Human Capital & Careers

Quest Restates after Options Probe

Software maker will take a $150 million charge but stresses that it found no fraud or intentional misconduct.
Stephen TaubJanuary 15, 2007

Quest Software revealed on Monday that after an internal investigation, it has determined that accounting measurement dates for most stock option grants to employees from July 1998 to May 2002 differed from recorded grant dates.

The developer of database management software also announced that will take a $150 million pre-tax, non-cash stock-based compensation expense. Last July, Quest disclosed that it would restate its results from 2000 to 2005 and for the quarter ended March 31, 2006, to correct improper accounting for stock options.

In a press release, Quest maintained that both current and former senior management of the company “bear varying degrees of responsibility for deficiencies” in its stock option administration and related internal controls. The company stressed, however, that the special committee that conducted the investigation found no fraud or intentional misconduct by any current or former employees, officers, or directors and did not recommend any further changes in the company’s executive officers.

Last November, senior vice president for corporate development M. Brinkley Morse, who served as chief financial officer from January 2001 to April 2005, resigned after declining to be interviewed by the special committee about the company’s stock options practices. Morse could not immediately be reached for comment.

Following in the footsteps of many other companies, Quest also stated that it is repricing the stock options of current and former executives to the fair market value on the corrected accounting measurement dates. As of December 31, 2006, the company added, outstanding stock options covering approximately 1.6 million shares of common stock have been repriced to levels significantly greater than the current market value. In addition, the company will attempt to recover all or substantial portions of the after-tax gains that the executives realized from exercising these stock options.

Quest added that it will continue to cooperate with the Securities and Exchange Commission, which is conducting an informal inquiry into the company’s stock option grants, and the U.S. Attorney’s Office for the Central District of California.