Gateway is struggling with lacklustre sales

The Securities and Exchange Commission (SEC) alleges the three inflated Gateway's sales and profits for the six months to September 2000.

The three are ex-CEO Jeffery Weitzen, ex-chief financial officer John Todd and ex-Controller Robert Manza.

Gateway said it had reached a settlement with the SEC without admitting or denying liability.

'Fraudulent scheme'

"We are very pleased to put this issue from our past behind us," said Ted Waitt, Gateway's chairman and chief executive.

Mr Waitt, a co-founder of the firm, was called back from retirement in early 2001 to replace top management.

The SEC has been investigating Gateway for nearly three years.

It filed civil charges of fraud against the three in the federal court in San Diego.

The SEC said the executives had employed a "fraudulent scheme" to cover up the gap between the company's actual earnings and analysts' predictions.

For example, the SEC said, Gateway had contacted individuals whose credit applications had previously been turned down by the company, and offered them pre-arranged financing which allowed sales to go ahead.

That campaign, the SEC alleged in its complaint, accounted for more than 5% of Gateway's second-quarter revenue in 2000.

'Baseless charges'

But a lawyer for Mr Weitzen described the SEC's allegations were unfounded.

"No witness or document indicated that Mr Weitzen acted contrary to the law," he said.

Mr Manza's lawyer said his client intended to contest the charges in court.

Gateway, meanwhile, has said it would delay filing its 2002 annual report and lower its revenues from 1999 to 2001.