENTS (Continued)
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FIRST CLAIM Violation of Section 10(b) Of The Exchange Act And Rule 10b-5 Against All Defendants 108
SECOND CLAIM Violation Of Section 20(a) 01 The Exchange Act Against The Individual Defendants 113
BASIS OF ALLEGATIONS 114
PRAYER FOR RELIEF 115
JURY TRIAL DEMANDED 116
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Lead Plaintiffs Matrix Capital Management Fund, L.P., Matrix Capital Management
Fund II, L.P., and Matrix Capital Management Fund (Offshore) Ltd. (collectively, "Matrix"), on
behalf of themselves and all others similarly situated, pursuant to the Court's February 13, 2006
Order and for their First Amended Complaint, allege as follows:
INTRODUCTION
1. This is a securities class action brought on behalf of all persons and entities who
purchased the publicly-traded securities of1BearingPoint, Inc. ("BearingPoint" or the
"Company") between August 14, 2003 and April 20, 2005, inclusive (the "Class Period"). The
defendants are (i) BearingPoint, and (ii) BearingPoint's Chief Executive Officer and Chief
Financial Officer during the relevant period. The claims asserted are brought to remedy
violations of the Securities Exchange Act of 1934 (the "Exchange Act"), 15 U.S.C. §78a, et seq.
and Rule 10b-5, 17 C_F.R. §240.10b-5 promulgated by the Securities and Exchange Commission
("SEC").
2. During the Class Period, defendants defrauded BearingPoint's public investors by
disseminating a series of materially false and misleading statements concerning BearingPoint's
earnings, profitability and financial condition. As further alleged herein, the Company falsely
reported during the Class Period that it had generated substantial revenues and, in some quarters
earnings, when in truth a material portion of those purported revenues and earnings were
fictitious and were not properly recorded in the periods in which they were represented to have
been earned. The financial results announced by I3earingPoint were materially misstated either
intentionally or with reckless disregard for their accuracy. The material misstatements of the
Company's financial results were caused by defendants' deliberate and/or reckless acts to record
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such revenues and earnings before all the requirements for proper revenue recognition and
compliance with applicable accounting rules had been met. En committing the accounting fraud
herein alleged, the defendants made or acquiesced in the making of false entries on the
Company's books of account. In addition, during the Class Period, the Company suffered from a
complete breakdown of its internal control function such that the financial results which
BearingPoint announced were known, or recklessly disregarded by the defendants, to be
completely unreliable. Throughout the Class Period material weaknesses existed in the
Company's systems of internal control, and internal control over financial reporting was not
effective. The utter lack of internal controls was so pervasive and significant that the Company
had no ability whatsoever to properly account for, and record, balance sheet and income
. statement 'entries necessary to present the Company's financial condition in accordance with
generally accepted accounting principles ("GAAP").
3. The Company MS known in 2001 as KPMG Consulting, LLC. It had been spun
off from KPMG LLC, the global accounting firm, in 2000 when the "Big Five" accounting firms
were pressured to separate their auditing and consulting practices because of conflict-of-interest
concerns. In early February 2001, KPMG Consulting went public, raising $2 billion. In late
2001, the Company embarked on an aggressive global growth strategy in Europe, Asia, and
South America which doubled the Company's workforce. BearingPoint acquired more than
thirty (30) consulting companies, each with its own financial systems. BearingPoint had no
information technology infrastructure to manage this greatly expanded business and keep track of
its far flung, worldwide multitude of client accounts. This was true, even though at this time it
was required to fulfill new responsibilities for financial reporting because it had gone public and,
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in. the wake of massive accounting scandals, Congress had passed new legislation, the Sarbanes-
Oxley Act, signed into law on July 30, 2002, imposing more stringent obligations on public
companies and their senior executives to accurately report and certify financial results. At the
same time that its information technology infrastructure was woefully inadequate, the Company
Lacked resources to upgrade h because KPIVIG had taken most of the proceeds from the initial
public offering for KPMG Consulting. The Company therefore had to rely on KPMG's
information resources, including its financial system, called PEAT. Despite coming into
existence as a multibillion dollar corporation, BearingPoint had no information technology
infrastructure of its own in place. Pursuant to an agreement which was to terminate no later than
February 2005, BearingPnint was to use PEAT for all of its North American operations. In
return, the Company agreed to pay as much as 38% of KPMG' s overall information technology
budget based on certain financial metrics, such as head count. Thus, BearingPoint was faced
with the termination of its ability to use PEAT while at the same time needing to comply with
Sarbanes-Oxley. The Company had to have accurate financial results from more than thirty (30)
different business consulting units around the world, most of which had operated as private
partnerships with no obligation to adhere to accounting standards applied to publicly held
companies. Beginning in 2003, the Company began to introduce a new PeopleSoft financial
accounting system, "OneGlobe," which repeatedly and continuously generated financial data
known to defendants to be unreliable. This complex information technology system required
intensive training in order to be used properly. The Company failed to require its personnel to
undergo the necessary training. In a January 31, 2006, analyst conference call. Chief Accounting
Officer Judy Eaten, stated the following with regard to OneGlobe:
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Mlle implementation of our OneGlobe project accounting system was not complete when the program was launched. From the launch perspective, the commencement of the system was rushed, the testing of its functionality was incomplete, and the legacy system was deactivated before we ran parallel testings. Once activated, training for users in the field was insufficient, documentation was inadequate, and support resources were limited, In short, this was a significant problem for the company ..,
4. During the Class Period, material control deficiencies existed in the areas of
contract revenue and accounts receivable, expenditures and accounts payable, payroll operations,
the financial statement close process, leases and fixed assets and the control environment in
certain non-U.S. subsidiaries. This problem was exacerbated by the numerous foreign
acquisitions that the Company had completed by the summer of 2002, and the inability of the
newly implemented financial accounting system to integrate the foreign operations to permit
coherent and reliable financial reporting. The Company was simply unable during the Class
Period to effectively integrate the disparate accounting systems which it employed at its
subsidiaries throughout the world. The failure of the Company to timely complete its
consolidated financial statements for the year ended December 31, 2004 is attributable to the
failure to integrate its worldwide accounting systems, and serious bugs and deficiencies which
existed in the new "OneGlobe" financial accounting system, the true extent of which were not
known to the investing public during the Class Period.
5. Furthermore, the Company experienced a material impairment of goodwill as of
December 31, 2004 with respect to operations in its Europe, Middle East and Africa ("EMEA")
segment. At the end of the Class Period, the Company disclosed for the first time that the
amount of the charge would be massive and was estimated to be $250 to $400 million. On
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January 31, 2006, the Company fit/ally issued its oft-delayed and long-overdue Annual Report on
Form 10-K for the year ended December 31, 2004, including financial statements for 2004, in
which it was revealed that the impairment charge to the goodwill associated with its EMEA
operations would total a whopping $397 million. Previously, the Company had falsely
represented in an April 16, 2004 press release that "rt]he final goodwill impairment charge was
$127.3 million." Although the Company's 2004 SEC Form 10-K was required to be filed with
the SEC on March 16, 2005, it was not actually filed until January 31, 2006, Because of its
failure to timely file its 2004 Form 10-K, BearingPoint was threatened with delisth 1g proceedings
before the New York Stock Exchange ("NYSE"). The Company continues to be delinquent in its
filing of quarterly reports for fiscal year 2004 and all financial reports for fiscal year 2005.
6. The magnitude of the accounting fraud herein alleged is shocking to the
conscience, even in the age of Enron and WorldCom. On January 31. 2006, the Company
announced that, instead of a profit which it had previously reported in its quarterly reports filed
with the SEC on Form 10-Q, it had in fact lost $546 million, or $2.77 a share. The accounting
improprieties were not the result of simple malfeasance or negligence. Instead, they were the
result of, at a minimum, gross recklessness so great and severe that it touched upon, if not
actually embodied, knowledge and intent. BearingPoint held itself out as a Company that could
help other companies design and implement internal control systems. The truth was that
Bearing Point's own internal controls were not only materially weak, they were non-functioning.
There were no controls. Indeed, BeatingPoint was a company spinning completely out of
control, totally bereft of leadership or adequate internal controls, or any sense of the reporting
responsibilities that come with being a public entity. Numbers were padded. Bribes were paid,
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.. • . • . B'01 } And losses concealed, In terms of accounting, the atmosphere at the Company was one of abject laxity bordering on lawlessness. The financial statements issued during the Class Period had no connection whatsoever to the Company's actual financial results Indeed, the Company went from initially reporting a profit in 2004 to declaring a half-billion dollar loss. This stunning "day-to-night" reversal shocked the market and resulted in staggering investor losses. Much of this misconduct, as confirmed by the Audit Committee Investigation referenced in the recently filed 2004 Form 10-K, was attributable to the "tone at the top" set by the Company's former management, a tone which included the deliberate falsification of key financial ratios. As recently as January 31, 2006, Chief Accounting Officer Ethel! acknowledged in a conference call with analysts, the complete failure of BearingPoint's accounting systems during the Class Period, as follows: • In the filing we acknowledged that the evaluation of our internal control over financial reporting in accordance with the Sarbanes- Oxley Act identified a number of material weaknesses and significant deficiencies for 2004, As a result, our management concluded that they did not maintain effective internal controls over financial reporting as of December 2004. As stated in their audit report, PricewaterhouseCoopers agrees with this assessment and issued a detailed list of the identified areas of material weakness in the audit report. These items included the following: BearingPoint did not maintain an effective control environment in 2004 from the tone set by executive management and the consistency of communication to the sufficiency of financial reporting personnel. That is, tone at the top. The company did not maintain effective Qontrols over the financial close and reporting policies including deficient documentation of our methods and procedures, support for journal entries, account reconciliations, and other related process issues. BearingPoint did not design and maintain effective controls for the reporting of revenue including deferred and unbilled revenue, cost of service, and accounts receivable as well as our liability accounts, including accounts payable, current and long term liabilities, and related 113364 6 •__. •-• - -• " 0I' d XHA 13rN3SEl1 dH 141+172:TT 8002 12 Zrod . - expense accounts. There were additional comments about other balance sheet and other income statement accounts including property and equipment, leases, deferred tax assets and liabilities, payroll, and goodwill, The special counsel to the Audit Committee similarly concluded that the overall compliance in internal control environment at the company as of December 31, 2004 represented an unacceptable risk for the company. The Audit Committee retained a special counsel last Spring to investigate various issues. The more significant issues related to financial controls in OneGlobe, disclosures regarding goodwill impairment, accounting practices and controls in Asia Pacific, and issues in connection with business dealings with the state controlled entities. The special counsel's report to the Audit Committee discussed the number of weaknesses in the company's internal controls. (Emphasis added). 7. Falsification of the Company's utilization rates was also a serious component of the fraud alleged herein. BearingPoint and its senior managers knew that utilization rates -- the percentage of consultants' time actually charged to customers — were a key metric relied upon by analysts and other investment professionals in assessing the health and growth prospects of the Company's business. BearingPoint's senior management placed enormous pressure on employees to overstate their utilization rates so that it would appear that, at a minimum, the Company's Asia Pacific operations were healthier than they realty were. The Audit Committee Investigation referred to in the 2004 Form 10-K, confirmed the actual and knowing participation of senior management in the fraud. For example, the Committee found that the manipulation of utilization rates and other financial data was done "at the instruction of senior regional managetritfit." In some cases, the Audit Committee Investigation found that the personnel of the Company's subsidiaries in China and Japan bypassed controls "at the express direction" of Managing Directors in those countries. The Audit Committee Investigation concluded that the 113364 7 T ' d } manipulation of utilization rates and other improper practices had resulted from a desire by management to meet internal reporting objectives for the Company's Asia Pacific operations. 8, In an interview published in The Washington Post on February 2, 2006, the current CEO of the Company, Harry L. You, placed the blame squarely on the shoulders of Bearing,Point's prior management. Said You: . "The previous management had not worked before in a public company, and they didn't know the rules, and frankly they were not competent in many areas." In this same interview, You admitted that the former management team. "didn't know what they were doing." This complete leadership failure has left the Company and its reputation in tatters, and its investors with massive losses. In fact, the Company has had to pay upwards of $100 million simply to clean up its books and to correct the erroneous financial statements which it had issued during the Class Period. The fact that BearingPoint would place people with no competence or experience into senior management positions was an accident 'waiting to happen. Such conduct, at a minimum, constitutes gross recklessness. 9. On April 20, 2005, the Company announced that it was the subject of an informal SEC investigation into its accounting and financial reporting. A few months later, however, on September 7, 2005, it was revealed that the SEC had "upgraded" the case to a formal investigation, further underscoring the seriousness of the accounting and disclosure improprieties more fully alleged herein. 10. The Company also announced on April 20, 2005 that in conjunction with a reorganization of senior management, nine (9) of twenty (20) top members of the Company's management have left the Company or are in the process of leaving. [13364 8 21' d XUA 13r13SEl1 dH WEJ .172ITI B002 12 Znu . . 11. When the true scope of the accounting manipulations alleged herein was first revealed on April 20, 2005, the price of BearingPoint's securities suddenly plummeted, causing significant losses to the members of the Class. On that day, BearingPoint filed an SEC Form 8-K stating for the first time that the financial statements filed with previously submitted SEC reports should not be relied upon because of material errors in those financial statements, which were included in the following reports: (i) Form 10-Q's for each of the first three quarters of fiscal year 2004; (ii.) Form 10-K for the six-month transition period ended December 31, 2003; and (iii) Form 10-K for the fiscal year ended June 30, 2003 During the Class Period, BearingPoint's common stock had traded as high as $11,30 per share. When BearingPoint shocked Wall Street by revealing on April 20, 2005 that it would have to take a huge writedown of its goodwill in a .sum that it estimated as between $250 million and $400 million, and that its publicly reported financial results for thefiscal year ended June 30, 2003, the six month period ended December 31, 2003, and the first three quarters of fiscal 2004 should not be relied upon and will have to be restated, the Company's stock plummeted from a close of $7.77 per share on April 20,, 2005 to as low as $4.65 on April 21, 2005, before closing that day at $5,28, a drop of more than 32% in a single day. 12. In a filing in. this Court dated August 2, 2005, supported by the sworn Affidavit of Richard 5. Roberts, Executive Vice President and Chief Operating Office of BearingPoirit i also dated August 2, 2005, the Company represented as follows: (i) that it expected to complete its 2004 financial statements and related SEE filings by September 21, 2005; (ii) that approximately 8013earingPoint employees and approximately 300 outside contractors are working full-time to review approximately 6,500 of BearingPoint's contracts, in order to ensure that revenue 113364 9 E T • cl XELd JLJSEJ1dH NUTT BOOR T nu recognition for those contracts has been accounted for correctly; (iii) that the Company has established a special program Office dedicated to managing the financial statement process that is ongoing, and has established two centers dedicated to performing contract review, one in McLean, Virginia and the other in New York City, New York; (iv) that BearingPoint would expend $50 million to $60 million to cover third party expenses associated with assistance in preparation of its fiscal year 2004 results and preparing the financial results of the first and second quarters of fiscal 2005, which is in addition to approximately $25 million in previously expected Sarbanes-Oxley related fees and $15-$20 million in previously expected audit fees. In a subsequent filing in this Court dated September 13, 2005, BearingPoint noted a delay in the completion of its work on the anticipated financial restatement, apparently due to its complexity, and represented that the restatement would be filed sometime in October 2005. After sonic additional delays, the Company finally issued its restatement onjanuary 31, 2006. During the January 31, 2006 analyst conference call, Chief Accounting Officer Ethell stated that, in connection with the restatement, "we performed a detailed review of our balance sheet and income statement which resulted in 35,000 lines of adjustments ..." 13. The restatement confirmed that the financial defalcations were even worse than the Company had originally led investors to expect: the profits previously reported in 2004 were reversed to reveal a loss of more than $546 million. In addition, more than $97 million in reported profits between 2002-2004 were extinguished. 14. BearingPoint also revealed that it faces "potential exposure to liability" under the Foreign Corrupt Practices Act because of payments — i.e., bribes — paid to former and current officials of state-owned businesses in China. BearingPoint employees in China also routinely 113364 10 .br X1:1.7-14FeM-67-71--c1HNEJ211BOO2 12 z raa . . padded their hourly billings, including utilization rates, which contributed to the falsification of the Company's reported profits. Utilization rates are a key measure in the consulting business, reflecting the amount of a consultant's time that is billed to clients, The Company's utter lack of accounting controls also emboldened other acts of deliberate fraud. For example, one senior employee in Australia was able to falsely record current billings which, in truth, had never been sent to clients. BearingPoint has now admitted that these accounting improprieties were due to Company executives setting a "tone at the top" which encouraged employees to deliberately bypass accounting controls.. 15. In order to correct its earlier accounting misstatements, BearingPoint was forced to spend over $100 million in reviewing billing and other data involving all of its 6,000 U.S. contracts. At least fifteen former senior managers, including former CEO, defendanl: Randolph .. C. Blazer, were terminated as a result.of the accounting fraud. Even the Company's former General Counsel, David W. Black, was fired. 