Email Trail Comes Back to Haunt Former Executives: SEC Settles With Mercury Interactive and Sues Former Mercury Officers for Stock Option Backdating and Other Fraudulent Conduct

In an earlier post, it was reported that an allegedly inculpatory email trail between in-house counsel and executives at Mercury Interactive regarding stock options could lead to regulatory or criminal action. That possibility became a reality, as the SEC has announced a settlement stemming from that evidence discovered in the form of email.

In a press release, the Securities and Exchange Commission announced that it “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 and failing to record hundreds of millions of dollars of compensation expense. The SEC also alleges that during this period Mercury, through Landan and at times Abrams, Smith or Skaer, backdated stock option exercises, 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 November 8, 2006, after the alleged misconduct, settled the matter by agreeing to pay a $28 million civil penalty and to be permanently enjoined.”

For more see SEC Press Release and Complaint.


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