Mercury Agrees To Pay $28 Million Civil Penalty

sec.gov, Jun 14, 2007

The Securities and Exchange Commission today filed civil fraud charges in federal district court for the Northern District of California against California-based software maker Mercury Interactive, LLC (formerly known as Mercury Interactive Corporation) and four former senior officers of Mercury — former Chairman and Chief Executive Officer Amnon Landan, former Chief Financial Officers Sharlene Abrams and Douglas Smith, and former General Counsel Susan Skaer. The SEC alleges that the former senior officers perpetrated a fraudulent and deceptive scheme from 1997 to 2005 to award themselves and other employees undisclosed, secret compensation by backdating stock option grants, failing to record hundreds of millions of dollars of compensation expense, and falsifying documents to further this scheme.

The SEC also alleges that during this period Mercury, through Landan and at times Abrams, Smith or Skaer, made fraudulent disclosures concerning Mercury's "backlog" of sales revenues to manage its reported earnings, and structured fraudulent loans for option exercises by overseas employees to avoid recording expenses. Mercury, which was acquired by Hewlett-Packard Company on Nov. 8, 2006, after the alleged misconduct, settled the matter by agreeing to pay a $28 million civil penalty and to be permanently enjoined. The SEC's case against the four former officers is being litigated.

"The $28 million corporate penalty in this case, together with a permanent injunction, should send a clear signal that fraudulent stock option backdating and other financial fraud will be severely punished," said SEC Chairman Christopher Cox. "The Commission's Enforcement Division will reinforce that principle by vigorously pursuing the charges against the individuals who were responsible. In this case as well as those that will follow, the SEC will do everything within our power to see to it that illegal options backdating is stamped out." Read more at sec.gov