Brocade, Mercury Interactive pay fines

Brocade, Mercury Interactive pay fines

	Published : Thu, 31 May 2007 21:38 By : Agencies Print this Story

WASHINGTON (AP) - Technology companies Brocade Communications Systems Inc. and Mercury Interactive LLC on Thursday became the first two companies to pay fines to settle federal regulators' allegations of civil fraud in connection with backdated stock options.

Brocade has agreed to pay $7 million and Mercury is paying $28 million in settlements announced by the Securities and Exchange Commission, which has been investigating more than 100 companies over suspect timing of stock option awards to executives. The wide-ranging practices became corporate America's biggest scandal last year, and the SEC commissioners have been debating for months whether implicated companies should have to pay penalties.

The settlement with San Jose, Calif.-based Brocade, which designs data storage networking products and services, has been the subject of negotiation and discussions within the SEC for more than a year, and was widely seen as a pattern for resolution of similar cases.

'This enforcement action clearly demonstrates the SEC will use all the weapons in our arsenal, including significant corporate penalties, to protect investors and combat fraudulent stock option backdating,' SEC Chairman Christopher Cox said in a statement.

Federal prosecutors also have been investigating scores of companies in the options backdating affair. Brocade's former chief executive, president and chairman, Gregory L. Reyes, and former vice president for human resources, Stephanie Jensen, have been fighting criminal fraud charges.

Brocade said Thursday that it 'does not expect or anticipate' any action against it by the Justice Department.

The two Silicon Valley companies neither admitted nor denied the SEC's allegations, laid out in separate lawsuits filed in federal court in California. They did agree, however, to refrain from future violations of the securities laws.

The SEC accused Brocade of committing fraud through Reyes and other former executives, 'who repeatedly granted backdated stock options, misstated compensation expenses and concealed the conduct by falsifying documents.'

The SEC also sued four former senior executives of software maker Mercury, including ex-chairman and CEO Amnon Landan, accusing them of perpetrating 'a fraudulent and deceptive scheme' from 1997 to 2005 to give themselves and other employees secret compensation by backdating stock option grants and falsifying related documents.

Mercury, based in Mountain View, Calif., was acquired last year by technology titan Hewlett Packard Co. for $4.5 billion. As one of the first companies to acknowledge its stock option woes, Mercury was also among the first to begin to quantify the cost of its irregularities, erasing millions in previously reported profit.

Backdating options make the rewards even more lucrative by retroactively setting the exercise price to a low point in the stock's value. Usually, a stock option's exercise price coincides with the market value at the time of a grant to give the recipient an incentive to drive the price higher.

If companies backdate options without properly disclosing and accounting for the move, it can cause profits to be overstated and taxes to be underpaid.

Douglas Smith, one of two former chief financial officers of Mercury named by the SEC in its suit, is contesting the agency's charges, his attorney said.

'Mr. Smith acted in complete good faith as Mercury's chief financial officer. These long-delayed claims are meritless, and Mr. Smith will contest every one of them,' attorney Patrick Robbins said.

The SEC also named Sharlene Abrams, another former finance chief, and Susan Skaer, a former general counsel of Mercury.

Attorneys representing Landan, Abrams and Skaer didn't immediately return telephone calls seeking comment.

Brocade's general counsel, Tyler Wall, said in a statement, 'We are pleased the SEC has accepted Brocade's offer of settlement and now have the investigation and matter concluded.'

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