Former chairman and chief executive Amnon Landan, former CFOs Sharlene Abrams and Douglas Smith, and former general counsel Susan Skaer have all been sued for alleged fraud relating to stock options backdating and cooking the books by misstating revenue.
Mercury, which is now part of HP, was also charged, and agreed to pay $28m in civil penalties. The company has said last October that it had offered $35m to settle the charges.
Separately, Brocade said it would pay $7m, which it had already set aside last year for a settlement, to settle the SEC’s charges, without admitting or denying guilt.
The SEC said the former Mercury execs perpetrated a fraudulent and deceptive scheme from 1997 to 2005 to award themselves and other employees undisclosed, secret compensation by backdating stock option grants and failing to record hundreds of millions of dollars of compensation expense.
The executives, who join Brocade’s former CFO and head of human resources, Gregory Reyes and Stephanie Jensen, among those charged with options-related fraud, all reportedly deny any wrongdoing.
According to the SEC, Mercury did not disclose over $258m in options expenses over the eight years of that the alleged frauds were taking place.
Every single options grant made to Mercury executives between 1997 and 2002, 45 in total, was inappropriately backdated, according to the SEC.
The SEC also claims that Mercury operated a hidden backlog revenue booking scam in order to hit Wall Street’s earnings targets, pushing up to $182m from quarter to quarter in order to manipulate earnings and keep the share price buoyant.
Mercury would stop shipping products to customers towards the end of a quarter if it had already met its revenue and earnings targets, pushing the revenue recognition into the following quarter, and did not disclose these backlogged sales to investors, the SEC claims.