'Because of the costs associated with the restatement and the complete overhauling of its accounting systems and procedures, BearingPoint has disclosed that it will report a "substantial loss" in 2005. JURISDICTION AND VENUE 16. The claims asserted herein arise under and pursuant to Sections 10(b) and 20(a) of the Exchange Act, 15 U.S.C. §§78j(b) and 78t(a), and Rule 10b-5 promulgated thereunder by the Securities and Exchange Commission ("SEC"), 17 C.F.R. §240.10b-5. 17. This Court has jurisdiction over the subject matter of this action pursuant to 28 U.S.C. §§l331 and 1.337(a) and Section 27 of the Exchange Act, 15 U.S.C. §78aa. U3364 11 g t cl XEIA J rm3SEJ1 13.60-2 TO ZnEl 18. Venue is proper in this District pursuant to Section 27 of the Exchange Act and 28 U.S.C. §1391(b). Many of the acts charged herein, including the preparation and dissemination of materially false and misleading information, occurred in substantial part in this District. The Company's principal executive offices, where day-to-day operations of the Company are directed and managed, are located in McLean, Virginia, which is within this District. 19. In connection with the acts alleged in this Complaint, defendants, directly or indirectly, used the means and instrumentalities of interstate commerce, including, but not limited to, the mails, interstate telephone communications and the facilities of the national securities markets. PARTIES 20. Lead Plaintiffivfatrbc,purchased the common stock of BearingPoint at artificially inflated prices during the Class Period and was damaged upon the occurrence of the Company's April 20, 2005 disclosures as herein alleged. Matrix has been appointed to serve as the Lead Plaintiff in this action pursuant to Section 21D of the Exchange Act, 15 §78u-4, by this Court's Order dated July 26, 2005, 21. Defendant BearingPoint is a Delaware corporation with its principal executive offices located at 1676 International Drive, McLean, Virginia. BearingPoint is the former KPMG Consulting, LLC. Through execution of a Separation Agreement effective January 31, 2000, KPMG LLP ("KPMG"), the international accounting and tax firm, spun-off its consulting practice into KPMG Consulting, LLC which was a majority owned subsidiary of KPMG. In February 2001, KPMG Consulting, LLC underwent an initial public offering and became a 113364 12 •• • ...__.. •_.• •- • 9I' d 13rm3sui dH weisattt 8002 12 Znid , . . publicly traded company known as KPMG Consulting, Inc, At that time, 1‹..PMG sold its interest in KPMG Consulting, LLC. Effective October 3, 2002, KPMG Consulting, Ino, changed its named to BearingPoint, Inc. BearingPoint represents itself to be a large business consulting, systems integration and managed set-vices firm, serving Global 2000 companies, medium-sized businesses, government agencies and other organizations. It provides business and technology strategy, systems design, architecture, applications implementation, network systems integration and managed services. Its service offerings are designed to help its clients generate revenue, reduce costs and access the information necessary to operate their businesses on a timely basis, The Company derives substantially all of its revenue from professional services activities. BearingPoint's common stock has at all times relevant hereto traded on the NYSE under the cosymbolthpar:ShE.ad" tri.BoeraeritnhgaPnolitat's94,00fioli,nogosowshitahreths.e:EcoC mdinuoingsttohcekCisisaussedPearnidodouintsdtanicadteintgh.atAthse . direct result of the accounting fraud alleged herein, BearingPoint has violated agreements pursuant to which it raised ancVor obtained access to substantial capital. On December 22., 2004 and January 5, 2005, BearingPoint issued $450 million aggregate principal amount of Convertible Subordinated Debentures, In connection with those issuances, the Company entered into a Registration Rights Agreement in which the Company agreed to file a registration statement with the SEC within 90 days. The Company was unable to file this registration statement until its Form 10-K for the year ended December 31, 2004 was filed with the SEC. Since BearingPoint has not complied with its obligations under the agreement, it currently is required to pay liquidated damages equal to 0.50% per annum, or $2,250,000 per year. 113364 13 • el XUA 13rm3sui dH WUS2 : TI 8002 Ta 2nu . . 22. Defendant Randolph C. Blazer ("Blazer") was, at all times relevant hereto, until November 10, 2004, BearingPoint's President, Chief Executive Officer ("CEO") and Chairman of the Board. As Chairman, President and CEO, Blazer participated in and exercised day-to-day control over the Company including over the statements alleged herein to be false and which were issued prior to his departure. Blazer was actively involved in preparing, reviewing and authorizing the issuance of BearingPoint's publicly-reported financial statements, reports on SEC Forms 10-K and 10-Q, annual shareholder reports, financial press releases and other "group- published" corporate reports, as further alleged herein. Blazer signed the Company's annual reports on Form 10-K filed with the SEC for the year ended June 30, 2003 and the Form 10-K for the six month period ended December 31, 2003. He also signed the Company's quarterly reports on Form 10-Q for the quarters ended March 31, 2004. June 30, 2004, and September 30, 2004, • which include materially misstated financial statements. By reason of his stoek ownership and < his position at BearingPoint, Blazer was, at all relevant times, a "controlling person" of each of the other defendants, and is therefore also liable under §20(a) of the Exchange Act, 15 U.S.C. §78t(a). 23, Defendant Robert S. Falcone ("Falcone") was, from April 2003 until November 30, 2004, Executive Vice President and Chief Financial Officer ("CFO") of BearingPoint. As CFO, Falcone participated in and exercised day-to-day control over the Company including over the misstatements alleged herein to be false and which were issued prior to his departure. Falcone was actively involved in preparing, reviewing and authorizing the issuance of BearingPoint's publicly-reported financial statements, reports on SEC Forms 10-1( and 10-Q, an.nual shareholder reports, financial press releases and other "group-published" 113364 14 st . d xud 13rm3sui—cm-- W.E16:ii -6o13- 2 . 12 Znu corporate reports, as further alleged herein. Falcone signed the Company's Form 8-K dated August 14, 2003 announcing BearingPoint's financial results for the fourth quarter arid fiscal year 2003. In addition, he signed the Company's Form 10-K filed with the SEC for the year ended June 30, 2003 and the Form 10-K for the six month period ended December 31, 2003. He also signed BearingPoint's quarterly reports on Form 10-Q for the quarters ended March 31, 2004, June 30, 2004, and September 30, 2004 which include materially misstated financial statements. By reason of his stock ownership and his position at BearingPoint, Falcone was, at all relevant times, a "controlling person" of each of the other defendants, and is also liable under §20(a) of the Exchange Act, 15 U.S.C. §78t(a)_ 24. Defendants Blazer and Falcone are sometimes collectively referred to herein as the "Individual Defendants." 25. The Individual Defendants, because of their positions of control and authority as officers of the Company, were able to and did control the contents of the various quarterly arid annual financial reports, SEC filings, press releases and presentations to securities analysts pertaining to BearingPoint and to its financial condition and performance which the Company has now admitted were materially false and misleading when made and/or issued, and which cannot be relied upon. 26. The Individual Defendants were each provided with copies of BearingPoint's press releases and SEC filings containing materially false and misleading financial information prior to or shortly after their issuance and had the ability and opportunity to prevent their issuance or to cause them to be corrected. The Individual Defendants had a duty to promptly disseminate accurate and truthful informatioa with respect to BearingPoint's operations, financial 113364 15 . _ • _ . T Xidd 13rm3sui dH WId g 2 t II 8002 12 2111=1 condition and future business prospects or to cause and direct that such information be disseminated so that the market price of BearingPoint's securities would be based on truthful and accurate information. The Individual Defendants are liable for the false statements alleged herein because those statements constituted "group published" information, the result of the collective action of the Individual Defendants. 27. Each of the defendants knew or was reckless in disregarding the fact that the illegal acts and practices and materially misleading statements and omissions described herein would adversely affect the integrity of the market for BearingPoint's securities and would artificially inflate or maintain the prices of BearingPoint's securities. CLASS ACTION ALLEGATIONS 28. Lead. Plaintiff brings this action as a class action pursuant to Federal Rule of Civil.. Procedure 23(a) and (b)(3) on behalf of a Class consisting of all persons andentities who t• purchased or otherwise acquired the securities of BearingPoint between August 14, 2003 and April 20, 2005 and who were damaged thereby. Excluded from the Class are the defendants, officers and directors of the Company at all relevant times, members of their immediate families and their legal representatives, heirs, successors or assigns and any entity in which defendants have or had a controlling interest. 29. The members of the Class are so numerous that joinder of all members is impracticable. Throughout the Class Period, BearingPoint common shares were actively traded on the NYSE. While the exact number of Class members is unknown to Lead Plaintiff at this time and can be ascertained through appropriate discovery, Lead Plaintiff believes that there are hundreds or thousands of members in the proposed Class. Members of the Class can be 113364 16 • •• o a • cl >Odd 13rm3sui dHWEll 8002 12 Znu • • identified from records maintained by BearingPoint or its stock transfer agent and may be notified of the pendency of this action by rn.ail, using a form of notice similar to that customarily used in securities class action lawsuits. 30. Lead Plaintiff's claims are typical of the claims of the members of the Class as all members of the Class are similarly affected by defendants' wrongful conduct in violation of the federal law that is complained of herein. 31. Lead Plaintiff will fairly and adequately protect the interests of the members of the Class and has retained counsel competent and experienced in class and securities Litigation. 32, Common questions of law and fact exist as to all members of the Class and , predominate over any questions solely affecting individual members of the Class. Among the questions °flaw and fact common to the Class are a. whether the federal securities laws were violated by defendants' acts as alleged herein; whether statements made by defendants to the investing public during the Class Period omitted or misrepresented material facts about the business, operations, financial condition and income of BearingPoint; c. whether defendants acted with knowledge or with recklessness for the truth in omitting to state and/or misrepresenting material facts; d. whether during the Class Period the market price of BearingPoint's common stock was artificially inflated due to the omissions and/or material misrepresentations complained of herein; 113364 17 . _ ta . el Xbd lerel3sen dH WH92 : II 8002 T2 21-11,1 • . . e. whether defendants participated in and pursued the common course of conduct complained of herein; f. whether the Individual Defendants were "control persons" of the Company and one another within the meaning of Section 20(a) of the Exchange Act; g. to what extent the members of the C12.ss have sustained damages and the proper measure of damages. 33. A class action is superior to all other available methods for the fair and efficient adjudication. of this controversy since joinder of all members is impracticable. Furthermore, as the damages suffered by individual Class members may be relatively small, the expense and burden of individual litigation make it impossible for members of the Class to individually redress the wrongs done to them. • There will be no difficulty in the management of this action as • a class action. 34. As to the claims herein pursuant to Section 10(b) of the Exchange Act, Lead Plaintiff relies, in part, upon the presumption of reliance established by the fraud-on-the-market doctrine. The market for BearingPoint securities was at all times an efficient market for the • following reasons, among others: a. BearingPoint met the requirements for listing and is listed on the NYSE, a highly efficient market that quickly reflects all publicly available information concerning a listed company; b. As a. regulated issuer, BearingPoint filed periodic public reports with the SEC, including a fiscal year 2003 Form 10-K for the year ended June 30, 2003, a Form 10-K for the six month transition period ended December 31, 2003, and other financial statements that 113364 18 a a • cl XUA .1.3rm3su1 dH WE192:II 8002 12 21-11A - contained material misrepresentations and/or omitted material facts during the Class Period, as alleged herein, causing the price of BearingPoint's stock to trade at attificially inflated prices; e. BearingPoint's senior management regularly met with and provided Company-related information to stock market analysts, institutional investors, fund managers and other market professionals; d. The trading volume of BearingPoint's common stock during the Class Period indicated that there was a liquid market for BearingPoint stock during the Class Period; e. BearingPoint disseminated information on a market-wide basis through various electronic media services, including issuing press releases through PR Newswire and Business Wire; f. The market price of BearingPoint's-securities reacted efficiently to new information entering the market; and g. Lead Plaintiff and other members of the Class acquired BearingPoint stock after the time defendants made misrepresentations or omissions and before the truah was revealed, without knowledge of the falsity of the misrepresentations, 35. The foregoing facts clearly indicate the existence of an efficient market for trading of BearingPoint securities and make applicable the fraud-on-the-market theory, Accordingly, with regard to the claims made pursuant to the Exchange Act, Lead Plaintiff and the other members of the Class are entitled to a presumption of reliance with respect to the misstatements and omissions alleged in this Complaint. 36. By Order dated January 17, 2006, this Court certified a plaintiff class as defined in paragraph 28 above. ! .13364 19 ea • el XUA .1.3rel3su1 dH WH92tIT 8002 12 2118 . . SCIENTER ALLEGATIONS 37, This case arises from one of the costliest — and messiest — accounting restatements in history. To accomplish the restatement of its prior financial reports, BearingPoint has had to recreate virtually all of its financial data throughout the Class Period. This has cost upwards of $100 million and tens of thousands of man-hours in reviewing nearly all of the Company's 6,000 U.S, contracts in an effort to unravel its accounting mess. 38. In connection with the audit of its 2004 financial statements, the Company performed significant substantive procedures to compensate for the material weaknesses in its internal financial controls. On April 20, 2005, the Company announced that, as a result of performing these additional procedures, it had identified errors in certain of its previously issued financial statements. It was also announced that the financial statements filed with the Company's previously-issued reports on Form 10-Q for each of the first three quarters of fiscal • year 2004, Form 10-K for the six-month transition period ended December 31, 2003 and. Form 10-K for the fiscal year ended June 30, 2003 should not be relied upon because of "errors" contained in those reports. 39. On January 31, 2006, the Company finally filed its long-overdue Annual Report on Form 10-K report for the year ended December 31, 2004, The report included a restatement of the Company's quarterly financial results for the first three fiscal quarters of 2004. Bearingpoint, however, has not yet filed amended Form 10-Q reports for 2004 or any of its 2005 Form 10-Q reports_ The Company also announced that it would be unable to timely file its 2005 Form 10-K by March 16, 2006. /1 [13364 20 ______. t, a • ci XUJ 13ra3sEri dH 1417192 : f1 800a ta 2nu . . • jkv. 12.0.testErgiltpegam,ei.A_Bma,Lw.Dom• 40. The restatement of BearingPoint's financial results for fiscal year 2004 has confirmed the abject falsity of the Company's reported results and accounting status during the Class Period. Originally, the Company had announced that it had earned $1.624 million (or earnings of $0.01 per share) in Q1 2004, $15.18 million (or earnings of $0.08 per share) in Q2 2004 and. $11.942 million (or earnings of $0,06 per share) in Q3 2004, The restatement, however, reveals that the Company in fact lost money in Ql and Q2 2004 — over $17 million and $22.4 million, respectively. Further, the reported net income in Q3 2004 was reduced by nearly two-thirds, to approximately $4.5 million, • 41. The restatement confirmed. an even vsiorse loss, however. BearingPoint reported a loss of more than $546 million in 2004 due in large part to a massive write-down of goodwill associated with the Company' S EMEA operations. The write-down totaled $397 million, all of which was recorded in Q4 2004. As a result, the Company went from initially reporting a profit in 2004 to reporting a half-billion loss, a staggering financial reversal. Moreover, the restatement eliminated more than $97 million in previously-reported profits during 2002-2004, The E1e1tdown in ni_ez 42. Throughout the Class Period, the defendants knew that the Company's systems of internal control were essentially non-existent or, at a minimum, dysfunctional, such that no accurate, reliable financial reports could he generated. In assessing its internal controls as required by the Sarbaries-Oxley Act, BearingPoint used the criteria set forth in a report titled Internal Control - Integrated Framework by the Committee of Sponsoring Organizations of the 113364 21 s a • 4:1 XUA 13rN3SH -1 dH WE192 : TI 8002 12 Znu . . Treadway Commission ("COSO"). The COSO report identifies five inter-related components which, taken together, comprise a company's internal controls. Those components are a. The control environment, which sets the tone of an organization and influences the control consciousness of its people; b. Risk assessment, which is the identification and analysis of risks and determining how the risks should be managed; c. Control Activities, which are the policies and procedures that ensure management directives are carried out. They include activities as diverse as approvals, authorizations, verifications, reconciliations, reviews of operating performance, security of assets, and segregation of duties; • d. Information and Communication, which requires that pertinent information is identified, captured and, communicated in a form and tirneframe that enables people to carry out their responsibilities, atid e. Monitoring, which is a process that assesses the quality of the system's performance over time. 43. As disclosed in a press release issued on July 20, 2005, the Audit Committee of the Company's Board of Directors began an investigation into the operations of certain of the Company's international subsidiaries. Ii addition, the Audit Committee investigated certain accounting issues that were brought to its attention (and to the attention of the Company's outside public accountants) by an unnamed "non-executive employee." 44, The Audit Committee focused its investigation into Eve primary areas of inquiry. They were: 113364 22 9 d XUA 13rN3SEll dH WEIL2 : II 8002 12 Znu . . (i) issues concerning financial controls that were raised through the non-executive employee's communication, including oircurriventions of controls implemented in the OneGlobe system, changes in the reporting chain of contract analysts and inadequate security with respect to the OneGlobe system; (ii) the timing, appropriateness of judgments and disclosures relating to the impairment of goodwill in the EMEA division; (iii) issues relating to the propriety of accounting practices and controls in certain countries in the Company's Asia Pacific region; (iv) issues concerning potential violations of law in connection with doing business with state-controlled entities in the People's Republic of China; and (v) a survey of other global operations to determine the likelihood of additional internal control or other issues concerning business dealings with state-controlled entities. 45. BearingPoint has acknowledged pervasive and severe defects in its internal accounting control systems. For example, it is now conceded that BearingPoint (a) lacked segregation of duties, resulting in significant non-compliance with company policies and procedures; (b) lacked consistent communication regarding the importance of adherence to company policies and procedures; (c) lacked adequate personnel; (d) provided inadequate, company-wide training on financial accounting systems and procedures; (e) lacked adequate mechanisms for anticipating and identifying financial reporting and fraud risks; (1) lacked 113364 23 . _ L.2 XUA lErm3sui dH WHL2:TI BOD2 12 Znej effective information systems and business processes required to support operations and reporting requirements; and (g) lacked effective management oversight in certain of its EMEA and Asia-Pacific operations. Further, BearingPoint had no in-house internal audit capability. 