Mercury Makes $35M Settlement Offer for Options Backdating Fraud

October 3, 2006 ( - Software firm Mercury Interactive Corp. proposed a $35 million civil penalty to settle the Securities and Exchange Commission (SEC) investigation into irregular stock option accounting practices between 1996 and 2002.

ComputerWire reports that the settlement is expected to set a precedent for the 80 some other companies that are under investigation by the SEC for stock option backdating practices, including Apple and McAfee. Mercury was one of the first companies to be investigated by the SEC. The company began an internal investigation in June 2005 in response to an SEC inquiry, which began in November 2004.

The internal investigation revealed 54 instances of stock options backdating reaching as far back as 1994 and prompted a filing to the regulator in July admitting that senior management “deliberately” overrode controls to prevent the practice (See Mercury Internal Probe Uncovers 54 Stock Options Backdating Instances).

Mercury’s board of directors fired the company’s chief executive officer, chief financial officer and general counsel in November 2005 for their roles in options backdating. In July the company said it had reduced its income earned between 1992 and 2004 by $566.7million as a result of the irregular accounting.

According to ComputerWire, Hewlett Packard Co., which is in the process of acquiring Mercury for $4.5 billion, also consented to the settlement.