Risk Management

Blue Coat, Ex-CFO Settle over Backdating

Network security company and Robert Verheecke come to terms with SEC over charges that include reporting of false information, concealing $50m in c...
Stephen TaubNovember 12, 2008

Network security company Blue Coat Systems Inc. and its former chief financial officer, Robert P. Verheecke, agreed to settle Securities and Exchange Commission stock-option backdating charges.

The regulator accused Blue Coat and Verheecke of providing backdated grants to executives and employees and reported false financial information to shareholders. Blue Coat and Verheecke agreed to settle the charges without admitting to or denying the allegations.

Verheecke agreed to pay more than $185,000 in disgorgement, penalties, and prejudgment interest. He also agreed to five-year bars from serving as an officer or director of a public company and appearing or practicing as an accountant before the SEC. The company was not fined.

According to the complaint, from 2000 through 2005 Blue Coat concealed nearly $50 million in compensation expenses associated with “in-the-money” options by backdating paperwork to make it appear as if the options had been granted on earlier dates.

Verheecke was accused of using hindsight to pick stock option grant dates, preparing or distributing misleading option paperwork, and approving Blue Coat’s false and misleading financial statements and SEC filings.

The SEC alleged that Verheecke personally exercised backdated options for $30,000 in excess profits.

As a result of the backdating, Blue Coat materially misstated its financial statements and SEC filings, according to the SEC.

In March 2007, after an internal investigation, Blue Coat restated its financial statements for fiscal years 2000 through 2005, recording nearly $50 million in additional stock compensation charges for misdated option grants.

Verheecke served as CFO from May 2001 through May 2005, and continued to work on special projects for Blue Coat until January 2006. Before joining Blue Coat, Verheecke was an auditor at Price Waterhouse LLP from 1979 to 1983. He served as CFO of NetFRAME Systems, Inc. from 1998 to 1993 and Business Objects, S.A. from 1994 to 1997.

Blue Coat, which makes appliances to secure and monitor computer networks, went public in November 1999 as CacheFlow Inc., in 2002 changing its name to Blue Coat.