46. In its 2004 Form 10-K, which was filed on January 31, 2006, BearingPoint announced the findings of the Audit Committee Investigation. The investigation confirmed that during the Class Period, BearingPoint was plagued with corrupt management and lax internal controls, the combination of which provided a perfect springboard for the false financial reporting which occurred at the Company. The Audit Committee Investigation concluded that severe compliance problems and the laxity of internal controls presented an "unacceptable risk" for the Company in 2004. The investigation also concluded that the Company did not "maintain effective internal control over financial reporting as of December 31, 2004," 47. The deficiencies in the Company's internal controls were found by the Audit Committee to have been aggravated by management instability and "financial pressures" by senior management. The Company's employees — especially in the Asia Pacific region — were under tremendous pressure to attain the reporting goals set by senior management and were, in many instances, actively encouraged by senior management to bypass the Company's weak internal controls in order to falsify data for the purpose of achieving these reporting goals. 48. For example, the Committee found that the Company's Asia Pacific operations suffered from significant, pervasive and ongoing internal control failures in 2004. Specifically, personnel at all levels of the Company in that region were able to routinely bypass internal accounting controls designed to ensure accurate financial reporting. In fact, the controls were so deficient that they failed to identify or timely remedy the improper actions of a senior consultant 113364 24 8d. _ ...... XEIJ 13rm3sEn dH WUL2 : TI 800E 12 Znimi • in Australia who had inaccurately characterized a significant amount of unrecoverable accounts receivable (and =billed revenue) as current receivables. As a result of these problems, which were known to BeatingPoint's senior management, the financial reporting for the Company's Asia Pacific operations in 2004 was materially false and inaccurate. Th Isifi a a ' mita.• ata A herr -ctio I M em: 49. The falsification of the Company's utilization data was a serious component of the BearingPoint fraud, BearingPoint and its senior managers knew that utilization rates were a key metric used by analysts and other investment professionals in assessing the health and growth prospects of the Company's business. Accordingly, as the Audit Committee Investigation has concluded, BearingPoint's senior management placed enormous and undue pressure on- employees to overstate their reported utilization rates, which they were able to do with. ease by, among otherthings, overriding or bypassing the Company's weak (and largely non-furichoning) internal controls. These senior managers directed the falsification of utilization rates so that internal reporting goals could be met. Indeed, the Audit Committee Investigation confirmed that the manipulation of utilization rates and other financial, data had been done "at the instruction of senior regional management." 50. The Audit Committee Investigation concluded that much of the misconduct relating to financial reporting practices in the Asia Pacific region during 2004 was attributable to the "tone at the top" set by former management, This "tone at the top" included actual directives by senior manageinent to manipulate weak internal controls for the express purpose of "padding" utilization rates so that analysts and other stock market professionals would think that the Company's operations and growth prospects were stronger and healthier than they really were, 113364 25 - —•—• — • - — • • • • s a • el XUA 13rN3SU1 dH WULa t TI B1210 12 2nu . . Indeed, as the Audit Committee Investigation concluded, personnel at BearingPoint's Chinese and. Japanese subsidiaries manipulated financial data "at the express direction of Managing Directors in these countries." 51. In addition, certain other internal control issues have resulted in potential exposure to liability under the Foreign Corrupt Practices Act (FCPA"). BearingPoint China formerly maintained a subcontractor relationship with an entity that may have made inappropriate payments to current and former employees of state-owned enterprises in China. The investigation revealed other potential FCPA issues stemming from expenditures for gifts, entertainment and international travel provided to employees of the state-owned entities. The Audit.Committee Investigation concluded that the Company's internal controls relating to the FCPA presented an unacceptable level of risk of exposure for the Company. .52: That BearingPoines former senior management was the root cause'of the Company's fraudulent financial reporting has also 'been confirmed by Harry L. You, the Company's current CEO. You squarely blamed the Company's accounting problems on the "incompetence" of fanner senior management. You was quoted as saying that Itjhe previous management had not worked before in a public company, and they didn't know the rules, and frankly they were not competent in many areas." They "didn't know what they were doing." The OuteGlobe Flaw° 53, The defendants knew, or recklessly disregarded, that material deficiencies in internal controls throughout the Class Period would give rise to materially misstated financial reporting, During a significant portion of the Class Period, BearingPoint attempted to use an all- in-one system called "OneGlobe" to track revenues, expenses, and employee time. This system 113364 26 _ . _ _ _ • . • •- • oe . d XUA 13rN3S1J1 dH WUL2 : TI 8002 12 Znu never worked properly and was unable to be integrated with the numerous different systems which were employed throughout BearingPoint's worldwide operations. Because "OneGlobe" encompassed all of BearingPoint's financial data, the accounting problems permeated BearingPoint's entire business. 54. Employees were not properly trained to use OneGlobe for recording the time worked on each contract. For government contracts, which represented a material portion of the Company's revenue throughout the Class Period, time had to be entered in quarter-hour increments. The employee also had to identify the billing category: cost plus/fixed fee; time and material; firm fixed price; or cost plus/award fee. The hourly rate charged to the Client varied depending on this classification. BearingPoint did not suffieiently train employees on how to do this and when employees entered their time in the wrong labor category, BearingPoint lost its ability to accurately track how much money it made on the eontract, • 55. As one former senior finaneial consultant noted, "When it was time to roll up an internal report, BearingPoint couldn't tell if is was making money or losing money." 56, In fact, according to numerous former employees, OneOlobe never operated properly. A former executive vice president says errors appeared in the Company's monthly, quarterly, and annual reports regarding gross revenue and information regarding specific projects. These reports were reviewed by the Individual Defendants. The errors in the reports varied widely, but often related to hourly billing rates. 57, In its 2004 Form 10-K, filed on January 31, 2006, BearingPoint admitted that many of the Company' s financial errors resulted from the poor and premature) implementation of OneCilobe. By mid-2004, the system had broken down to the point where employees were [13364 27 _ TE d XUA lArN3SH1 dH WUL2:IT 8002 12 Znij • able to routinely bypass the Company's internal controls. The failure of the OneGlobe roll-out made the Company's already-inadequate internal controls even more unreliable. In. the Form 10- K report, it was stated that the Audit Committee Investigation had concluded that the premature introduction of OneGlobe had placed the Company's internal controls under "increased stress" and that the system had not been adequately pre-tested, that training had been inadequate and that the system failed to provide for the timely recognition of revenues. As a result, the OneGlobe system was "bypassed" on numerous occasions in order to close the second quarter of 2004. The Company further admitted in the Form 10-.1<, report that the failure of the OneGlobe System represented a "significant and troublesome failure" of BearingPoint's internal controls in 2004. 58. On more than one occasion, defendant Blazer spoke directly with a former executive vice president to question her about why her billing rate was so high or low. During those phone conversations, the former executive viee president explained to Blazer that the errors were due, in part, to OneGlobe related initial setup errors, data entry mistakes, and errors that even she did not understand. The former executive vice president would then have to correct the errors by manually marking up the reports and sending the corrections to the financial services division in Atlanta, Georgia to input. Her direct comrn.unications with Blazer left no doubt in the mind of the former executive vice president, that Blazer was well aware of the material accounting errors generated by the OneGlobe system during the Class Period, 59. The former executive vice president also indicated that there were significant problems associated with BearingPoint's purchase of several European entities in 2002, BearingPoint bought KPMG's German operations, which included Austria and Switzerland, and Andersen Consulting's operations in France and Spain. The former executive vice president :13364 28 • - •- • ..• • 2c • el } . , received information from colleagues that BearingPoint had "overpaid for the European operations in 2002, given what happened in the European market at that time," referring to a recession that hit Europe during or immediately after BearingPoint finalized the purchases. Each of the defendants was fully aware of these macroeconomic conditions, of the specific problems concerning the valuation of the foreign acquisitions, and had contemporaneous knowledge or recklessly disregarded, that the goodwill associated with the Company's acquisitions was materially misstated during the Class Period. 60. The former executive vice president indicated that the recession caused significant losses for the recently acquired operations. Colleagues told her that BearingF'oint wrote off those Losses as "goodwill on their balance sheet." When first announcing its financial improprieties, BearingPoint admitted that "write-downs were made by a foreign operation relating to contract . • revenues resulting from wrongful entries. of approximately $9 million and that "a material, non- cash charge will be taken during the fourth quarter of FY04 as a result of the impairment of its goodwill with respect to the operations in its Europe, Middle East and Africa (EIVIEA') segment." 61. BearingPoint employees at all levels and in all departments experienced significant problems with the OneGlobe accounting system. For instance, a former global financial analyst within the real estate and support services division received calls from utility companies that provided water or electricity to BearingPoint offices. "They were threatening to shut the water off," for example. The global financial analyst would contact an accounts payable representative at BearingPoint's financial services office in Atlanta, Georgia to inform him or her that a vendor claimed it had not been paid. The accounts payable representatives always blamed [13364 29 . . . . Ed } OneGlobe for the late payments. The global financial analyst said "Nobody knew what was going on. BearingPoint tried to modify [OneGlobe] to work, but we went from having 30-day turnaround on payments to 45 days to 90 days." 62. The global financial analyst explained that, when OneGlobe was rolled out, employees received an Excel spreadsheet of vendor contracts. It identified which managers and/or executives had to sign-off on purchases or payments. For accounts over a certain dollar amount, believed to be $1 million, top executives such as defendant Blazer or Chief Administrative Officer Nathan Peck had to approve the payments, 63. A former real estate coordinator in BearingPoint's lease project management division also experienced significant problems with the OneGlobe system. She said it was "awful" and that she never received any formal training on how to use the system. She heard from colleagues that in the financial services division irk Atlanta, Oeorgia, the OneGlobe system was turning 60-day invoices from vendors into net 90-day invoices. 64. The failed OneGlobe system also impacted BearingPoint's ability to invoice clients, A senior manager in the communications and content industry segment stated that, at times, he had difficulty uploading files into the system or invoices could not be created due to technical problems with the system. At other times, the system would be "down" and not allow him to log on, He added that because the OneGlobe system was completely different from BearingPoint's prior system, the employee& enormous learning curve (and lack of training) further impeded the Company's ability to generate correct financial information. 65. One former senior business analyst was told to create daily financial reports in an Excel format because the OneGlobe system did not work and was unable to create financial 113364 30 _ _._...... c XYA 13rN3SH1 dH WW82:IT 8002 12 Znel reports. BearingPoint had approximately seven "reconciliation analysts." Their job was to take data from BearingPoint's prior Hyperion system and create Excel spreadsheets that would be forwarded to other staff Often this information could not be properly reconciled with the OneGlobe system. 66. Defendants knew of or recklessly disregarded the overwhelming problems with the OneGlobe financial accounting system which were directly connected to the publication of materially misstated financial results. According to a former managing director at BearingPoint, the problems were "openly discussed" among staff and senior executive management. The Report Of The Inspector C_gnerial of the Department of Veteran AMID 67. The corrupt culture that existed within BearingPoint before and during the Class . Period, arising from the improper "tone at the top" respecting financial reporting matters, has . • given rise to numerous •investigations of the Company. For example, BearingPoint has been subpoenaed by the SEC and named in civil lawsuits in connection with allegations that, while part of KPMG, it was involved in helping Peregrine Systems, Inc,, a California software company, inflate its stock price by engaging in fictitious "round trip" purported revenue generating transactions. Separately, the Company was served with a broad subpoena in December 2004 concerning twelve (12) government contracts, and the investigation involves its billing practices and commission payments. It recently agreed to pay the United States Government S 15.5 million to settle allegations that it overbilled for travel expenses on government contracts. BearingPoint's willingness to play fast and loose with revenue recognition and its aggressive efforts to circumvent the requirements of GAAP during the Class Period are further illustrated by its involvement with a failed $278 million, computer system that 1.13364 31. c • cl XUA 13em3sui dH WW82:11 8002 12 Znel was installed at the Bay Pines Medical Center in St. Petersburg, Florida. The Company was recording revenue of $4 million per month under this contract during the Class Period s though the system was dysfunctional and BearingPoint failed to deliver the services that it had contracted to provide. The U.S. Department of Justice is investigating possible fraud and contract violations in connection with this contract. The Department of Veteran's Affairs ("VA") Inspector General has questioned how BearingPoint handled the Core Financial Logistics Systems, which was supposed to track hospital finances and inventory. BearingPoint rushed the system into use and recorded significant revenue as a result before hospital employees were properly trained and before problems with data conversion and software integration were addressed. Difficulty with tracking inventory, controlling finances, and ordering supplies led to cancellation of 81 elective surgeries and other problems with patient care, according to the . • Inspector General's report. The system was abandoned nine months into a trial run at the•VA's fifth busiest hospital before a national rollout. $278 million of the VA's $472 million budget had been spent Congressional investigators found that BearingPoint was paid an incentive bonus of more than $200,000 for keeping the project on schedule despite inadequate training, 68. The Inspector General's report identified 20 task orders given to BearingPoint but found only 12 "Statements of Work" in the contact files. As stated in the report, "Statements of work outline the tasks to be performed and enable the contracting authority to assess the contractor's work performance against measurable performance standards," The report stated that "we could not ascertain with certainty who prepared the 12 statements of work. In at least one instance, we discovered that sections of both the statement of work and BearingPoint's proposal were identical. This discovery is troublesome because BearingPoint was either the 113364 32 9E • ci XUA 13rm3su1 dH W1=182 : TI 8002 12 Znel A author of the statement or the work — or the VA accepted a regurgitation of BearingPoint's "Statement of Work" as an. acceptable technical proposal." 69. Project implementation of the software system involved training, monitoring and testing to be 'delivered' by the Company. The Inspection General's report stated: "In some cases, we observed BearingPoint employees rather than VA employees developing and conducting the test and determining test results. In one case we observed one VA tester who was not familiar with the business process being tested and required assistance from BearingPoint employees to perform the test." 70. The report also states: "Consequently, current conditions permit a BearingPoint employee to create (system) transactions, process and pay the transactions, and erase the transactions." Twenty three BearingPoint employees in 2003 and 2004 had some type of `system' application developer and system adrninistrator rights according to the report "Audit trails had not been fully configured." • 71. The report concluded that training conducted by BearingPoint was not adequate: "Training may not adequately prepare end-users. Some training modules were still in development and had not been posted to the training portal. Our review of the training modules disclosed an inadequate amount of training time. For example, the average training time provided for accounts payable was 7 hours, In addition, we observed several VA employees did not know how to perform accounting duties using CoreFLS. We do not believe mitigating the risk by having BearingPoint staff operate CoreFLS is an appropriate response." 72. The report goes on to provide, "We observed BearingPoint staff directing testers, inputting test results, and determining test results. Sufficient training was not provided to all 113364 33 . . • 01 XUA 13rm3su1 dH W82I1 8002 12 Znd . . end-users. Three of 10 end-users interviewed did not complete all required training. All 10 end- users expressed concern that the training was too general for their job needs. Seven of 10 end- users stated the help desk did not resolve their issues in a timely manner. In fact, several issues were older than 4 days. Two of the 10 end-users stated that the help desk was completely unresponsive." 73. BearingPoint knew that its Phase IV-related implementation task orders (training, testing, and monitoring) were neither successful nor complete — yet it knowingly claimed to have achieved completion and recorded the revenue. Former U.S. Senator Bob Graham said that "BearingPoint could face sanctions because it failed to properly train VA hospital staff on CoreFLS, as required in the contract." On November 24, 2004 U.S. Senator Bill Nelson publicly rejected BearingPoint's claim that the CoreFLS had worked better than expected stating, "You can put lipstick on a pig, but it's a still pig, and that's exactly what you' ve seen in this CoreFLS 'system." Calling for the federal government to ban BearingPoint from competing for new government business until investigators clear it of any wrongdoing in the CoreFLS project, Nelson accused BearingPoint of"huge amounts of questionable activity," including payments by the VA that were not earned, 74. The Inspector General's report identified BearingPoint's cost proposal incorporated into task order(s) provided a discount schedule for Phase (project implementation). "The Office of Management (OM) will review all of the task orders and have the project personnel identify work that has been accomplished as part of Phase IV activities, Once that is accomplished, our contracting office will retroactively negotiate discounts to which the government is entitled." The report further alleges: "Since March 24, 2004, the Office of 11.3364 34 ____.____•- • - - • • • • se'd XUA 13rm3sul dH WW62 : II 8002 12 Znig • Business Oversight (OBO) has been conducting a financial review of the CoreFLS project. Upon final receipt of the 0130 report, OM will examine all billings against CoreFLS task orders to determine whether VA is due any discounts, refunds or rebates." 75. BearingPoint knew based on its past extensive federal contracting experience that 'discounts' in federally mandated contracts were in order, yet they did not provide for them and importantly, never identified or allowed for them in the Company's financial statements. The Inspector General's report states that BearingPoint 'refused' to provide contract discounts as appropriate and requested after certain cost milestones were achieved (i.e., $500,000 per task). 