AremisSoft Rocked by SEC Probe; CEO, CFO Resign

After its stock was halted for two days, AremisSoft (AREM) said two of its top executives -- Chairman, founder and co-CEO Lycourgos Kyprianou and CFO Michael Tymvios -- have resigned, and it revealed that the Securities and Exchange Commission is investigating its contract with the National Health Insurance Fund of Bulgaria. The company also said its earnings and revenues for the second quarter and for the year would fall substantially short of analysts' expectations.

The news is an abrupt about-face for AremisSoft, which has avoided answering questions first raised by this column about the value of its contract in Bulgaria.

AremisSoft said the SEC is investigating the discrepancy cited repeatedly by this column over the amount of money the company claimed it was paid by the Bulgarian Health Insurance Fund. Fund officials said they had paid AremisSoft $1.7 million; AremisSoft said it had received and recognized as revenue from the fund more than $7 million. The company never responded to questions raised by this column and The New York Times about the discrepancy.

Now, according to its press release, AremisSoft has engaged its independent auditor in London, PKF, to conduct a special review of the payments. After looking into the matter, AremisSoft says, the auditors said they did find the $1.7 million, but are "still seeking additional documentation to confirm the receipt of an additional $5.4 million of revenue recognized by the Company in fiscal year 2000."

The $5.4 million, the company says, is related to a contract between a third party and AremisSoft, which gave the third party certain exclusive rights under AremisSoft's contract with the NHIF.

"However," the press release continues, "because the company [AremisSoft], despite its continued efforts, has been unable over the last several days to contact executives who are most knowledgeable about the NHIF contractual arrangements within its Indian-based Emerging Markets group, it has been unable to provide PKF with the information it needs to complete its review of the NHIF contract. In order to address this issue, the Company, in addition to asking PKF to perform its special review, has asked its attorneys to review the contracts and payments in question."

The news release said AremisSoft's second-quarter results -- which were originally expected last week, and delayed until this week -- will be delayed further. No date was given.

Meanwhile, AremisSoft Chairman, founder and co-CEO Kyprianou has been shifted to a new title, that of founding chairman -- a non-executive position. And Paul Bloom, who until May 2000 was a brokerage firm analyst -- and who until two weeks ago was executive vice president of corporate development -- has been named AremisSoft's president and chief operating officer. Just two weeks ago, he was named president of the company's U.S. operations.

Also noteworthy: The company named David Latzke, the former chief financial officer of Fourth Shift -- which was recently acquired by AremisSoft -- as the company's new CFO. He replaces Tymvios, who resigned for "health reasons." As my column pointed out recently, AremisSoft had incorrectly identified Tymvios as a former partner at a large accounting firm, while failing to point out he was still a partner in his own accounting firm in Cyprus.

The firm, Patsalides & Tymvios, specializes in setting up offshore accounts. In an amended SEC filing, after my inquiries, the company changed Tymvios' bio to say that he was no longer associated with Patsalides & Tymvios. It said nothing at the time about him being ill.

After this column repeatedly raised questions about the Bulgarian contract and other issues at AremisSoft, the company filed suit against several short-selling firms and TheStreet.com, accusing them of conspiring to drive down the price of its stock.

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