Risk & Compliance

Jailed and Now Broke

Sometimes an equity edge cuts both ways.
Stephen TaubFebruary 26, 2008

Vencent A. Donlan, a former stock options administrator at Wireless Facilities Inc., has settled civil charges of stock and stock options theft, adding hefty financial penalties to the lengthy prison sentence already handed down.

Donlan and his wife, Robin D. Colls Donlan, who was named as a relief defendant, were ordered by the Securities and Exchange Commission to pay more than $6.3 million in disgorgement and prejudgment interest by turning over to WFI (now called Kratos Defense & Security Solutions) all assets related to the fraud, including bank and brokerage accounts, retirement accounts, and real property. However, the payment was waived for the amount exceeding $5.5 million and civil penalties were not imposed against the pair based on their “sworn representation of [their] financial condition.”

Donlan pled guilty last July to stealing more than $6 million worth of stock during his employment. In his plea agreement, he admitted that between November 2002 and November 2003 he used his position at WFI to issue, without authorization, 728,229 shares of WFI stock to a brokerage account he controlled. He sold the stock for a net gain of $6,252,715. He also admitted that he evaded paying $2,202,917 in federal income taxes in 2002 and 2003 by failing to declare the income he derived from the fraudulent stock sales, according to United States Attorney Karen Hewitt.

According to the SEC, as WFI’s stock options administrator Donlan managed the process by which the company distributed stock options to its officers, directors, and employees. In particular, Donlan had primary control over Equity Edge, the software program WFI used to account for and transmit information about its stock options.

Through Equity Edge and related software, Donlan created stock-option grants and opened individual accounts with WFI’s brokerage firm, E-Trade Securities, so that WFI’s officers, directors, and employees could access and exercise those options.

The settlement with the SEC effectively closes Donlan’s case with federal regulators. In October, he was sentenced to 46 months in prison for wire fraud and tax evasion in connection with the theft of stock options from WFI. At that time he was ordered to pay more than $6.2 million in restitution to the company and more than $2.2 million to the Internal Revenue Service.