76. The Inspector General's report identified contractor's travel costs also as a point of scrutiny:. "Contractor travel costs totaling about $4.2 million were not adequately monitored or • reviewed for compliance with task order provisions and Federal travel regulations. Travel • vouchers lacked justification for excessive airfares for frequent repetitive trips. Vouchers usually did not indicate the purpose and necessity of travel." 77. BearingPoint's international operations were similarly replete with false revenue numbers. For example, in a story dated September 20, 2005, the Australian Financial Review reported that the Company's Australia subsidiary had recorded $8.8 million in revenue in 2004 for completion of a contract with Canon that in fact was not completed until 2005. The Company improperly advanced the revenue into 2004. On January 13, 2006, it was reported in The Australian that the former head of BearingPoint Australia Pty Ltd., Cameron John Morris, was charged with fraud by the Australian Securities and Investment Commission ("AW"). The charges concerned Morris's involvement in the falsification of BearingPoint's financial books 113364 35 8E . 4 xud 13r ei 3S El 1 WEJB2110212 ZnEl . . and records between April 2003 and February 2005 and the giving of false and misleading information to the ASIC. 78. Consultants who were hired by BearingPoint through K Force Inc_ to help with the review of its historical accounting have discovered gross accounting abuses. One consultant reported that every single contract that he reviewed, 20-30 contracts, were incorrect with regard to revenue recognition in. some material way. The types of problems uncovered by the consultants included overbilling of clients, underbilling of clients, violations of contract terms, improper set-up and establishment of contracts for billing, administration and revenue recognition purposes, and duplication of information. More specifically, contracts were found • which called for reimbursement of direct costs such as travel but not labor, but labor costs were • nonetheless billed, Hourly rates that were billed were different front the hourly rates in the . contracts. Invoices to clients Were provided with no supporting detail. There were 'time and materials" contracts with a not to exceed ceiling" that were incorrectly set up and billed as fixed price contracts. In one contract (for Microsoft), time and materials was $90,000 but the client was billed $100,000 on a fixed price basis. Numerous contracts had duplicate sets of paperwork with the same contract and project numbers, but they related to different projects. Other contracts involved untimely billing practices, where a client had not been billed but should have been billed several quarters prior to issuance of the first invoice. One contract showed that a client had been billed prematurely for work that it took an additional year to complete. On one contract involving overseas labor, the original contract billing rate went from $100 per hour to $20-30 per hour, yet the $100 billing rate was taken into revenue instead of the cheaper overseas replacement labor rates. In another situation, BearingPoint based its revenue recognition on 113364 36 . _ • d 8003 12Xidd 13rNBSB1 ZnEl dH WE182 : IT . . . . client billing rates, rather than the percentage of completion of the job. For example, if the contract valued the job at $200,000 and the labor component was $100,000, and labor incurred for the project was $25,000, then BearingPoint would take 25% of $200,000 into revenue. 79. The defendants had a motive to commit the fraud alleged herein because during the Class Period they were able to complete substantial private offerings of BearingPoint securities of at least $450 million. Had the fraud alleged herein been timely and fully disclosed BearingPoint would not have been able to complete these offerings. BEARINGPOINT DISCLOSES THAT IT PUBLISHED FALSE FINANCIAL STATEMENTS 80. On April 20, 2005, BearingPoitat shocked the financial markets with information provided in a report filed with the SEC on Form 8-K and a related press release. Therein the Company disclosed that it found errors in its financial statements spanning the past two years, that the SEC had begun an investigation into its accounting, and that it had fired nine executives. It was also announced for the first time that its previously published financial statements could not be relied upon and that it would take a massive goodwill impairment charge of between $250-400 million. More specifically, the Company stated: Item 2.06 Material Impairments DUring the fourth quarter of the fiscal year ended December 31, 2004 ("FY04"), BearingPoint, Inc. (the "Company" or "we") determined that a triggering event had occurred, which caused the Company to perform a goodwill impairment test. The triggering event resulted from a combination of various factors, including downgrades in the Company's credit rating in December 2004, significant changes in senior management and underperforming foreign legal entities. As a result of an initial impairment analysis, on March 17, 2005 the Company determined that a material, non- cash charge will be taken during the fourth quarter of FY04 as a 113364 37 XUA 13rm3sui dH WUB2:IT 8002 12 2n171 . . result of the impairment of its goodwill with respect to the operations in its Europe, the Middle East and Africa ("EMBA.") segment. The Company currently estimates that the amount of the impairment charge will be $250 million to $400 million, The actual amount of the impairment charge is not expected to be finalized until the Company files its audited financial statements for FY04. The actual amount may be different than our estimate, and this difference could be material. The Company does not expect that the impairment charge will result in future cash expenditures. This Item amends the Item 2.06 disclosure in the Company's Form 8-K filed on March 18, 2005, Item 4902(a) Non-Reliance on Previously Issued Financial .. Statements On April 19, 2005, our senior management determined that the financial statements filed with the following previously issued reports should not be relied upon because of errors in those financial statements; • Form 10-Q's for each of the first three quarters of FY04; • Form 10-K for the six-month transition period ended December 31, 2003; and • a Form 10-K for the fiscal year ended June 30, 2003. The financial statements listed above are referred to collectively herein as the 'Prior Financial Statements." The exact amount of the errors and the periods to which they relate have not been determined and finalized, These errors may also affect our financial statements for the quarterly periods in the six-month period ended December 31, 2003 and the fiscal year ended June 30, 2003, as well as for earlier years and their quarterly periods, In addition, the errors may also affect financial information for the periods mentioned that we included in other disclosures, such as press releases or Form 8-K filings. Our senior management 113364 38 _ . . . •d XEIJ dH WU82:IT B002 12 Znid discussed the matter disclosed in this report with our Board of Directors and our independent registered public accountants. The manual processes and data validation procedures we are employing to evaluate and correct our financial records have resulted in numerous adjustments to date. Some of the adjustments to date have resulted in an increase in net income and some have resulted in a decrease. This process is not yet complete, Accordingly, it is impossible to accurately predict whether, and if so, to what extent, prior periods will be restated. Based on the results of this process to date, we believe that restatements are necessary; however, additional adjustments could increase or reduce the net impact of the adjustments we have identified to date. * * Recent Developments Financial Reporting; Restatement of Financial Statements We do not have audited financial statements for the year ended December 31, 2004, and we do not yet have an estimate as to when we will be able to complete .out work. AS a result, we have failed . to comply with the requirements of the Securities Exchange Act of 1934, which requires us to file a Form 10-K within 75 days of the end of our fiscal year, and the requirements of the New York Stock Exchange. In addition, we do not have financial statements for the quarter ended March 31, 2005, and we do not yet have a schedule for when we will be able to prepare quarterly financial statements on a timely basis. To date, we have identified pre-tax net adjustments decreasing net income by approximately $37 million that will likely require adjustments to prior period financial statements. Of these adjustments, approximately $15 million are likely to affect each of the first three quarters of FY04 and approximately $22 million are likely to affect the results of operations prior to 2004, though the exact amount of the adjustments and the periods to which they relate have not been finalized. The nature and approximate amounts of the more significant adjustments that have been identified based solely on procedures performed to date are: write- downs that were made by a foreign operation relating to contract revenues resulting from wrongful entries of approximately $9 million, charges relating to employee tax equalization issues 113364 39 _ . . et, • ci XEld 13rm3sui dH 141=182:11 8002 12 ZnEl totaling approximately $18 million, and adjustments arising from detailed engagement contract reviews and other matters totaling approximately $10 million. The manual processes and data validation procedures we are employing to evaluate and correct our financial records have resulted in numerous adjustments to date. Some of the adjustments have resulted in an increase in net income, and some have resulted in a decrease. This process is not yet completed. Accordingly, it is impossible to accurately predict whether, and if so, to what extent, prior periods will be restated, Based on the results of this process to date, we believe that restatements are necessary; however, additional adjustments could increase or reduce the net impact of the adjustments we have identified to date, and given the low levels of net income recorded in certain previous financial periods, small amounts of adjustments may make a material difference, and, therefore, it is highly likely that the ultimate net adjustments will be material' and restatements will be necessary. Failure to Timely File 2004 Form 10-K; Delayed Form 10-Q :5 Our 2004 Form 10-K was required to be filed with the SEC on March 16, .2005, and. we did not meet that deadline. On March 17, 2005, we filed a Notification of Late Filing on Form 12b-25 (the "Notification of Late Filing") with the SEC relating to our inability to file the 2004 Form 10-K on a timely basis. Our Notification of Late Filing provides the reasons for our inability to file timely the 2004 Form 10-K. We are not at this time able to provide an expected date for filing our 2004 Form 10-K. We expect that our Form 10-Q's for the quarters ending March 31, 2005 7 June 30, 2005 and September 30, 2005 will not be filed in a timely fashion. Going Concern Audit Opinion The report of our independent registered public accountants for FY04 may include an explanatory paragraph for "going concern," which is a component of our independent registered public accountants' opinion addressing whether there is substantial doubt regarding the Company's ability to continue to operate as a going concern through the period ending December 31, 2005. Receiving a "going concern" paragraph from our independent registered 113364 40 tr }WA 13rel3SU1 dH WEJOE:II 8002 12 MIEJ • public accountants would occur if they conclude that the Company would require additional fmancing to support operations at the current level through the period ending December 31, 2005. Status of Financial Statements We continue to experience significant delays in completing our financial statements for the year ended December 31, 2004. We require additional time to complete our expanded financial statement close procedures in a number of areas, including revenue recognition, tax equalization and accrual of invoices. Additionally, we continue to perform significant substantive procedures to compensate for the material control weaknesses identified as part of management's assessment of' our internal control over financial reporting. Completion of these substantive procedures has required significant additional time and analysis and continues to contribute to the delay in completing our financial statements for the year. ended December 31, 2004. • 81. These were the first disclosures that BearingPoint made wherein it acknowledged that its prior period financial statements could not be relied upon, and that the impairment charge it would take would be between $250 to $400 Million. The Company had given no prior indication that its financial statements were in fact unreliable or the actual magnitude of the impairment charge. This news shocked the market and caused a precipitous decline in the price of BearingPoint's shares. On this announcement, shares of BearingPoint tumbled more than $2.25 per share (32%) on unusually high trading volume. BEARINGPOINT'S FAILURE TO IMPLEMENT AND MAINIALN ADEQUATE INTERNAL ACCOUNUNG CONTROLS 82. All defendants knew or recklessly disregarded, throughout the Class Period, that I3earingPoint was experiencing such pervasive deficiencies in its internal controls and accounting practices that the financial information generated for inclusion in BearingPoint's financial • \ statements was grossly inaccurate and unreliable, 113364 41 . — • • —• - - - - - g t. • d XlmU 13rN3SU1 JH WW08 : II 8002 12 Znu 83. The Foreign Corrupt Practices Act ("FCPA"), 15 US-C. §78m(b)(2), was enacted on the principle that accurate record-keeping is an essential ingredient in promoting management responsibility and is an affirmative requirement for publicly held American corporations to strengthen the accuracy of corporate books and records, which are "the bedrock elements of our system of corporate disclosure and accountability." Remarks of Senator Harrison Williams, 123 Cong. Rec, 519, 400 (Daily Edition Dec. 6, 1977), quoted in D. Goelzer, "The Accounting Provisions of the FCPA — The Federalization of Corporate Recordkeeping and Internal Control," 5 1. Corp. L. 1(1979). The representations made by a company in its financial statements and in other financial disclosures to the public are the representations of that company's management. 84. Pursuant to the FCPA, every issuer having a class of securities registered pursuant to §12 of the Exchange Act, 15 U.S.C, §781, shall: a. "Make and keep books, records, and accounts which, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the issuer; and b. Devise and maintain a system of internal accounting controls sufficient to provide reasonable assurances that i. transactions are executed in accordance with management's general or specific authorization; transactions are recorded as necessary (1) to permit preparation of financial statements in conformity with generally accepted accounting principles or any other criteria applicable to such statements, and (2) to maintain accountability for assets; access to assets is permitted only in accordance with management's general or specific authorization; and 113364 42 • •••• XIdd 13rN3SU1 dH WEJOE:IT 8002 12 Zriu iv. the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken, with respect to any differences. ' 85. Moreover, SEC Rule 13b-2, promulgated pursuant to the FCPA, was enacted to (1) assure that an issuer's books and records accurately and fairly reflect its transactions and the disposition of assets, (2) protect the integrity of the independent audit of issuer financial statements that are required under the Exchange Act, and (3) promote the reliability and completeness of financial information, that issuers are required to file with the Commission or disseminate to investors pursuant to the Exchange Act. Rule 13b- .2 provides: • a. Rule 13b-1: No person shall, directly or indirectly, falsify or cause to be falsified, any book, record or account subject to Section 13(b)(2)(A) of the Exchange Act. b. Rule 13112-2: No directot or officer of an issuer shall, directly or indirectly, • make or cause to be made a materially false or misleading statement, or to omit to state, or cause another person to omit to state, anymaterial fact necessary in order to make statements made, in light of the circumstances under which such statements were made, not misleading to an accountant in connection with (1) any audit or examination of the financial statements of the issuer required to be made pursuant to this subpart or (2) the preparation or filing of any document or report required to be filed with the Commission pursuant to this subpart or otherwise. 86, To comply with the FCPA, GAAP and SEC rules, and to accomplish the objectives of accurately recording, processing, summarizing and reporting financial data, a public company is required to establish and maintain adequate internal financial and accounting controls. Contrary to the requirements of the FCPA, GAAP and SEC rules, BearingPoint and the 113364 43 t..b, • cl xu.d 13ra3sui dH WHOE : II 8002 12 Znu Individual Defendants failed to implement and maintain adequate internal accounting and financial controls when issuing and publicly disseminating the Company's financial statements. The Company's Lack of adequate internal controls and a working internal audit function, created an environment that encouraged the type of accounting irregularities that caused the material misstatements of BearingPoint's financial results during the Class Period. Moreover, the Individual Defendants knew of material problems and defects in the Company's accounting systems. The lack of internal controls is further evidenced by the fact that in the course of preparing the restatement of BearingPaint's financial statements, as alleged herein, the Company has had to review 6,500 contracts at an expense of $100 million, placing lin reliance on the Company's accounting systems or financial reporting mechanism. . 87;. Defendants knew or recklessly. disregarded numerous red flags evidencing the fact that the Company's internal controls were grossly deficient and that the financial data being generated by the Company's financial reporting system was so pervasively inaccurate and unreliable that reliance on that information for financial statement purposes was precluded by GAAP. Nevertheless, despite the utter lack of trustworthiness of BearingPoint's financial reporting system, the defendants improperly issued financial statements, falsely representing, inter alio, that those financial statements had been prepared in accordance with GAAP. GAAp VIOLATIONS 88. OAAP are those principles recognized by the accounting profession as the conventions, rules and procedures necessary to define accepted accounting practice at a particular time. SEC Regulation S-X (17 C.F.R. §§210,4-01(a)(1)) provides that financial statements filed with the SEC which are not prepared in compliance with GAAP are presumed to be misleading • [13364 44 Be • el X1=1.d 13rN3SH1 dH 141:108 t 1I 8002 12 2nu - — - and inaccurate, despite footnote or other disclosure. Regulation S-X requires that interim financial statements must also comply with GAAP, with the exception that interim financial statements need not include disclosure which would be duplicative of disclosures accompanying annual financial statements. 17 C.F.R. §§210.10-01(a). 89. The responsibility for preparing financial statements that conform to GAAP rests with corporate management as set forth in Section 110.02 of the AICPA Professional Standards: The financial statements are management's responsibility... Management is responsible for adopting sound accounting policies and for establishing and maintaining internal controls that will, among other things, record, process, summarize, and report transactions (as well as events and conditions) consistent with managements assertions embodied in the financial statements. The entity's transactions and the related assets, liabilities, and equity are within the direct knowledge and control of management . .. Thus, the fair presentation of financial statements in conformity with [GAAPJI is an implicit and integral part of management's responsibility. 