Blue Coat Systems Former CIO Settles Options Backdating Charges

November 13, 2008 ( - The Securities and Exchange Commission (SEC) on Wednesday charged network security company Blue Coat Systems, Inc. and its former chief financial officer Robert P. Verheecke with backdating stock option grants to executives and employees and reporting false financial information to shareholders.

According to an SEC news release, Blue Coat and Verheecke have agreed to settle the charges without admitting or denying the allegations. Verheecke will pay more than $185,000 in disgorgement, penalties, and prejudgment interest.

The SEC’s complaint alleges that from approximately 2000 through 2005, Blue Coat concealed nearly $50 million in compensation expenses associated with valuable “in-the-money” options by backdating paperwork to make it appear as if the options had been granted on earlier dates. The Commission accuses Blue Coat of regularly using hindsight to select favorable exercise prices for employee and officer stock option grants without accurately reporting the grants to investors. The complaint says Blue Coat created documents making it look like options had been granted on earlier dates.

In March 2007, after an internal investigation, Blue Coat corrected its financial statements for fiscal years 2000 through 2005, recording nearly $50 million in additional expenses for misdated options, the news release said.

Verheecke, who served as CFO from May 2001 through May 2005, is accused of using hindsight to pick stock option grant dates, preparing or distributing misleading option paperwork, and approving Blue Coat’s false and misleading financial statements and SEC filings. The SEC also alleges that Verheecke personally exercised backdated options for $30,000 in excess profits.

The SEC’s complaint is here .