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Quest CFO Hightails It Before Restatement

The software company has yet to update its financial results to correct accounting errors for stock options.
Sarah JohnsonOctober 3, 2007

Quest Software CFO Michael Lambert has resigned, leaving the company without a finance chief as it works through correcting how it accounted for stock options granted earlier this decade. Lambert told the database software management company about his plans a week after it had released its latest update on progress made to an impending restatement first acknowledged last January.

Lambert will leave Quest on October 10 to take a job at another company, Quest said in a regulatory filing on Tuesday. Quest did not name Lambert’s successor or his future employer. “The company has no further comment on this than what was in the 8-K we filed yesterday,” a Quest spokesman told CFO.com.

In mid-September, the company said Nasdaq had given it until November 14 to update its delinquent reports. It’s unclear from Tuesday’s pithy filing whether Lambert will be around to see that task completed.

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Nearly three years ago, Lambert joined Quest as vice president of finance to eventually take over the CFO role from M. Brinkley Morse, who later became senior vice president of corporate development and resigned last November after refusing to answer questions about the company’s stock option practices during his tenure. Morse had helped Lambert transition into his new role over a five-month period.

Despite Morse’s lack of cooperation, Quest’s investigation uncovered backdated stock-option grants made to employees from 1999 to March 31, 2006, the last quarter for which the company filed a financial report. The company expects to take a $143 million pre-tax charge to correct errors made during that time period.

When Quest does update its financials, it also will account for other errors, including the incorrect or inconsistent application of revenue recognition rules and policies for certain transactions. Quest also has acknowledged that it should have recorded intangible asset impairment charges relating to certain acquired software products when they were discontinued rather than continuing ratable amortization over that asset’s remaining estimated useful life.

In addition, the company identified certain errors affecting the amount of other income or expense recorded in prior periods. Most of the errors involved timing adjustments that eventually offset each other within the periods covered by the restatement or over the terms of the underlying customer contracts.

Lambert’s career has concentrated in the technology field. He joined Quest from Quantum Corp., where he was CFO of the provider of tape drives and storage solutions. He also held the CFO title at NerveWire, a systems integration consultancy, and the internetworking systems division at Lucent Technologies. He also once worked at IBM in the finance area.