90. The Individual Defendants knowingly or -with recklessness caused BearingPoint to misstate its financial results, as further alleged herein, in violation of GAAP. BearingPoint's disclosure that it will restate its previously reported Class Period financial results, and the actual restatement of its 2004 results, constitutes an admission that each of those statements, as included in the Company's press releases and Forms 10-K and 10-Q issued during the Class Period, were materially false and misleading when issued. Under Statement of Financial • Accounting Standards No, 16, Prior Period Adjustments, restatements are only permitted — and are required — for material accounting errors or irregularities. Section 316 of the American Institute of Certified Public Accountants Codification of Statements on Auditing Standards defines accounting irregularities as, 113364 45 ...... s Ja * >odd 13ra3sui dH WUDE : TI 8002 12 Znizi [I]ntentional. misstatements or omissions of amounts or disclosures in financial statements. Irregularities include fraudulent financial reporting undertaken to render statements misleading, sometimes called management fraud ... Irregularities may involve acts such as the following: manipulation, falsification, or alteration of accounting records or supporting documents from which financial statements are prepared; misrepresentations or intentional omission of events, transactions, or other significant information; intentional misapplication of accounting principles relating to amounts, classification, manner of presentation, or disclosure, 91. As a result of its accounting improprieties, particularly with respect to revenue recognition and goodwill during the Class Period, defendants caused BearingPoint' a reported financial results to violate at least the following provisions of GAAP for which each defendant is necessarily responsible: a. the principle that revenues must be realizable (collectible) and earned prior to recognition. Statement of Financial Concepts ("Concepts Statement"), No. 5, 183; b. the principle that expenses are generally recognized when an entity's economic benefits are consumed in revenue-earning activities or otherwise. (Concepts Statement No. 5,185): c, the principle that expenses or losses are recognized if it becomes evident that previously recognized future economic benefits of assets have been reduced or eliminated, or that liabilities have been incurred or increased, without associated economic benefits (Concepts Statement No. 5, 1186-87); d. the principle that financial reporting should provide information that is useful to present and potential investors and creditors and other users in making rational investment, credit and similar decisions (Concepts Statement No. 1,134); 113364 46 _ od } what it purports to represent. That information should be reliable as well as relevant is a notion that is central to accounting (Concepts Statement No. 2,15158-59); f, the principle of completeness, which means that nothing is left out of the information that may be necessary to ensure that it validly represents underlying events and conditions (Concepts Statement No. 2, 179); g. the principle that conservatism be used as a prudent reaction to uncertainty to try to ensure that uncertainties and risks inherent in business situations are adequately considered. The best way to avoid injury to investors is to try to ensure that what is reported represents what it purports to represent (Concepts Statement No. 2, V1195, 97); K GAAP' s requirement of the disclosure of an existing condition, situation • or set of eircumstanees involving an uncertainty when there is at least a reasonable possibility that a loss or an additional liability may have been incurred_ (Statement of Financial Accounting Standards No, 5 (Accounting for Contingencies.)); i. the principle that financial reporting should provide information about an enterprise's financial performance during a period. Investors and creditors often use information about the past to help in assessing the prospects of an enterprise. Thus, although investment and credit decisions reflect investors' expectations about future enterprise performance, those expectations are commonly based at least partly on evaluations of past enterprise performance (Concepts Statement No. 1, 1142); j. the principle that financial reporting should provide information about how management of an enterprise has discharged its stewardship responsibility to owners 113364 47 g • cl } (stockholders) for the use of enterprise resources entrusted to it, To the extent that management offers common stock of the enterprise to the public, it voluntarily accepts wider responsibilities for accountability to prospective investors and to the public in general. (Concepts Statement No. I, ¶50); and k. the principle that financial reporting should provide information about the economic resources of an enterprise, the claims to those resources, and the effects of transactions, events and circumstances that change resources and claims to those resources. (Concepts Statement No, 1, 1140), 92. The magnitude, duration and pervasiveness of the accounting and record-keeping manipulations alleged herein, all of which violated the foregoing provisions of GAAP, compels the conclusion that these methods were implemented by defendants intentionally, or that at a , minimum, defendants recklessly disregarded the overwhelming prevalence of these iniproper procedures and the resulting material falsifications of BearinsPoint's financial statements. 93. Further, BearingPoint and the Individual Defendants publicly represented that it was the policy of BearingPoint to report its financial results in. conformity with GAAP, and provided extensive descriptions of those policies, as exemplified in its Form 10-K for the year ended June 30, 2003: BEARINGPOINT, INC. NOTES TO CONSOLIDATED FINANCIAL STATEMENTS * * 2. Summary of Significant Accounting Policies Accounting policies and estimates that management believes are most critical to the Company's financial condition and 113364 48 _ _ _ . . 2s • 01 XUA 13rN3S81 dH 8002 12 2nu operating results pertain to revenue recognition and valuation of unbilled revenue (including estimates of costs to complete engagements); valuation of accounts receivable; valuation of goodwill, and effective income tax rates. * * Revenue Recognition We earn revenue from a range of consulting services, including, but not limited to, business and technology strategy, systems design, architecture, applications implementation, network, systems integration and managed services. Revenue includes all amounts that are billed or billable to clients, including out-of- pocket costs such as travel and subsistence for client service professional staff, costs of hardware and software and costs of subcontractors (collectively referred to as "other direct contract expenses"). T....1nbilled revenues consist of recognized recoverable costs and accrued profits on contracts for which billings had not been presented to the clients as of the balance sheet date. Management anticipates that the collection of these amounts will occur within one year of the balance sheet date, with the exception of approximately $8,000 related to various long-term government • agencies' contracts. Billings in excess of revenue recognized are recorded as deferred revenue until the applicable revenue recognition criteria are met. Services: We enter into long-term, fixed-price, time-and-materials, and cost-plus contracts to design, develop or modify multifaceted client-specific information technology systems. Such arrangements represent a significant portion of our business and are accounted for in accordance with AICPA Statement of Position ("SOP") 81-1, "Accounting for Performance of Construction-Type and Certain Production-Type Contracts." Arrangements accounted for under SOP 81-1 must have a binding, legally enforceable contract in place before revenue can be recognized. Revenue under fixed-price contracts is generally recognized using the percentage- of-completion method based upon costs to the client incurred as a percentage of the total estimated costs to the client. Revenue under time-and-materials contracts is based on fixed billable rates for hours delivered plus reimbursable costs. Revenue under cost-plus • contracts is recognized based upon reimbursable costs incurred plus estimated fees earned thereon. 113364 49 . . . Ed XUA 13rN3SEll WUIC:II 8002 12 Mild • We also enter into fixed-price and time-and-materials contracts to provide general business consulting services, including, but not limited to, systems selection or assessment, feasibility studies, and business valuation and corporate strategy services. Such arrangements are accounted for in accordance with Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements." Revenue from such arrangements is recognized when: i) there is persuasive evidence of an arrangement, ii) the fee is fixed or determinable, iii) services have been rendered and payment has been contractually earned, and iv) collectibility of the related receivable or unbilled revenue is reasonably assured. We periodically perform reviews of estimated revenue and costs on all of our contracts at an individual engagement level to assess if they are consistent with initial assumptions. Any changes to estimates are recognized on a cumulative catch-up basis in the period in which the change is identified. Losses on contracts are recognized when identified. Additionally; we enter into arrangements in which we manage, staff, maintain, host or otherwise run solutions and systems provided to the client. Revenue from these types of arrangements is typically recognized on a ratable basis as earned over the terns of the service period. Software: We enter into a limited number of software licensing arrangements. We recognize software license fee revenues in accordance with the provisions of SOP 97-2, "Software Revenue Recognition" and its related interpretations. Our software licensing arrangements typically include multiple elements, such as software products, post-contract support, and consulting and training services. The aggregate arrangement fee is allocated to each of the undelivered elements based upon vendor-specific evidence of fair value ("VSOE"), with the residual of the arrangement fee allocated to the delivered elements. VSOE for each individual element is determined based upon prices charged to customers when these elements are sold separately. Fees allocated to each software element of the arrangement are recognized as revenue when the following criteria have been met: 1) persuasive evidence of an arrangement exists, II) delivery of the product has occurred, iii) the License fee is fixed or determinable, and iv) c-ollectibility of the related receivable is reasonably assured. If evidence of fair value of the undelivered elements of the arrangement does not exist, all revenue from the arrangement is deferred until such time evidence of fair value does exist, or until 113364 50 } all elements of the arrangement are delivered. Fees allocated to post-contract customer support are recognized as revenue ratably over the term of the support period. Fees allocated to other services are recognized as revenue as the services are performed. Revenue from monthly license charge or hosting arrangements is recognized on a subscription basis over the period in. which the client uses the product. Multiple-Element Arrangements for Service Offerings: In certain arrangements, we enter into contracts that include the delivery of a combination of two or more of our service offerings, Typically, such multiple-element arrangements incorporate the design, development or modification of systems and an ongoing obligation to manage, staff, maintain, host or otherwise run solutions and systems provided to the client. Such contracts are divided into separate units of accounting and the total arrangement fee is allocated to each unit based on. its relative fair value, Revenue is recognized separately, and in accordance with our revenue recognition policy, for each element. . , • Costs of Service • . • Professional compensation consists of payroll costs and related . benefits associated with client service professional staff (including • • costs associated with reductions in workforce). Other direct contract expenses include costs directly attributable to client engagements. These costs include out-of-pocket costs such as travel and subsistence for client service professional staff, costs of hardware and software and costs of subcontractors. Other costs of service include expenses attributable to the support of client service professional staff, depreciation and amortization costs related to assets used in revenue generating activities, bad debt expense relating to accounts receivable, impairment charges associated with long-lived assets, as well as other indirect costs attributable to serving our client base. Most of our research and development activities have been incurred pursuant to specific client contracts and, accordingly, have been expensed as costs of service as incurred. * 13 3 6 4 51 _ _ •• _ . s s • d XUA 13CH3SU1 dH NEJETT8DO 2 12 2nu Goodwill and Other intangible Assets Goodwill represents the cost of acquired companies in excess of the fair value of the net assets acquired. Goodwill is not amortized but instead tested for impairment at least annually. The Company has elected to perform this review annually on April 1 or whenever events or significant changes in circumstances indicate that the carrying value may not be recoverable. Events or circumstances that might require the need for more frequent tests include, but are not limited to: the loss of a number of significant clients, the identification of other impaired assets within a reporting unit, the disposition of a significant portion of a reporting unit, or a significant adverse change in business climate or regulations. The first step of the impairment test is a comparison of the fair value of a reporting unit to its carrying value, Reporting units are the Company's North American industry groups and the international geographic segments. The fair value of a repotting unit is estimated using the Company's projections of discounted future operating cash flows of the unit. Goodwill allocated to a reporting unit whose fair value is equal to or greater than its carrying value is not impaired and no farther testing is required. A reporting unit whose fair value is less than its carrying value requires a second • step to determine whether the goodwill allocated to the unit is impaired. The second Step of the goodwill impairment test is a comparison of the implied fair value of a reporting unit's goodwill to its carrying value. The implied fair value of a reporting unit's goodwill is determined by allocating the fair value of the entire reporting unit to the assets and liabilities of that unit, including any unrecognized intangible assets, based on fair value. The excess of the fair value of the entire reporting unit over the amounts allocated to the identifiable assets and liabilities of the unit is the implied fair value of the reporting unit's goodwill. Goodwill of a reporting unit is impaired when its carrying value exceeds its implied fair value. Impaired goodwill is written down to its implied fair value with a charge to expense in the period the impairment is identified. 94. The Company made similar disclosures in its Form 10-K for the sixth month period ended December 31, 2003. In engaging in the accounting manipulations herein alleged, defendants violated their own publicly announced accounting policies and thereby acted i13364 52 _ 9g.d XIdd 13rNBSU1 dH WU2C : TT B002 Ta znu intentionally and/or recklessly, 95. The adverse information concealed by defendants during the Class Period and detailed above was also in violation of Item 303 of Regulation S-K wider the federal securities Law, 17 C.F.R. §229.303. MATERIALLY FALSE AND MISLEADING DURING.T11 CLASS 96. Despite their knowledge, or recklessness in not knowing, of the existence of the improper practices and accounting manipulations alleged herein, the defendants issued numerous false financial statements and other statements concerning BearingPoint's financial results during the Class Period. These statements were false when made because of BearingPoint's fraudulent business and accounting practices and because of the complete breakdown in the execution of . internal controls which, in turn, gaVe rise to false financial reporting, These events resulted in. • material misstatements of revenue, income and goodwill during the Class Period. Year End ResultsFiscal Year 2003 97. The Class Period begins on August 14, 2003, when BearingPoint announced its financial results for fiscal year 2003 (ended June 30, 2003). On that date, BearingPoint issued a press release and filed a Current Report on Form 8-K with the SEC, both of which contained materially false or misleading statements. 98. In the press release, defendant Falcone commented that the Company had "strengthened {its] balance sheet" in the prior quarter. The press release further stated: BearingPoint, Inc. (NYSE: BE), today reported gross revenue and earnings per share for the company's fourth quarter of fiscal year 2003 of $774,8 million and $0.04, respectively. Gross revenue for the fourth quarter increased 32.9% over the fourth quarter of the 113364 53 _ _ • __ . . Lo.d XUJ 13rm3sui dH WEI2C : TI 8002 12 2ny • prior year. Similarly, net revenue increased 35.8% to $588.8 million during the period as compared to the fourth quarter of fiscal year 2002. Net income for the fourth quarter was $8.3 million, or $0.04 per share, compared to net income of $0.4 million, or $0.00 per share, in the fourth quarter of fiscal year 2002. Included in net income for the fourth quarter of fiscal year 2002 was $23.7 million (net of tax) in impairment and workforce reduction charges. * For the fiscal year ended June 30, 2003, the company reported net income of $4L5 million, or $0.22 per share, compared to a net loss of $26.9 million, or $0.17 loss per share, for the prior year. Included in the prior year's results was an $80,0 million (net of tax) transitional impairment charge related to the cumulative effect of a change in accounting principle and $36.5 million (net of tax) in impairment and workforce reduction charges. For the fiscal year ended June 30, 2003, the company reported gross revenue of $3.1 billion, an increase of $782.0 million, or 310%, over the fiscal year ended June 30, 2002. The company also reported net revenue • of $2.4 billion, an increase of 36.9% over the prior year. The growth in revenue is predominantly the result of the global • • ' initiatives and transactions completed in the first half of fiscal year 2003. 99. The Form 8-K, which was signed by defendant Falcone, also represented that the Company had gross revenue of $3.1 billion, net revenue of $2.4 billion., and net income of $41.5 million or $0.22 per share. 100. On September 29, 2003, BearingPoint filed with the SEC its annual report on Form 10-K for the fiscal year ended June 30, 2003. It was signed by defendants Blazer and Falcone. They reviewed, approved of, and caused the Form 10-K to be filed with the SEC. The Form 10-K reported the same false fiscal 2003 financial results that appeared in the August 14, 2003 press release and Performance Report, which were materially overstated. Specifically, the Form 10-K represented as follows: [13364 54 . . . a g. 4 XUA 13rm3sui dH 8002 12 Znid ; Year Ended June 30, 2003 Compared to Year Ended June 30, 2002 Revenue. Revenue increased $77 L7 million, or 32.6%, from $2,367,6 million in the year ended June 30, 2002, compared to $3,139,3 million in the year ended June 30, 2003. * * * Net Income (Loss). For the fiscal year ended June 30, 2003, the Company realized net income of $41.3 million, or $022 per share. For the fiscal year ended June 30, 2002, the Company incurred a net loss of $26.9 million, or $0.17 loss per share. Included in the prior year's results is the cumulative effect of a, change in accounting principle of $80.0 million (net of tax) and an impairment charge of $20.8 million (net of tax) related to the write down of equity investments and software licenses held for sale, * Item 8. Financial Statements and Supplementary Data • MANAGEMENT'S REPORT ON FINANCIAL STATEMENTS The management of BearingPoint, Inc, is responsible for the preparation and fair presentation of the financial statements and other related financial information published in this Annual Report on Form 10-K. The financial statements were prepared in accordance with accounting principles generally accepted in the United States of America and were necessarily based in part on reasonable estimates and judgments giving due consideration to materiality. To the best of our knowledge and belief, the information contained in this Annual Report on Form 10-K is true and accurate in all material respects. The management of the company is also responsible for maintaining and effective system of internal accounting controls. This system us designed to provide reasonable assurance that assets are adequately safeguarded and financial records accurately reflect all transactions and can be relied upon in all material respects in the preparation of financial statements. 101. Attached to the Form 10-K were certifications required under the Sarbanes-Oxley [13364 55 ...... _. . . 89 d • XHA 13ra3sui dH WWEE : II aooa 12 2ntml • . , • Act of 2002 signed by defendants Blazer and Falcone (hereafter, "Sarbanes-Oxley Certifications"), In those documents, defendants Blazer and Falcone certified the accuracy of the financial information in the Form 10-K for the period ended June 30, 2003: CERTIFICATION I, Randolph C. Blazer, certify that: 1. I have reviewed this Annual Report on Form 10-K for the period ended June 30, 2003 of Bearineoint, Inc.; 2. Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all • material respects the financial condition, results of operations and . • cash flows of the registrant as ot'and for, the periods presented in • this report; • 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and 113364 56 — — 09' d XU. 13rN3SU1 dH WH2C : I1 8002 12 ZnEl (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5, The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over fin.ancial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (h) Any fraud, whether. or not material, that involves , . . management or other employees who have a gignificant role in the registrant's internal control over. financial reporting. • DATE: September 29, 2003 is/ RandolpiL_C, )31azer Randolph C. Blazer, Chairman of the Board, Chief Executive Officer, and President CERTIFICATION I, Robert S. Falcone, certify that: L. I have reviewed this Annual Report on Form 10-K for the period ended June 30, 2003 of BearingPoint, Inc.; 2, Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all 113364 57 : II 8002 12 21-1U T9'd XUA 13CM3SU1 dH WUCE material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based •• on such evaluation; and • (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and . (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the 113364 • 58 . . •_• . : IT 8002 12 Znid 2 9'd XUA 13rH3SEl1 dH WUCE • . . • - • registrant's. internal control over financial reporting. DATE: September 29, 2003 If Robert S. Falcone Robert S. Falcone, Executive Vice President and Chief Financial Officer CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. §1350) In connection with the Annual Report on Form 10-K for the period ended June 30, 2003 (the "Report") of BearingPoint, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that: (1) The Report fttlly complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; ' • and . . (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ Randolpit C. Blazer Name: Randolph C. Blazer Date: September 29, 2003 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. §1350) In connection with the Annual Report on Form 10-K for the period ended June 30, 2003 (the "Report") of BearingPoint, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of 113364 59 . _ . II BOOS 12 Mild 6901' XIdd 13rN3SU1 dH WEJEE : my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Is/ Robert S. Falcone Name: Robert S. Falcone Date: September 29, 2003 102. On October 6, 2003, BearingPoint filed a Form 10-1QA to amend the Form 10-K • originally filed with the SEC for fiscal year 2001 According to the Form 10-K/A, the amendment was necessary because an error had been made at the printer and certain information ' "was inadvertently replaced by another chart" and certain other text had been omitted. However, these errors did not impact net income, which was again reported to be $41.3 million, or earnings per share, which were again reported to be $0.22. 103. Attached to the Form. 10-KIA were Sarbanes-Oxley Certifications signed by defendants Blazer and Falcone. In those documents, defendants Blazer and Falcone certified the accuracy of the financial information in the Form 10-1(./A for the fiscal year ended June 30, 2003: CERTIFICATION 1, Randolph C. Blazer, certify that: 1. 1 have reviewed this Annual Report on Form 10-KJA for the period ended June 30, 2003 of BearirkgPoint, Inc.; 2. Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the 113364 60 . _ WEIEC=II 8002 12 2nd 479.01 } circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4, The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and I5d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the • period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's 113364 61 s s XUA 13rN3SU1 dH WHEE:II so p a 12 ZnEl • ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: October 6, 2003 Is/ Randolph C. Blazer Randolph C. Blazer, Chairman of the Board, Chief Executive Officer, and President CERTIFICATION I, Robert S. Falcone, certify that 1. I have reviewed this Annual Report on Form 10-IQA for the period ended June 30, 2003 of BearingPoint, Inc.; • 2. Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; • 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and • 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or • caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; [13364 • 62 - _ _ _ 99d' XEld 13rm3su1 dH WUCE : TI 13002 I2 flEJ , . . (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting • which are reasonably likely to.adversely affect the registrant's ability to record, process, summarize and report financial information; and • (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: October 6, 2003 /Lobert S, Falcone Robert S. Falcone, Executive Vice President and Chief Financial Officer CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.0. §1350) In connection with the Annual. Report on Form 10-ICJA for the period ended June 30, 2003 (the "Report") of BearingPoint, Inc, (the "Registrant"), as filed with the Securities and Exchange 113364 63 _ . .. • dH WW1:P E : TT BODE I 111=1 L9 XUA 13rei3su1 Commission on the date hereof, I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Is/ Randolph C. Blazer Name: Randolph C. Blazer Date: October 6, 2003 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C, §1350) In connection with the Annual Report on Form 104CA for the • period ended June 30, 2003 (the "Report") of BearingPoint, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Is! Robert Name: Robert S. Falcone Date: October 6, 2003 [13364 64 _ .178 : TI 8002 Ta ZnEJ 89d' XUA 13rH3SEll dH WEI . , 104. BearingPoint has now admitted that its reported financial results for fiscal year 2003 as set forth in both the Form 10-K and the Form 10-K/A were materially misstated, In the restatement, BearingPoint acknowledged that net income was $32.7 million, not $41.3 million as originally reported. Earnings per share were only $0.18, not $0.22 as originally reported. Among other things, the restatement identified the following adjustments that had to be made to the originally reported financial results: Restatement A.djustments For Fiseal,)"Year 2003 Net income as previously reported $41,307,000 Net income as restated $32,691,000 . • • Restatement adjustments (pretax): 1 , ... Accounting for customer contracts $4,007,000 . . . . Revenue recognition related te Australia ($1,416,000) • Intercompany loan classifications $1,473,000 Accounting for leases and facilities charges ($1,285,)000 ' Accounting for employee global mobility and tax ($14,959,000) equalization Accounting for property and equipment $68,000 Adjustments for accounts payable, accrued expenses and $7,512,000 expense cut-off Other adjustments $3,567,000 Net restatement adjustments (pre-tax) ($1,033,000) Tax effect of restatement adjustrnent amounts ($6,000) Errors relating to accounting for income taxes ($7,577,000) 113364 65 ______XUA 13CN3SIA1 dH WENTE : II 8002 12 211U • BS •.<4 • - Restatement Adjustments For Fiscal Year 2003 Total taxes ($7,583,000) Total restatement adjustments ($8,616,000) 105. In addition, the Sarbanes-Oxley Certifications made by defendants Blazer and Falcone were knowingly and/or recklessly false when made because, as discussed above, the financial results reported in the Form 10-K were false, B. Ouarter Ended September 30. 2003 106, On November 13, 2003, BearingPoint issued a press release and Form 8-K announcing its financial results for the first quarter of fiscal year 2004 (ended September 30, 2003), The press release represented that: BearingPoint, Inc, (NYSE: BE), today reported first quarter results that include an increase in revenue over the first . quarter of the prior fiscal year resulting largely from growth in its international operations. The Company reported revenue of $743.0 million for the first quarter of fiscal year 2004, up 1,4% over the first quarter of the prior year. The Company recognized a net loss for the first quarter of fiscal year 2004 of $39.2 million, or a loss of $0.20 per share, compared to net income of $12.3 million, or $0.07 per share, in the first quarter of fiscal year 2003, . . . "With our global footprint now in place, we are focusing our efforts on growing revenue organically in every region and in our targeted marketplaces," commented Rand Blazer, chairman and chief executive officer. "This is our fifth consecutive quarter of year over year revenue growth and we have positioned ourselves to take our internal operations to the next level." "Our results this quarter reflect the impact of the previously announced charges as we continue to fine tune our cost structure and improve our operating efficiency," said. Bob Falcone, executive vice president and chief financial officer. "As we go forward, the benefits from these efforts will become more evident in. our ability (13364 66 0 L • d XUA 13rel3S1=11 dH WW7E t II 8002 12 MIU to improve profitability and overall financial performance." • 107. The Form 8-K, which was signed by defendant Falcone, contained the same representations as the press release. Specifically, it stated that: The first quarter results include the following key performance items and other information. • Revenue for the first quarter of fiscal year 2004 was $7410 million, an increase of $10.3 million, or 1.4%, from $732.7 million in the first quarter of fiscal year 2003. . * * * ▪ During the first quarter of fiscal year 2004, the Company recorded a $59.2 million lease and facility charge related to its previously announced global office space reduction. . . . • During the first quarter of fiscal year 2004, the Company recognized a loss before taxes of $52.1 million and provided for an income tax benefit of $12.9 million, resulting in an effective tax:. . . rate of 24.79/0; , • • • 108. On November 14, 2003, BearingPoint filed with the SEC its report on Form 10-Q for the quarter ended September 30, 2003. It was signed by defendants Blazer and Falcone and reaffirmed the Company's previously announced financial results. In addition, the defendants represented that: The accompanying consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of results for these interim periods. 109. Attached to the Form 10-Q were Sarbanes-Oxley Certifications signed by defendants Blazer and Falcone. In those documents, defendants Blazer and Falcone certified the 113364 67 . . _ dH 141J172IT 8002 IF Znu I/. • cl >Odd 13rm3sui accuracy of the financial information in the Form 10-Q for the quarter ended September 30, 2003: CERTIFICATION I, Randolph C. Blazer, certify that: I. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2003 of BearingPoint, Inc.; 2. Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this repott, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in • this report.;. • 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 1.5d- l 5(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the ' (13364 68 XUA 13rH3SH1 dH NId1E11 8002 12 Znel 2L'd • registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: November [4, 2003 Ls,/ Randolph C. Blazer Randolph C. Blazer, Chairman of the Board, Chief Executive Officer, and President CERTIFICATION I, Robert S. Falcone, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2003 of BearingPoint, Inc.; 2, Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in. all material respects the financial condition, results of operations and [13364 • 69 - -• .--• . e XUA 13rN3SU1 dH NWE11 8002 12 211U • • ' cash flows of the registrant as of, arid for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the •. registrant's most recent fiscal quarter (the registrant's fourth • quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. 13 364 70 • . • _.•__ _ Xbd 13C13SU1 dH 141d g E : II 8002 12 211U L • ci . . , • DATE: November 14, 2003 /s/ Robert S. Falcone Robert S. Falcone, Executive Vice President and Chief Financial Officer CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. §1350) In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2003 (the "Report") of BearingPoint, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I. Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and • • • (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ RandolphC.131azer Name: Randolph, C. Blazer Date: November 14, 2003 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S,C. §1350) In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2003 (the "Report") of BearingPoint, Inc, (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, Randolph C, Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that: • 113364 71 _ cLd• • -- } . . (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. f_L Robert S. Falco= Name: Robert S. Falcone Date: November 14, 2003 110. BearingPoint has now admitted that its reported financial results for the quarter ended September 30, 2003 were materially misstated. Among other things, the restatement identified the following adjustments that had to be made to the originally reported financial results: Restatement Adjustments For The 'Three Months Ended September 30,2003 • As originally As restated Amount by which reported originally reported resuits were misstated Revenue $742,958,000 $748,239,000 $5,281,000 Costs of Service $596,512,000 $602,345,000 $5,833,000 Lease and facilities $59,203,000 $58,953,000 $250,000 restructuring charges , , Total costs of service $655,715,000 $661,298,000 $5,583,000 Gross profit $87,243,000 $86,941,000 $302,000 [13364 72 _ XUA 13CM3Sti1 dH WUSE : IT 8002 12 21-11J 9/.. • cl Restatement Adjustments For The Three Months Ended September 30, 2003 As originally As restated Amount by which reported originally reported results were misstated Amortization of purchased $8,106,000 $7,690,000 $416,000 intangible assets Selling, general and $129,428,000 iI.IJ000 $9,870,000 administrative expenses Operating profit ($50,291,0(10) ($60,047,000) $9,756,000 Interest/other income, net ($1,775,000) ($2,425,000) $650,000 Profit befbre taxes ($52,066,000) ($62,472,000) $10,406,000 Income tax expense ($12,882,000) ($14,135,000) $1,253,000 Net profit ($39,184,000) ($48,337,000) $9,153,000 Earnings per share ($0.20) ($0.25) $0.05 111. In addition, the Sarbanes-Oxley Certifications made by defendants Blazer and Falcone were knowingly and/or recklessly false when made because, as discussed above, the financial results reported in the Form 10-Q were false. C. flieAnd Six jgonth P_ t 31_,29_01 112. On February 5, 2004, BearingPoint filed a Form 8-K with the SEC stating that it had changed the Company's fiscal year end from June 30 to December 31 and would file a transition report on Form 10-K for the six month period ended December 31, 2003, 113364 73 _ LL*d XUA 13rN3SU1 dH WUSE : IT B002 T2 Znei . , 113, On February 26, 2004, BearingPoint issued a press release and Form 8-1( announcing its preliminary financial results for the quarter ended December 31, 2003, The Form 8-K, signed by defendant Falcone, represented as follows: On February 26, 2004, BearingPoint, Inc, ("BearingPoint" or the "Company") reported preliminary results for the quarter ended December 31, 2003. Revenue is expected to be approximately $792 million and the loss per share is expected to be approximately $0.60. The expected revenue increased 7 percent over the quarter ended September 30, 2003, and declined 2 percent compared to the quarter ended December 31, 2002. The Company's expected net loss for the quarter ended December 31, 2003 of approximately $117 million includes a previously announced lease and facilities charge of $2 million, an expected goodwill impairment charge of $120 million. Subject to completion of the Company's valuation analysis, the Company expects that the goodwill impairment • charge will be between $100 million and $140 million, The Company currently estimates the amount of the charge to be $120 • . • million), and a tax rate of 86% due to the change in fiscal year-end • - and the timing of losses in certain foreign entities. Cash generated , from operations for the quarter is expected to be approximately $69 • • As was previously announced, the Company recently changed its fiscal year-end from June 30 to December 31 and is currently undergoing a. transition period audit for the six months ended December 31, 2003. As a result, these preliminary results are. subject to audit procedures and final reconciliations and adjustments, if any. Following completion of these procedures and final preparation of the Form 10-K, the Company expects to report its final earnings for the quarter and six-month period ended December 31, 2003, on or around April 16, 2004, in accordance with the required filing period. 114, On April 16, 2004, BearingPoint issued a press release and filed a Form 10-K regarding both the quarter and six month transition period ended December 31, 2003. The press release stated that: On February 26, 2004, the Company had reported preliminary 113364 74 • • - - —•—.— XUA .1.3r3sert dH WEI g E : II 8002 12 Znid Lel• . . 2 . results for the three months ended December 31, 2003, subject to audit procedures and final reconciliations arid adjustments, Based on the completed audit, revenue for the three months ended December 31, 2003 was $811.5 million, compared to the preliminary estimate of $792 million. The $19.5 million increase in revenue over the preliminary estimate was primarily a result of the timing of receipt of subcontractor invoices related to work performed for clients. The adjustments relating to subcontractor accruals had minimal impact on net income. The Company also reported a net loss for the three months ended December 31, 2003 of $126.6 million, or loss of $0.65 per share. On February 26, 2004, the Company had indicated that the challenging economic environment in Europe had resulted in a reevaluation of the recorded goodwill for its reporting unit in Europe, the Middle East and Africa (EMEA) in accordance with generally accepted accounting principles. At the time, the • Company estimated that the goodwill impairment charge would be • c$hlar20gemwilalison$,1a2n7d.3thmaitiltihoenf. inAasl cahrearsgueltwoof th $100 million - $140 million. The final goodwill impairment uldis finalizationnialin tletiromIngoefothfe , goodwill impairment charge and other minor audit adjustments, the . , net loss increased to $126.6 million, or loss of $0.65 per share, from the preliminary estimate Of $117 million, or loss of $.60 per share. Also, cash from operations for the three months ended December 31, 2003 decreased by $8.8 million with a corresponding increase in cash from financing activities of the same amount due to a reclassification of certain components on the Consolidated Statement of Cash Flows. Therefore, previously reported cash from operations decreased to $60.2 million from the previous estimate of $69 million. There was no change to the year end cash balance of $122.7 million. For the six mouths ended December 31, 2003, the Company reported revenue of $1.554 billion, an increase of $14.2 million, or nearly 1%, over the six months ended December 31, 2002. The growth in revenue is predominantly the result of an increase in revenue within our international operating segments totaling $69.6 million, partially offset by a decline in North America revenue of $57.8 million. For the six months ended December 31, 2003, the Company reported a net loss of $165.8 million, or a loss of $0.86 per share, compared to net income of $26.9 million, or $0.15 per share, for the six months ended December 31, 2002. Included in 13364 75 . . • - _ _ : TT 8002 ta 21-18 6L'd } the results for the six months ended December 31, 2003 were the $127.3 million goodwill impairment charge described above, a $61.7 million lease and facility charge related to the Company's • previously announced global office space reduction to align office space with the needs of the business, and $13.6 million in expense for severance and termination benefits related to a previously announced worldwide reduction in workforce. "We have now closed out our six month fiscal year end. Our business continued to grow and, consistent with that growth, we are continuing to focus on reducing our usage of subcontractors and increasing utilization of our personnel," commented Rand Blazer, BearingPoint's chairman and chief executive officer. "We also are very pleased that we have made significant improvements in our internal controls over financial reporting since our prior audit in the summer of 2003. We will continue to place the highest priority on the improvement of our financial reporting procedures and controls as we roll out our new financial accounting systems in 2004:' .115, The Form 10-K filed on April 16, 2004 was signed by defendants Blazer and • Falcone. They reviewed, approved of, and caused the Form 10-K to be filed with the SEC. The Farm 10-K reported the same false financial results that appeared in the press release: • Six Months Ended December 31, 2003 Compared to Six Months Ended December 31, 2002 Revenue. Revenue increased $14.2 million, or less than 1,0%, from $1,540.3 million during the six months ended December 31, 2002, to $1,554.4 million during the six months ended December 31, 2003. The increase in revenue was primarily attributable to an increase in revenue within our international operating segments totaling $69.6 million, offset by a decline in North America revenue of $57.8 million. Revenue from our international operations for the six months ended December 31, 2003 was $499.7 million, an increase of 16.2% when compared to the same period in the prior year. Our international operations experienced a 6,4% increase in engagement hours as well as a 9.2% increase in average billing rates. Our North America revenue for the six months ended December 31, 2003 of $1,051.7 million declined 5,2% when compared to the same period in the prior year. The 113364 76 _ • XUJ 13rm3su1 dH WW9E : IT 8002 T2 Zniml OB'd : decline in our North America revenue was primarily the result of a slow economy and cautious IT spending. In North America, we experienced a 4.0% decrease in engagement hours as well as 1.2% decrease in our average billing rates. * * Net Income (Loss). For the six months ended December 31, 2003, we incurred a net loss of $165.8 million, or a loss of $0.86 per share. For the six months ended December 31, 2002, we realized net income of $26.9 million, or $0.15 per share, Included in our results for the six months ended December 31, 2003 is the $127.3 million goodwill impairment charge, $61.7 million of lease and facilities charges and $13.6 million related to workforce reductions. 116. Attached to the Form 10 .K were Sarbanes-Oxley Certifications signed by defendants Blazer and Falcone. In those documents, defendants Blazer and Falcone certified the accuracy of the financial information in the Form 10-K for the three and six month periods ended December 31, 2003: CERTIFICAT/ON I, Randolph C. Blazer, certify that: 1. I have reviewed this Transition Report on Form 10-K for the period ended December 31, 2003 of BearingPoint, Inc.; • 2. Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls 113364 • 77 . . . XIdd 13CH3SIT-1 dH WEJ9E : TI 8002 12 :nig IBd' • and procedures (as defined in Exchange Act Rules 13a-15(e) and I5d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions); (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE; April 16, 2004 (11 Randolph C. Blazer Randolph C. Blazer, Chairman of the Board, Chief Executive Officer, and President 13364 78 . _ : II Elooa 12 :rib 213'd } CERTIFICATION I, Robert S. Falcone, certify that: 1. I have reviewed this Transition Report on Form 10-1( for the period ended December 31, 2003 of BearingPoint, Inc.; 2, Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; • 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls •. and procedures (as defined in Exchange Act Rules 13a-15(e) and I 5d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based On such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 111364 79 _ . ! II BOOR 12 ZnU ce.d XUA 13rNBSU1 dH WU9e f 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: April 16, 2004 Is/ Robert S. Falcone • Robert S. Falcone, Executive Vice President and Chief Financial Officer • CERTIFICATION . • PURSUANT TO SECTION 906 OF THE SARBANES-OX.LEY ACT OF 2002 (18 U.S.C. §1350) In connection with the Transition Report on Form 10-K for the period ended December 31, 2003 (the "Report") of BearingPoint, Inc, (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 113364 80 . _ XUA 13rH3SH1 dH WUSE : II 8002 12 Znu • ' (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant, Ls1Ran_stelpkc.il Name: Randolph C. Blazer Date: April 16, 2004 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. §1350) In connection with the Transition Report on Form 10-K for the period ended December 31, 2003 (the "Report") of BearingPoint, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that: (1) The Report fully complies . with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; • and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. Is/ Robert S. Falcone Name: Robert S_ Falcone Date: April 16, 2004 117. BearingFoint has now admitted that its reported financial results for the three and six month periods ended December 31, 2003 were materially misstated. Among other things, the restatement identified the following adjustments that had to be made to the originally reported financial results for each of those periods: 113364 81 Znu SEI'd XEld 13r13su1 dH WULE : II 13002 12 Restatement Adjustments For The Three Months Ended December 31, 2003 As originally As Restated Amount by which reported the original results were misstated Revenue $811,473,000 $774,264,000 $37,209,000 Costs of service $645,692,000 $621,387,000 $24,305,000 Gross pront $165,781,000 $152,877,000 $12,904,000 Amortization of purchased $2,545,000 $2,522,000 $23,000 intangible assets Selling, general and $144,347,000 $132,952,000 $11,395,000 administrative expenses Operating profit ($108,437,000) ($109,923,000) $1,486,000 Interest/other income, net ($2,433,000) $652,000 $3,085,000 Loss before taxes ($110,870,000) 1109,271,000) $1,599,000 Income tax expense $15,713,000 $19,007,000 $3,294,000 Net profit ($126,583,000) ($128,278,000) $1,695,000 Earnings per share ($0.65) ($0.66) $0.01 113364 82 XUA 13rN3SU1 dH WULE : II 8002 12 11171 9171'd r . . Restatement Adjustments For The Six Months Ended December 31, 2003 As originally As Restated Amount by which reported the original results were misstated Revenue $1,554,431,000 $1,522,503,000 $31,928,000 Costs of Service: =I Professional Compensation $689,770,000 $694,859,000 $5,089,000 1 Other direct contract $420,444,000 riiii. $24,052,000 expenses Lease and facilities charges $61,686,000 $61,436,000 .$250,000 I Other COStS of service $129,507,000 $129,998,000 $491,000 . •Tot al costs of service $1,301,407,000 $1,282,685,000 ' $18,722,000 . . • . . Gross profit $253,024,000 $239,818,0•0 $13,2061000 Amortization of purchased $10,651,000 $10,212,000 $439,000 intangib/e assets Selling, general and $273,775,000 $272,250,000 $1,525,000 administrative expenses Operating loss ($158,728,000) ($169,970,000) $11,242,000 Interest/other income, net ($4,208,000) ($17,730,000) $13,522,000 IIIIIIIIIIIIIIIIMIIIIIEIIMIIIII Losses before taxes ($162,936,000) ($171,743,000) $8,807,000 Income tax expense $2,831,000 $4,872,000 $2,041,000 11111111111M L13364 83 , I -- - -. ------XEJd IRr13su1 dH WULE : IT 8002 ta ZnEJ LBd' -• , . • • Restatement Adjustments For The Six Months Ended December 31, 2003 — As originally As Restated Amount by which reported the original results were misstated Net income ($165)767,000) ($176,615,000) $10,848,000 Earnings per share ($0.86) ($0.91) $0,05 118. In addition, the Sarbanes-Oxley Certifications made by defendants Blazer and Falcone were knowingly andior recklessly false when made because, as discussed above, the • .financial results reported in the Form 10-K were false. E. Ouarter Ended March 31, 2004 119. On May 6, 2004, BearingPoint issued a press release and filed a Form 8-K signed . . . . . by defendant Falcone announcing its financial results for the first quarter of fiscal year 2004 (ended March 31, 2004). The Form 8-K attached a press release issued by BearingPoint that sarne day. The press release represented that: • . . The Company reported revenue of $861.0 million for the first quarter of calendar year 2004, up 5.1% over the quarter ended March 31, 2003 largely from growth in its North America operations. The Company realized net income for the first quarter of the calendar year of $1,6 million, or $0.01 per share, compared to net income of $4.1 million, or $0,02 per share, in the quarter • ended March 31, 2003. "Our first quarter results show a solid start to 2004 with a year- over-year revenue growth in many of our business units," commented Rand Blazer, chairman and chief executive officer. We remain focused on growth and improvement in the key operating metrics of our business." • [13364 84 _ dH WEJLE : TI 8002 ta ZrIld 88d' }< EU 13raBsui "During the quarter, utilization of our billable staff is up on a year- over-year basis," noted Bob Falcone, executive vice president arid chief financial officer, "Going forward, our focus is on continuing our utilization improvement, reducing our reliance on subcontractors and holding our billing rates steady." Quarterly Business Results The current quarter results include the following key performance items and other information. • Revenue for the quarter ended March 31, 2004 was $861.0 million, an increase of $42.2 million, or 5.1%, from revenue of $818.9 million for the three months ended March 31, 2003. . . 120. On May 10, 2004, BearingPoint filed with the SEC its report on Form 10-Q for the first quarter of fiscal year 2004. It was signed by defendants Blazer and Falcone and reaffirmed the Company's previously announced financial results. In addition, the defendants • represented that: The accompanying consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of results for these interim periods. 121, Attached to the Form 10-Q were Sarbanes-Oxley Certifications signed by defendants Blazer and Falcone. In those documents, defendants Blazer and Falcone certified the accuracy of the financial information in the Form 10-Q for the quarter ended March 31, 2004: CERTIFICATION I, Randolph C. Blazer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2004 of BearingFoint, Inc.; 11.3364 85 . . _ . dH WULC : II 8002 12 2r18 sed' XELd 13r13s81 • 2. Based on, my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presentea in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15c1. 15(e)) for the registrant and have (a) Designed such disclosure contrels and procedures, or. caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by' others within those entities,' particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed, in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit • committee of the registrant's board of directors (or persons performing the equivalent functions): 113364 86 XUA 13rNASU1 dH WULC : IT 8002 12 Znid OGd' • (a) All significant dehciencies and material weaknesses in the design or operation of internal controt over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: May 10, 2004 Is/ Randolph C. Bluer Randolph C. Blazer, Chairman of the Board, Chief Executive Officer, and President CERTIFICATION I, Robert S. Falcone, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended March 31, 2004 of13earingPoint, inc.; 2. Based ornmy knowledge, this report does not contain any • untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; • 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-, 15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made 113364 87 . . . XUA 13r N3SU -I dH WUeL t IT 8002 12 Znid IBd* • known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: May 10, 2004 /s/ Robert S. Falcone Robert S. Falcone, Executive Vice President and Chief Financial Officer [13364 8$ ...... _._ _ _ : IT 8002 T2 flU 26'd XUA 13CN3SU1 dH WULC • CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OX.LEY ACT OF 2002 (18 U.S.C. §1350) In connection with the Quarterly Report on Form 10-Q for the period ended Match 31, 2004 (the "Report") of BeatingPoint, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of • my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of Operations of the Registrant. ./.R.andolph C. Blazer Name: Randolph C. Blazer Date: May 10, 2004 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. §1350) In connection with the Quarterly Report on Form 10-Q for the period ended March 31, 2004 (the "Report") of BearingPoint, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 113364 89 . . e Xlmld 13r83SH1 dH WUBE : II 8002 12 2111=1 (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. is/ Robert S. Falcone Name: Robert S. Falcone Date: May 10, 2004 122. BearingPoint has now admitted that its reported financial results for the quarter ended March 31, 2004 were false when issued. Among other things, the restatement identified the following adjustments that had to be made to the originally reported financial results: Restated Results For The Three Months Ended March 31, 2004 As originally As restated Amount by which reported the original results were misstated Revenue $861,041,000 $888,603,000 .$27,562,000 Costs of Service $707,011,000 $745,749,000 $38,738,000 Gross profit $154,030,000 $142,854,000 $11,176,000 Selling, general and $137,930,000 $150,637,000 $12,707,000 administrative expenses Operating income $15,005,000 ($8,878,000) $23,883,000 Interest/Other income, net ($5,483,000) ($6,230,000) $747,000 Income before taxes $9,522,000 ($15,108,000) $24,630 Income tax expense $7,898,000 $1,902,000 $5,996,000 113364 90 . . ire' d } Restated Results For The Three Months Ended March 31, 2004 As originally As restated Amount by which reported the original results 'were misstated Net income $1,624,000 ($17,010,000) $18,634,000 • Earnings per share $0.01 ($0.09) $0.10 123. In addition, the Sarbanes-Oxley Certifications made by defendants Blazer and FaIcene were knowingly and/or recklessly false when made because, as discussed above, the financial results reported in the Form 10-Q were false. • F. priurgg_u . Ericktiligkrn1k4 2( 1 124. On August 5, 2004, BearingPoint issueda press release and filed a Form 8-IC signed by defendant Falcone announcing its financial results for the second quarter of fiscal 2004 ended June 30, 2004. The press release represented as follows: BearingPoint, Inc. Reports Second Quarter FY04 Results Exceeds Revenue Targets; EPS of S0.08 Per Share BearingPoint, Inc. (NYSE: BE) today reported revenue of $885.5 million for the second quarter ended June 30, 2004, an increase of $105.4 million, or 13,5%, over the quarter ended June 30, 2003. This increase in revenue was largely attributable to improved utilization of its global workforce and stabilizing economic conditions in most regions. The Company realized net income for the quarter ended June 30, 2004 of $15,2 million of $0.08 per share, compared to net income of $10.3 million, or $0.05 per share, in. the quarter ended June 30, 2003. "We are seeing the benefits of the investments we made to build a global business as we continue to report strong revenue growth," 113364 91 sB XH.d 13rN3SH1 dH WHBE:II 8002 12 2nu : . • commented Rand Blazer, chairman and chief executive officer. "We have an experienced global workforce in place to capture and expand the opportunities presented by an improvement in IT spending. This has translated into revenue growth, net income gains and a better bottom line." "We made progress in reducing our reliance on subcontractors and improving our global utilization compared to the previous quarter," noted Bob Falcone, executive vice president and chief financial officer. "Our overall margin improvement, combined with our revenue growth, is the basis for a more robust business model and positions us well for the future." Quarterly Business Results The current quarter results include the following key performance items and other information. • • Revenue for the quarter ended June 30, 2004 Was $885.5 . , million, an increase of $105.4 million, or 13.5%, from revenue of $780,1 million for the three months ended Jane 30, 2003.. . 125. On August 6, 2004, BearingPoitit filed with the SEC its quarterly report on • Form 10-Q for the quarter ended June 30, 2004. The Form 10-Q was signed by defendants Blazer and Falcone and reaffirmed the Company's previously announced financial results, In addition, the defendants represented that: The accompanying consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of results for these interim periods. 126. Attached to the Form 10-Q were Sarbanes-Oxley Certifications signed by defendants Blazer and Falcone. In those documents, defendnats Blazer and Falcone certified the accuracy of the financial information in the Form 10-Q for the quarter ended June 30, 2003: 113364 92 _ 98'd XEU 13CH3SEl1 dH WH82 : I1 8002 12 Znid CERTIFICATION 1, Randolph C. Blazer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2004 of BearingPoint, Inc.; 2. Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and • 15d-15(e)) for the registrant and have (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 113364 93 • . _ . _ LS' 01 } 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE; August 6, 2004 /s/ Randolph C. Blazer Randolph C. Blazer, Chairman of the Board, Chief Executive Officer, and President CERTIFICATION • I, Robert S. Falcone, certify that: I. I have reviewed this Quarterly Report on Form 10-Q for the period ended June 30, 2004 of BearingPoint, Inc.; 2. Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and [13364 94 _ . s XHA 13t-Nsu1 dH WEIBE:II B002 12 Znu . . 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE; August 6, 2004 /8/ Robert S. Falcone Robert S. Falcone, Executive Vice President and Chief Financial Officer [13364: 95 . . . s s • 01 } In connection with the Quarterly Report on Form 10-Q for the period ended June 30, 2004 (the "Report") of BearingPaint, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and • (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /5/ Randolph C. Blazer • • Name: Randolph C. Blazer Date: August 6, 2004 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 (18 U.S.C. §1350) In connection with the Quarterly Report on Form 10-Q for the period ended June 30, 2004 (the "Report") of BearingPoint, (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and 113364 96 001' d XEld 13CH3SEl1 dH WEIGE:TI B002 12 Znu (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. is/ Robert S. Falcone Name: Robert S. Falcone Date: August 6, 2004 127. BearingFoint has now admitted that its reported financial results for the quarter ended June 30, 2004 were false when issued. Among other things, the restatement identified the following adjustments that had to be made to the originally repotted financial results: Restated Results For The Three Months Ended June 30, 2004 As originally • As restated Amount by which reported the original results were • misstated • Revenue $885,500,000 $875,387,000 $10,113,000 Costs of Service $692,858,000 $629,927,000 $2,931,000 Gross profit $192,642,000 $185,460,000 $7,182,000 Selling, general and $151,856,000 $167,853,000 $15,997,000 administrative expenses Operating income $39,783,000 $16,604,000 $23,179,000 Interest/Other income, net ($4,774,000) ($6,338,000) $1,564,000 Income before taxes $35,009,000 $10,266,000 $24,743,000 Income tax expense $19,828,000 $32,684,000 $12,856,000 113364 97 IoI d XHA 13ra3siTi dH WHBEtIT 8002 12 Znu • Restated Results For The Three Months Ended June 30, 2004 As originally As restated Amount by which reported the original results were misstated Net income $15,181,000 (S22,418,000) $37,599,000 Earnings per share $.08 ($0.11) $.19 128. In addition, the Sarbanes-Oxley Certifications made by defendants Blazer and Falcone were knowingly and/or recklessly false when made because, as discussed above, the financial results reported in the Form 10-Q were false. G. ()garter Ended September 304 2004 • 129, On November4,1004, BearingPoint issued . a press release and Form 8-K signed by defendant Falcone announcing its financial results for the third quarter of fiscal 2004 ended September 30, 2004. The press release represented as follows: BearingPoint, Inc. Reports Third Quarter FY04 Results Company Meets Revenue and Earnings Per Share Guidance BearingPoint, Inc. (NYSE: BE) today reported revenue of $840.9 million for the third quarter ended September 30, 2004, an increase of $97.9 million, or 13.2%, over the quarter ended September 30, 2003. This increase in revenue was largely attributable to improved utilization of its global workforce and stabilizing economic conditions in most regions. The Company realized net income for the quarter ended September 30, 2004 of $11.9 million, or $0.06 per share, compared to a net loss of $39.2 million, or loss of $0.20 per share, in the quarter ended September 30, 2003. "Our results continue to demonstrate solid year-over-year revenue growth," commented Rand Blazer, chairman and chief executive 113364 98 201' d XUA 13rm3su1 dH WUBE:II 8002 12 Znu officer. "We continue to see a gradual improvement in IT spending across many sectors, and we remain focused on managing the fundamentals of our business to capitalize on this spending and support our clients' business needs," "Improvements in utilization is key for our business right now. We improved our global utilization to 67.3% this quarter, from 62.3% a year ago," noted Bob Falcone, executive vice president and chief financial officer. "Now, we need to continue our progress in reducing our internal costs and improving operating efficiencies to further raise our level of financial performance," Quarterly Business Results The current quarter results include the following key performance items and other information. • Revenue for the quarter ended September 30, 2004 was $840.9 million, an increase of $97.9 million., or 13.2%, from revenue of $743.0 million for the three months ended September 30, 2003. This increase was mainly attributable to a $91.7 million increase in revenue within our North America operations and a • • $7.2 million increase in revenue within our international • operations. 130. On November 8, 2004, the Company filed a form 8-IVA with the SEC in which it corrected certain financial information announced four days earlier: The Company has determined that each of the line items for "Property and Equipment, Net" and "Current Liabilities — Accounts Payable" in the balance sheet for the period ended September 30, 2004 should be reduced by $3.0 million. Corresponding sub-totals and totals are similarly affected. In addition, cash used in operations should have been $40.4 million, not $37.9 million as reported in the press release. For the complete financial results of the Company for the quarter ended September 30, 2004, see the Company's Form 10-Q for the • quarterly period ended September 30, 2004 that was filed today. No other issues regarding BearingPoint's previously announced financial results were identified 113364 99 — — c ot • cl XUA 13r13su1 dH WU88 : 11 8002 12 Znej • in the Form 8-K/A. 131. That same day, BearingPoint filed with the SEC its quarterly report on Form 10-Q for the quarter ended September 30, 2004, The Form 10-Q was signed by defendants Blazer and Falcone and reaffirmed the Company's previously announced financial results, as corrected by the Form 8-K/A. In addition, the defendants represented that: The accompanying consolidated condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America and reflect adjustments (consisting solely of normal, recurring adjustments) which are, in the opinion of management, necessary for a fair presentation of results for these interim periods. 132. Attached to the Form 10-Q were Sarbanes-Oxley Certifications signed by • defendants Blazer and Falcone. In those documents, defendants Blazer and Falcone certified the . . accuraey.of the financial information in the Form 10-Q for the quarter ended September 30,. 