Human Capital & Careers

SEC May Sue Mercury Directors, Ex-CFO

The commission's staff is looking into possible options backdating at the enterprise software outfit.
Stephen TaubJuly 5, 2006

Mercury Interactive Corp. reported that the Securities and Exchange Commission may bring civil charges apparently involving possible option backdating practices against three current directors and its former finance chief.

The board members, Igal Kohavi, Yair Shamir, and Giora Yaron each received so-called Wells notices and later resigned from the “applicable committees” of the board, according to a release issued by the enterprise software company. The three contend that they did not violate federal securities laws and did not take part in or know about option backdating. The also say the charges “are legally and factually without basis,” the company reported in the release, which accompanied an 8-K filing.

In a related development, Opsware Inc. said that a Wells notice was issued to its CFO, Sharlene Abrams, concerning her previous stint as Mercury’s finance chief. “The proposed action against Ms. Abrams relates to practices at Mercury involving the timing of stock option grants and the apparent timing of quarter-end shipments and certain expense items and accruals,” according to the company’s announcement.

Opsware warned that the SEC could seek an injunction against Abrams barring her from violations of the securities laws and prohibiting her from serving as an officer or director of a public company. The company noted that the SEC probe and possible enforcement actions do not involve Opsware or Abrams’ actions while at that company.

In its release, Mercury also reported that it would restate its earnings before taxes for 1992 through December 31, 2004 downward by about $566.7 million. The revision consists mostly of non-cash adjustments to stock-based compensation expense resulting from erring stock option grant and exercise practices, according to the company.

A big part of those costs stem from a decrease in retained earnings (net of income-tax effects) in the opening balance sheet for 2002 of about $362.3 million. The decrease reflects adjustments made for 1992 to 2001, the company stated. The remaining amounts are reported in the company’s income statements in later periods.