Risk Management

SafeNet’s Ex-CFO Pleads Guilty to Backdating

The onetime finance chief awaits sentencing one year after leaving the information security company during a review of its stock-options-granting p...
Stephen TaubOctober 9, 2007

A former chief financial officer of SafeNet Inc. has pleaded guilty to securities fraud in connection with the backdating of millions of dollars’ worth of stock option grants.

Carole Argo, who left her position as president and chief operating officer of SafeNet last October, faces a maximum penalty of 20 years in prison and a $5 million fine. She will be sentenced on January 21. She had been the senior vice president and CFO of the information security company from mid-1999 through June 2004 and acting CFO during a few months in 2006.

According to the government’s indictment, between 2000 and 2006, Argo and others engaged in a scheme to deceive SafeNet’s board of directors, shareholders, auditors, and regulators by backdating stock option grants and not adequately recording or reporting the compensation expenses related to the grants. With her guilty plea, Argo has admitted to signing and certifying regulatory filings that included inaccurate compensation expenses for those backdated option grants.

The indictment against Argo was based on eight occasions when she and her coworkers allegedly backdated options grants “to reap substantial benefits.” According to Michael Garcia, a U.S. attorney for the Southern District of New York, SafeNet did not properly record or report a compensation expense for six of those grants, and accounted two of them only after SafeNet’s external auditors and internal accountants discovered the backdating.

When Argo and chairman and CEO Anthony Caputo resigned in October 2006 amid an ongoing review of the company’s stock-options-granting practices, Walter Straub, an independent director who was subsequently named chairman and interim CEO, went out of his way to praise the pair. He stated in a press release, “On behalf of the board, I wish to thank Tony and Carole for their many contributions to SafeNet.” Argo played an important role in leading the company’s day-to-day global operations and its growth strategy during her seven-year tenure, Straub added.