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Univ. of Toledo College of Law

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Friday, February 22, 2013

SEC Settles Backdating Charges With Two Former Mercury Execs

The SEC has pursued civil fraud claims arising from backdated stock options against Mercury Interactive LLC and various executives, including its General Counsel, since 2007.  Today it announced a settlement with two executives, Amnon Landan, the former Chairman and Chief Executive Officer, and Douglas Smith, a former Chief Financial Officer, but not with the GC.  In its suit the SEC charged Landan, Smith, and two other former senior Mercury officers with perpetrating a fraudulent and deceptive scheme from 1997 to 2005 to award themselves and other Mercury employees undisclosed, secret compensation by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expense. The Commission's complaint also alleges that during this period Landan and certain other executives backdated stock option exercises and made fraudulent disclosures concerning Mercury's "backlog" of sales revenues to manage its reported earnings.

Landan consented to the entry of a permanent injunction and agreed to be barred from serving as an officer or director of any public company for five years. Landan will pay $1,252,822 in disgorgement and prejudgment interest, representing the "in-the-money" benefit from his exercise of backdated option grants, and a $1,000,000 civil penalty. Pursuant to Section 304 of the Sarbanes-Oxley Act, Landan will also reimburse Mercury, or the parent company that acquired it after the alleged misconduct (Hewlett-Packard Company), $5,064,678 for cash bonuses and profits from the sale of Mercury stock that he received in 2003. Under the terms of the settlement, Landan's Section 304 reimbursement shall be deemed partially satisfied by his prior return to Mercury of $2,817,500 in vested options.

Smith also consented to a permanent injunction.  He will disgorge $451,200, representing the "in-the-money" benefit from his exercise of backdated option grants, and pay a $100,000 civil penalty. Pursuant to Section 304 of the Sarbanes-Oxley Act, Smith will also reimburse Mercury or its parent company $2,814,687 for profits received from the sale of Mercury stock in 2003 and a cash bonus received for 2003. Under the terms of the settlement, all of Smith's disgorgement and all but $250,000 of his Section 304 reimbursement shall be deemed satisfied by his prior repayment to Mercury of $451,200 and his foregoing of his right to exercise vested options with a value of $2,113,487.

 

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