Friday, February 16, 2007

Another GC Bites the Dust in Options Backdating Case

The general counsel of another corporation pleaded guilty to charges related to options backdating at his company.  Former Monster Worldwide GC Myron F. Olesnyckyj entered a guilty plea to one count of conspiracy and one count of securities fraud in the first options-timing case brought by the U.S. Attorney's Office for the Southern District of New York, coming fast on the heels of a prosecution by Manhattan DA Robert Morgenthau.  William Sorin from Comverse Technology pleaded guilty to similar charges in the Eastern District of New York.  According to a government press release (here):

OLESNYCKYJ and his co-conspirators concealed their options backdating practices from Monster’s outside auditors, BDO Siedman, LLP ("BDO"), primarily by failing to maintain a complete set of records regarding the company’s option grants and providing BDO with documents falsely identifying the dates on which options were granted by the Compensation Committee.

In substantially the foregoing manner, the coconspirators backdated every one of Monster’s broad-based annual options grants to its employees from 1997 to 2002. During the same period, the co-conspirators also backdated a number of "one-off"grants –- i.e., grants to new employees, or to current employees for the purposes of retention. In fact, new hires at Monster were promised that they would be granted options at the lowest price within the 30 days following their start date. To conceal this practice from Monster’s auditors, OLESNYCKYJ instructed an employee in Monster’s Human Resources department, by email, that "No written document should ever state lowest price over next 30 days! The auditor[s] will view that as backdating options and we’ll have a charge to earnings ..." OLESNYCKYJ subsequently prepared model language to be used in all of Monster’s letters to new hires, which made no reference to granting options at low prices.

None of Monster’s backdated, in-the-money options grants were properly accounted for as a compensation expense in Monster’s public filings with the SEC. As a result, Monster’s publicly-filed financial statements for the years 1997 to 2005 understated the company’s expenses, and inflated its earnings by a total of approximately $339,000,000. In 1999 and 2000, years in which Monster reported itself as a profitable company, the company actually lost nearly $40 million.

Once again, an e-mail  provides key information.  Monster fired Olesnyckyj in 2006 during its internal investigation, and Andrew McKelvey, the former CEO, resigned from the board when he refused to meet with the internal investigators for an interview.  The reference to "coconspirators" likely means that Olesnyckyj will be providing information about other executives, so charges against additional defendants are likely to follow. The SEC also filed civil securities fraud charges against Olesnyckyj (complaint here), a case that will most likely settle in the near future. (ph)

Fraud, Prosecutions, Securities | Permalink

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» Of course, backdating is bad. But is it always crooked? from Tech Beat
OK, Rob, thanks for the invite to dig farther into this backdating issue (see the next post). The question underlying my story this week isn't whether backdating is bad. Of course it is. It's whether, and in what cases, it... [Read More]

Tracked on Feb 23, 2007 10:21:11 PM


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