Human Capital & Careers

Keane Faces SEC Probe as It Goes Private

Options-granting practices fuel the SEC inquiry, while a lawsuit to stop the buyout claims that it was "only a matter of time" before options probl...
Stephen TaubFebruary 26, 2007

The Securities and Exchange Commission has requested documents from Keane, Inc., related to the company’s stock option granting practices. The business process and IT services company said it intends to cooperate with the regulator’s inquiry.

Earlier this month, rival Caritor agreed to acquire Keane for approximately $854 million in an all-cash deal. The transaction will be financed through a combination of equity and debt. Citigroup Venture Capital International will provide the equity portion of the deal, while debt financing will come from Citigroup Global Markets Inc., UBS Securities LLC, and Bank of America Securities LLC.

Several shareholders, however, are trying to block the deal. Keane recently said in a regulatory filing that one shareholder—Henry C. Blaufox—filed a derivative and class action against the company and former directors and executive officers related to the company’s past stock option practices and the proposed acquisition by Caritor.

The suit asserts that Keane has been the subject of “gross mismanagement and malfeasance” over the past decade and exposed the company and its executives to “criminal and civil liability” for issuing “false and misleading financial statements,” said a report in the Boston Globe. The action also charges Keane officials of being “repeatedly engaged in improper” stock option moves, which allegedly entailed backdating options to give the grants immediate value, and subsequently making tens of millions of dollars from the practice.

The lawsuit also accuses Keane of seeking a cash sale because company officials realized it was “only a matter of time” before Keane became a target of scrutiny for its past options practices. The paper added that the suit names founder John F. Keane and former chief executive Brian Keane, who resigned last spring amid allegations of sexual harassment.

Another lawsuit, filed in Massachusetts Superior Court by shareholder Susan Nichols, also named Keane and certain current and former directors as defendants, the company noted. Like the Blaufox suit, the complaint alleges that Keane’s directors breached fiduciary duties in connection with the recently announced proposed acquisition by Caritor, according to Keane’s regulatory filing.