Ex-CFO Sues for Defamation

Quovadx often falsely charged that the former finance chiefs "had engaged in improper and/or fraudulent accounting practices," he alleges.
Dave Cook and Stephen TaubMay 24, 2007

The former CFO of Quovadx, a small software company, is suing his former employer for defamation, according to The Denver Business Journal.

Gary Scherping alleges that Quovadx made “numerous public statements that falsely indicated [he] had engaged in improper and/or fraudulent accounting practices,” according to the report. Scherping wants the company to stop defaming him and to pay an unspecified amount in damages, the newspaper added.

Scherping joined the company in 2000 and became CFO in 2001, the Business Journal reported. On April 12, 2004, the company announced the resignations of Scherping and chief executive officer Lorine Sweeney. In a press release, chairman Jeffrey Krauss thanked “Lorine and Gary for their hard work and dedication to Quovadx.”

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That same day, another Quovadx press release disclosed that the Securities and Exchange Commission had elevated its informal inquiry into the company’s restatement to a formal investigation. That restatement, disclosed a month earlier, “remove[d] all revenue associated with contracts between the company and Infotech Network Group from its published financial reports for 2003,” according to a press release at the time. “To date, Quovadx has been unsuccessful in collecting funds from this customer.”

A May 13, 2004 press release asserted that “Infotech continues to owe the company approximately $14.1 million for software that was shipped to Infotech” under a September 8, 2003 distribution agreement. The May 13 release also noted “an outsourcing agreement entered into between Quovadx and Infotech on September 8, 2003, under which Quovadx would pay up to $2.46 million to Infotech.”

Added the May 13 release: “New management has determined that this outsourcing agreement was likely an inducement to Infotech to enter into the distribution agreement…. There also appears to have been an additional inducement to Infotech to enter into the distribution agreement in the form of discussions between Infotech and Quovadx’s former management regarding a target of an additional $10 million in outsourcing services to be purchased by Quovadx from Infotech on an annual basis.”

According to the Business Journal account of the former CFO’s court filing, “The May 13, 2004, press release devastated Mr. Scherping’s reputation.” Press releases and related statements, the complaint reportedly asserted, gave the public the understanding “that Mr. Scherping had engaged in improper and even fraudulent financial accounting as CFO of Quovadx.”

Quovadx director of corporate communications Andrea Lashnits said the company had no comment at this time.