Scheme Breathes Life Back into Options

The former CEO of Brooks Automation allegedly backdated options to put expired grants "in the money," says the SEC.
Stephen TaubJuly 26, 2007

The Securities and Exchange Commission has filed civil fraud charges against Robert J. Therrien, former president and CEO of software maker Brooks Automation, alleging that he received millions of dollars in undisclosed compensation by fraudulently backdating the exercise of an option to purchase company stock. The regulator also accused Therrien of engaging in a broader fraudulent scheme to grant himself and other Brooks employees and executives undisclosed, in-the-money stock options. The SEC claimed he earned more than $10 million from his fraudulent conduct.

Separately, the United States Attorney’s Office for the District of Massachusetts today announced a criminal indictment charging Therrien with tax evasion for his conduct in connection with the November 1999 option transaction.

The backdating charge is the second options-related complaint issued by the SEC in as many days. On Wednesday, the regulator charged that KLA-Tencor and its former chief executive, Kenneth L. Schrodeder, were involved in an illegal scheme to backdate stock option grants. KLA-Tencor agreed to settle the charges with the SEC. Also on Wednesday, the Department of Justice charged former SafeNet chief financial officer Carole Argo with backdating options and hiding “in-the-money” options awards from investors and regulators. Argo faces a maximum 25-year prison sentence for her role in the scheme.

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In its complaint against Therrien, the SEC alleged that the executive received about $5.8 million in undisclosed compensation in November 1999, when he fraudulently backdated his exercise of an option to purchase 225,000 shares of Brooks stock. Indeed, after learning that his option had expired unexercised in August 1999, Therrien signed false documents indicating that he had actually exercised his option before its expiration, according to the complaint. As a result, the company issued Therrien a new in-the-money option at the original price, which he immediately exercised to purchase company stock at a fraction of the market price when the option was re-issued, the SEC further charged.

The SEC also alleged that on at least four occasions from 1999 through 2001, Therrien approved the issuance to company executives and employees of stock options that were backdated to earlier dates on which the stock’s market price was lower. Altogether, Therrien earned about $10.4 million from his misconduct, noted the SEC.

In addition, Brooks overstated income and understated employee compensation expenses by at least $54 million in its financial statements from 1999 through 2005, said the commission. Therrien was accused of violating the general antifraud provisions of the federal securities laws and provisions that prohibit misrepresentations to auditors and falsification of records, and aiding and abetting Brooks in its violations of financial reporting, recordkeeping and internal controls requirements.

The SEC is seeking injunctive relief, a civil penalty, disgorgement and an officer and director bar against Therrien.