2004: CERTIFICATION I, Randolph C. Blazer, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2004 of BearingPoint, Inc.; 2, Based on my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; [13364 100 • .aot 'cl XUA 13CM3SEl1 dH WUGE : II 8002 12 Znej 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the • period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affected; . or is reasonably likely to materially affect, the registrant's internal • control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and [13364 101 _ _ . SOI":1 Xbid 13CM3SEl1 dH WEIBE:II 8002 12 211171 (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting. DATE: November 8, 2004 1 a Blazer Randolph C. Blazer, Chairman of the Board, Chief Executive Officer, and President CERTIFICATION I, Robert S. Falcone, certify that: 1. I have reviewed this Quarterly Report on Form 10-Q for the period ended September 30, 2004 of BearingPoint, Inc.; 2. Based on. my knowledge, this report does not contain any untrue statements of a material fact or omit to state a material fact necessary to make the statements made, in light of the - circumstances under which such statements were made, not misleading with respect to the period covered by this report; • 3. Based on riay knoWledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report; 4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the registrant and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and [13364 102 _ •..._ dH WHOiT t II 8002 12 211H 90 1'd Xidd 13rm3su1 • • - • procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the registrant's Internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth quarter in the case of an annual report) that has materially affeoted, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and 5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's • ability to record, process, summarize and report financial information; and • • (b) Any fraud, whether or not material, that involves • management or other employees who have a significant role in the • registrant's internal control over financial reporting. DATE; November 8, 2004 /s/ Robert S. Falcone Robert S. Falcone, Executive Vice President and Chief Financial Officer CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2001 (IS U.S.0 §I350) In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2004 (the "Report") of BearingPoint, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof, I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my knowledge, that; 113364 103 la Znimi 801d' XHA 13rH381=11 dH WHOII 8002 • v (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /§11,,andapla.C.113 Name: Randolph C. Blazer Date: November 8, 2004 CERTIFICATION PURSUANT TO SECTION 906 OF THE SARBANES-OKLEY ACT OF 2002 (18 U.S.C. §1350) In connection with the Quarterly Report on Form 10-Q for the period ended September 30, 2004 (the "Report") of BearingPoint, Inc. (the "Registrant"), as filed with the Securities and Exchange Commission on the date hereof', I, Randolph C. Blazer, Chief Executive Officer of the Registrant, hereby certify, to the best of my‘knowledge, that: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934, as amended; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Registrant. /s/ Robert S. Falcone Name: Robert S. Falcone Date: November 8, 2004 133. On November 18, 2004, BearingPoint issued a press release regarding an error in its previously filed Form 10-Q for the quarter ended September 30, 2004. It stated that after the Form 10-Q was filed, the Company discovered that its accounts receivable had been overstated 113364 104 •. 21-1H sot . d } by $92.9 million and its unbilled revenue had been understated by the same amount. However, the press release added that '[t]he corrections had no effect on the Company's previously reported net income, earnings per share or operating cash flow." (Emphasis added.) 134. That same day, BearingPoint filed with the SEC a Form 10-Q/A which purported to provide the correct numbers for accounts receivable and unbilled revenue for the quarter ended September 30, 2004. No changes were made to the originally reported net income, earnings per share, or operating cash flow, as reflected in the financial statements attached to the Form 10- Q/A. 135. BearingPoint has now admitted that its reported financial results for the third quarter of fiscal year 2004 were false when issued in both the original Form 10-Q and in the Form 10-Q/A. Among other things', the restatement identified the following adjustments that had to be made to the previously reported financial results: • Restated Results For The Three Months Ended September 30, 2004 As originally As restated Amount by which reported and in the the original results Form 10-Q and were misstated Form .1,0-Q/A - Revenue $840,864,000 $823,691,000 $17,173,000 Costs of Service $667,409,000 $655,020,000 $12,389,000 _ Gross profit $173,455,000 $168,671,000 $4,784,000 [13364 105 _ at cl XUA 13rm3su1 dH WU0irt11 8002 12 Znu Restated Results For The Three Months Ended September 30, 2004 As originally As restated Amount by which reported and in the the original results Form 10-Q and were misstated Form 10-Q/A Amortization of $792,000 $793,000 $1,000 purchased goodwill assets Selling, general and $146,862,000 $144,808,000 $2,054,000 administrative expenses Operating income $25,801,000 $23,070,000 $2,731,000 Interest/Other ($5,254,000) ($4,909,000) $345,000 income, net . , Income before $20,547,000 .. S18,161,000 $2,386,000 taxes Income tax expense $8,605,000 $13,694,000 $5,089,000 Net income $11,942,000 $4,467,000 $7,475,000 Earnings per share $0.06 $0.02 $0.04 136. In addition, the Sarbanes-Oxley Certifications made by defendants Blazer and Falcone were knowingly and/or recklessly false when made because, as discussed above, the financial results reported in the Form 10-Q were false. H. March 17,2005 Form 8-K And Form 12b-25 137. On March 17, 2005, BearingPoint filed with the SEC a Form 12b-25 stating that 113364 106 XUA 13rm3su1 dH WEI017.: II 8002 12 Znu there would be a delay in the filing of the Company's Form 10-K annual report for the year ended December 31, 2004. The reason given for the delay concerned issues regarding internal control over financial reporting. The Company also filed a Form 8-K making reference to the Form 12b- 25 and internal control issues. In the Form 8-K, and an accompanying press release, the Company represented that preliminary results indicated gross revenue for fiscal year 2004 was estimated at $3.45 billion. 138. These SEC filings and press release were materially false and misleading. They failed to disclose that the Company already knew, at the time those representations were made, that its previously issued financial statements for the year ended June 30, 2003 ! for the six month period ended December 31, 2003, and for the first three quarters of 2004 ended March 31, 2004! June 30, 2004, and September 30, 2004 could not be relied upon. Further, the SEC filings and press release omitted to state the material fact that the goodwill impairment charge in the Company's EMEA segment would far exceed any prior estimates and would total almost $400 million, Moreover, the restatement provides that gross revenue for fiscal year 2004, was just $3.36 billion -- roughly $90,000,000 less than originally indicated. As a result, these SEC filings and press release were materially misleading. * * * 139. The defendants' statements contained in paragraphs 97-138 were each materially false and misleading when made because they failed to disclose and/or misrepresented the following adverse facts, among others: (1) that the Company had materially misstated its revenues, net income, earnings per share and goodwill; (2) that the Company had inflated its earnings by improperly accounting for restructuring charges relating to acquisitions; (3) that the 113364 107 . . . ati'd XUA 13rm3su1 dH WEJOTT B002 12 ZnEJ Company's financial statements were not prepared in accordance -with GA.A,P; and (4) that the Company lacked an adequate system of internal controls and was therefore unable to ascertain the true financial condition of the Company. NO SAFE HARBOR 140. The statutory safe harbor provided for forward-looking statements under certain circumstances does not apply to any of the allegedly false statements pleaded in this Complaint. Many of the specific statements pleaded herein were not identified as "forward-looking statements" when made. To the extent there were any forward-looking statements, there were no meaningful cautionary statements identifying important factors that could cause actual results to differ materially from those in the purportedly forward-looking statements. 141. Alternatively, to the extent that the statutory safe harbor does apply to any forward-looking statements pleaded herein, defendants are liable for those false forward-looking statements because at the time each of those forward-looking statements was made, the particular speaker knew that the particular forward-looking statements was false, and/or the forward- looking statement was authorized and/or approved by an executive officer of BearingPoint who knew that those statements were false when made. FIRST CLAIM Violation of Section 10(b) Of The Exchanzc. t_And Rule 1013-5 Against All Defendants 142. Lead Plaintiff repeats and realleges each and every allegation made above as if fully set forth herein. 143. During the Class Period, defendants, and each of them, carried out a plan, scheme and course of conduct which was intended to and, throughout the Class Period, did (1) deceive 113364 108 ett'd } artificially inflate and maintain the market price of BearingPoint's securities; and (iii) cause plaintiff and other members of the Class to purchase BearingPoint's securities at artificially inflated prices. In furtherance of this unlawful scheme, plan and course of conduct, defendants, and each of them, took the actions set forth herein, 144. Defendants (1) employed devices, schemes, and artifices to defraud; (ii) made untrue statements of material fact and/or omitted to state material facts necessary to make the statements not misleading; and (Ili) engaged in acts, practices, and a course of business which operated as a fraud and deceit upon the purchasers of the Company's securities in an effort to maintain artificially high market prices for BearingPoint's securities in violation of Section 10(b) • of the Exchange Act and Rule 10b-5 promulgated thereunder. All defendants are sued either as • • primary participants in the wrongful and illegal conduct charged herein or as controlling persons • as alleged below. 145. In addition to the duties of full disclosure imposed on defendants as a result of their making affirmative statements and reports, or participation in the making of affirmative statements and reports to the investing public, defendants had a duty to promptly disseminate truthful information that would be material to investors in compliance with the integrated disclosure provisions of the SEC as embodied in SEC Regulation S-X (17 C.F,R. Section 210,01 et seq.) and Regulation S-K (17 C.F.R. Section 229.10 el Len.) and other SEC regulations including accurate and truthful information with respect to the Company's operations, financial condition and earnings so that the market price of the Company's securities would be based on truthful, complete and accurate information. 113364 109 . • - •- - •_•____ } 146. Defendants, individually and in concert, directly and indirectly, by the use, means or instrumentalities of interstate commerce and/or the mails, engaged and participated in a continuous course of conduct to conceal adverse material information about the business, operations, finances and future prospects of BearingPoint as specified herein, 147. Each of the defendants employed devices, schemes and artifices to defraud, while in possession of material adverse non-public information and each of them engaged in acts, practices, and a course of conduct as alleged herein in an effort to assure investors of BearingPoint's value and performance and continued substantial growth, which included the making of, or the participation in the making of, untrue statements of material fact and omitting to state material facts necessary in order to make the statements made about BearingPoint and its business operations, finances and fixture prospects in the light of the circumstances under which they were made, not misleading, as set forthmore particularly herein, and engaged in transactions, practices and a course of business which operated as a fraud and deceit upon the purchasers of BearingPoint's securities during the Class Period. 148. Each defendants' primary liability, and controlling person liability, arises from the following facts: (i) the Individual Defendants were high-level executives and/or directors at the Company during the Class Period and members of the Company's management team or had control thereof; (ii) each of these defendants, by virtue of his responsibilities and activities as a senior officer and/or director of the Company was privy to and participated in the creation, development, and reporting of the Company's internal budgets, plans, projections and/or reports; (Hi) each of these defendants was advised of and had access to other members of the Company's management team, internal reports and other data and information about the Company's finances, 113364 110 . . _ XUJ 13CNBSU7 dH 14MI17 : TT BOOR 12 21-1U S'ITd operations, and sales at all relevant times; and (iv) each of these defendants was aware of the Company's dissemination of information to the investing public which they knew or recklessly disregarded was materially false and misleading. 149. The defendants had actual knowledge of the misrepresentations and omissions of material fact set forth herein at the time they were made and/or omitted, or acted with reckless disregard for the truth in that they failed to ascertain and to disclose such facts, even though such facts were available to them. Such defendants' material misrepresentations and/or omissions were done knowingly or recklessly and for the purpose and effect of concealing BearingPoint's true operating condition, finances and future business prospects from the investing public and supporting the artificially inflated price of it securities. As demonstrated by defendants' . overstatements and misstatements of the Company's business, finances, operations and earnings . . •throughout the Class Period, defendants, if they did not have actual knowledge of the misrepresentations and omissions alleged, were reckless in failing to obtain such knowledge by deliberately refraining from taking those steps necessary to discover whether those statements were false or misleading. 150. As a result of the dissemination of the materially false and misleading information and failure to disclose material facts, as set forth above, the market price of BearingPoint's securities was artificially inflated during the Class Period. In ignorance of the fact that the market price of BearingPoint's publicly-traded securities was artificially inflated, and relying directly or indirectly on the false and misleading statements made by defendants, or upon the integrity of the market in which the securities trade, and/or on the absence of material adverse information that was known to or recklessly disregarded by defendants but not disclosed in [13364 111 • - — -- • soce Ia 211U 9TI'd 541=H 13rM3SH7 dH public statements by defendants during the Class Period, Lead Plaintiff and the other members of the Class acquired BearingPoint securities dining the Class Period at artificially inflated prices and were damaged as of April 20, 2005 when BearingPoint first disclosed that its previously published financial statements during the Class Period could not be relied upon, causing a sudden and precipitous decline in the price of BearingPoint's publicly traded shares. 151. At the time of said misrepresentations and omissions, Lead Plaintiff and other members of the Class were ignorant of their falsity, and believed them to be true_ Had Lead Plaintiff and the other members of the class and the marketplace known of the true financial condition and business prospects of BearingPoint, which were not disclosed by defendants, Lead Plaintiff and other members of the Class would not have purchased or otherwise acquired their BearingPoint securities, or, if they had acquired such securities during the Class period, they would not have done so at the artificially inflated prices which they paid. • 152. By virtue of the foregoing, defendants have violated Section 10(b) of the Exchange Act arid Rule 10b-5 promulgated thereunder. 153. As a direct and proximate result of defendants' wrongful conduct, Lead Plaintiff and the other members of the Class suffered damages in connection with their respective purchases ofBearingPoint securities during the Class Period, The price of BearingPoint's securities declined materially upon the public disclosure of facts which had been previously misrepresented or concealed as alleged herein. // 113364 112 .b t IT BODE TE 2nH LITd' XUA 13rmaswl dH WHI SECOND CLAIM Violation Of Section 20(a) Of Tfshaingnet_dualThe Ey Defendants 154. Lead Plaintiff repeats and realleges each and every allegation made above as if fully set forth herein. 155. The Individual Defendants acted as "controlling persons" of BearingPoint within the meaning of Section 20(a) of the Exchange Act as alleged herein. By virtue of their high-level positions, and their ownership and contractual rights, participation in and/or awareness of the Company's operations and/or intimate knowledge of the false financial statements filed by the Company with the SEC and disseminated to the investing public, the Individual Defendants had the power to influence and control and did influence and control, directly or indirectly; the . . decision-making of the Company and one another, including the content and dissemination of the various statements which Lead Plaintiff contends are false and misleading: The Individual Defendants were provided with or had unlimited access to copies of the Company's reports, press releases, public filings and other statements alleged by Lead Plaintiff to be misleading prior to and/or shortly after these statements were issued and had the ability to prevent the issuance of the statements or cause the statements to be corrected. 156, In particular, each of the Individual Defendants had direct and supervisory involvement in the day-to-day operations of the Company and, therefore, is presumed to have had the power to control or influence the particular transactions giving rise to the securities violations as alleged herein, and exercised the same, 157. As set forth above, BearingPoint and the Individual Defendants each violated Section 10(b) and Rule 11)h-5 by their acts and omissions as alleged in this Complaint. By virtue 113364 113 II 8002 12 Mild 8114 XUA 13rm3sul dH 141=1I4.: of their positions as controlling persons, the Individual Defendants are liable pursuant to Section 20(a) of the Exchange Act. As a direct and proximate result of the Individual Defendants' wrongful conduct, Lead Plaintiff and other members of the Class suffered damages in connection with their purchases of the Company's securities during the Class Period upon the revelations of April 20, 2005, as herein alleged. As a result of the false and misleading statements made by the Individual Defendants, the market price of BearingPoint common stock was artificially inflated during the Class Period and declined precipitously on April 20, 2005 in response to the Company's disclosures of that date, In ignorance of the false and misleading representations and omissions described above, Lead Plaintiff and other members of the Class relied during the Class Period, to their damage, on the integrity of the market. The price of •. BearingPoint's shares declined materially upon the public disclosure of facts which had been previously misrepresented or concealed as alleged herein. Lead Plaintiff and other members .of the Class who purchased or acquired BearingPoint securities during the Class Period have suffered substantial damages as a direct and proximate result of defendants' alleged wrongful conduct. BASIS OF ALLEGATIONS, 158. Lead Plaintiff makes the foregoing allegations based upon personal knowledge as to Paragraph 11 and as to all other allegations based upon the investigation of Lead Plaintiffs Counsel, which included, among other things, review arid analysis of BearingPoint's public disclosures, interviews of percipient witnesses, and expert analysis, // /1 [13364 114 et • 01 XUA 13rN3SH1 dH WEIII 8002 12 Znu PRAYER FOR RELIEF WHEREFORE, Lead Plaintiff prays for relief and judgment, as follows; (a) Determining that this action is a proper class action and certifying Lead Plaintiff as a class representative under Rule 23 of the Federal Rules of Civil Procedure and Lead Plaintiff's counsel as Lead Counsel; (b) Awarding compensatory damages in favor of Lead Plaintiff and the other Class members against all defendants, jointly and severally, for all damages sustained as a result of defendants' wrongdoing, in an amount to be proven at trial, in.oluding interest thereon; (c) Awarding Lead Plaintiff and the Class their reasonable costs and expenses incurred in this action, including counsel fees and expert fees; and • (d) Such other and further relief as the Court may deem just and proper. 113364 115 021' d XUA 13rel3SEi1 dH WH2111 8002 12 2nd • • • • JURY TRIAL DEMANDED Lead Plaintiff hereby demands a trial by jury. Dated: March t . 2006 GOLD BENNETT CERA ez, SIDENER LLP By: Solomon B. Cera 595 Market Street, Suite 2300 San Francisco, California 94105 Telephone: (415) 777-2230 Facsimile: (415) 777-5189 Email: scera4gbcslaw.corn Attorneys for Lead Plaintiffs . Matrix Capital Management Fund, L.P., Matrix Capital Management Fund II, L.P., and Matrix Capital Management Fund (Offshore) Ltd. - and - • COHEN MILSTEIN HAUSFELD & TOLL, P.L, •C. / By: -Steven J. oil (VSB #15300) .1100 New York Avenue, N.W. Suite 500, West Tower Washington, D.C. 20005 Telephone: (202.) 408-4600 • Facsimile: (202) 408-4699 Liaison Counsel 13364 116 T2I' d XUJ JL1S81 dH 14E1217:IT Bood 12 2nu E IF SERVI I, KimLane E. Gantan, hereby declare under penalty of perjury as follows: I am employed by Gold Bennett Cera & Sidener LLP, 595 Market Street, Suite 2300, San Francisco, California, 94105-2835. I am over the age of eighteen years and am not a party to this action. On March 10, 2006, I served a copy of the aforementioned "FIRST AMENDED CONSOLIDATED COMPLAINT FOR VIOLATIONS OF THE FEDERAL SECURITIES LAWS" on all counsel of record by causing true and correct copies of same to be enclosed in sealed envelopes and deposited in the U.S. Mail, postage prepaid, or delivered as otherwise indicated via courier or facsimile, as indicated on the attached Exhibit I. Executed on March 10, 2006, at San Francisco, California. • it:14;..( ketler.,411 KimLane E. Gautan #111409 22I' d Xidd dH WY21pt IT ecio2 I2 :nu