Former McAfee Employees Sue over Options Blackout

December 20, 2006 ( - Seven former employees of McAfee have filed a breach-of-contract lawsuit against the firm after their vested stock options expired during a blackout period imposed by the company during an investigation into stock options backdating.

The Recorder reports that t he employees – who claim they were cheated out of about $2 million total – allege McAfee was contractually obligated to let them exercise their options grants within 90 days of the end of their employment, and is unfairly penalizing them for the alleged accounting misdeeds of management. The blackout period began July 27 when the company announced it would have to restate financial results due to findings of the backdating investigation and is still in effect.

The suit also alleges the company reneged on a promise made by former CEO George Samenuk of a 90-day extension of the time during which former employees could exercise their options. Samenuk retired in October (See McAfee Hit with Options Scandal Upheaval ) and interim CEO Dale Fuller decided to revoke the promise, the suit says. According to The Recorder, the complaint says unnamed sources reported Fuller told senior management he did not understand why McAfee would “take money out of our pockets and our children’s pockets and give it to employees who have left the company.”

Employment attorney Alisa Baker, of San Francisco’s Levine & Baker, told The Recorder she has been talking recently with several employees of other firms who say they have been barred from exercising option grants and she expects many suits similar to the one against McAfee to be filed over the next several months.

More than 150 firms have been snared in the options backdating scandal since it began (See  Corporate Carnage Continues in Stock Options Scandal with Monster Firing ). While the Securities and Exchange Commission does not require companies to impose a blackout during such investigations, companies may choose to do so until they know what the implications will be for their financial statements.