Mercury Internal Probe Uncovers 54 Stock Options Backdating Instances

July 6, 2006 ( - In Mercury Interactive's internal investigation, the company found 54 instances of stock options backdating starting as far back as 1994, which prompted it to issue a regulatory filing Monday admitting that former senior management "deliberately" overrode controls to prevent backdating.

According to the San Jose Mercury News, the Securities and Exchange Commission (SEC) threatened to bar three of the company’s directors from serving on the boards of public companies. Serving on the boards was meant to inflate the compensations of some of the Silicon Valley software company’s senior executives.

The SEC said that directors Igal Kohavi and Yair Shamir and chairman Giora Yaron knew or should have known about the manipulated options dates. The newspaper reported that the company has accepted those directors’ resignations.

The board of directors fired the company’s chief executive officer, chief financial officer and general counsel in November 2005 for their role in options backdating.

According to the Mercury News, regulators have been investigating the company for about a year and a half, making it one of the first of the Silicon Valley companies to be looked for options backdating.

The Mountain View, California-based company is among 62 companies whose options grants are under scrutiny by the SEC, the Justice Department or internal review panels, the newspaper reported.

On Monday, Mercury also restated some of its earnings in the filing to the SEC:

2004 profit was cut by 104.1 million, or $0.30 per share

2003 profit was cut by $104.1 million, or $1.13 per share

2002 net income was decreased by $28.1 million, or $0.32 per share

2001 – net income was raised by $191.2 million, or $2.18 per share

2000 – profit was cut by $301 million, or $3.72 per share.

Mercury is not the first to restate its earnings. UnitedHealth Group, also under fire for backdating stock options, has announced that it may restate its finances, which would decrease earnings by at least $286 million (See  UnitedHealth Under Fire for Stock Options ).