Accounting & Tax

Ex-controller Takes Backdating Plea

Nine executives at Engineered Support Systems have been implicated in the defense contractor's growing options scandal.
Stephen TaubMarch 20, 2007

Steven J. Landmann, former controller of Engineered Support Systems Inc. (ESSI), has pleaded guilty to one count of making false statements to the government regarding backdated stock options, according to U.S. Attorney Michael W. Reap.

According to the plea agreement, Landmann backdated stock options on eight different occasions between December 1996 and July 2002; he also admitted that many ESSI filings with the Securities and Exchange Commission were materially false.

He faces a maximum penalty of five years in prison and a fine of $250,000 when he is sentenced on May 25.

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Landmann was the ninth executive at the defense contractor to face criminal charges in its growing options scandal, according to The Wall Street Journal.

Last month, the Securities and Exchange Commission filed civil actions against Landmann and former chief financial officer Gary C. Gerhardt. The SEC alleged that they participated in a six-year fraudulent options backdating scheme in which they granted undisclosed, in-the-money stock options to themselves and to other ESSI officers, employees, and directors.

According to the complaints, Engineered Support employees and directors received about $20 million in unauthorized compensation as a result of the backdating, $15 million of which was received by top executives and directors.

Gerhardt personally profited by $1,906,300, and Landmann, by $518,972, the SEC charged.

Without admitting or denying the SEC charges, Landmann agreed to pay disgorgement of $518,972, prejudgment interest of $108,099, and a civil penalty of $259,486. He also agreed to a permanent officer-and-director bar, a permanent suspension from appearing or practicing before the commission as an accountant, and a permanent injunction against further violations of the relevant securities laws.

Reuters observed that one of the individuals who benefited from the backdated stock option grants included William H.T. “Bucky” Bush, an uncle of the President. Bucky Bush served on ESSI’s board and its audit committee before it was acquired last year by DRS Technologies for nearly $2 billion.

The wire service stressed that the commission has not accused ESSI board members of any wrongdoing.