Thursday, November 3, 2005
Mercury Interactive Corp. announced the appointment of a new CEO, CFO, and General Counsel as a result of an internal investigation that turned up substantial problems in reporting by officers of the dates on which options were granted. According to the company's press release (here):
From 1995 to the present, there have been forty-nine instances in which the stated date of a Mercury stock option grant is different from the date on which the option appears to have actually been granted. In almost every such instance, the price on the actual date was higher than the price on the stated grant date. These instances represent the overwhelming majority of the grants between January 1996 and April 2002. The misdating occurred with respect to grants to all levels of employees.
Chief Executive Officer Amnon Landan, Chief Financial Officer Douglas Smith, and General Counsel Susan Skaer were each aware of and, to varying degrees, participated in the practices discussed above. Each of them also benefited personally from the practices. While each of these officers asserts that he or she did not focus on the fact that the practices and their related accounting were improper, the Special Committee has concluded that each of them knew or should have known that the practices were contrary to the options plan and proper accounting. While the Special Committee is appreciative of and sympathetic to the far-reaching demands of these executives’ positions during this critical period, missing or overlooking a practice as basic and important as the proper granting of options is not acceptable.
The internal investigation also disclosed that Landan received a $1 million loan from the company in 1999 to fund an options exercise, but no documentation for the loan could be located, although the board approved an extension of the loan and it was ultimately repaid. Needless to say, that type of disclosure will invite an SEC investigation and a torrent of securities fraud lawsuits..
Landan, Smith, and Skaer resigned, and the company will probably have to delay the filing of its quarterly and annual reports due to the internal weaknesses identified in the internal investigation -- the press release notes that a timely filing of its Form 10-Q and 10-K is in "serious jeopardy." (ph)