The software quality and IT governance software firm said that SEC staff had agreed to recommend its proposal, which would settle an investigation into irregular stock option accounting practices between 1996 and 2002.
Hewlett Packard Co, which is in the process of acquiring Mercury for $4.5bn, has also consented to the proposed settlement, and Mercury maintained that the settlement will have no impact on the acquisition, which is expected to close in the fourth quarter.
Meanwhile HP has announced that it is extending its tender offer for Mercury’s common stock until October 13. The company said 71.8 million shares, or 80.5% of those currently traded on the over the counter market, had been traded ahead of the previous September 28 deadline.
While the settlement is not expected to impact the acquisition by HP it could have a significant impact on the many companies currently under investigation by the SEC for stock-option accounting irregularities.
More than 80 companies – 39 of which are technology companies tracked by Computer Business Review – are being investigated by the SEC, including big hitters such as CA, Apple, McAfee, CSC, and RSA.
Mercury was one of the first companies to be investigated for stock option accounting. It began an internal investigation in June 2005 in response to an SEC inquiry, which began in November 2004.
The investigation eventually led to the dismissal of CEO Amnon Landan and several other senior executives in November 2005 after it identified 49 instances between January 1996 and April 2002 of option grant dates being misstated.
The investigation also found that Landan, as well as CFO Douglas Smith and general counsel Susan Skaer, were aware that stock option grant dates were being misstated in order to get a better deal and also actively participated in the practice.
While the practice was relatively unknown at the time it has since hit the headlines after a May 2006 report from the Center for Financial Research and Analysis named an initial 17 companies that had used improper practices.
Mercury’s proposed $35m settlement puts a stake in the ground as far as civil penalties are concerned, but seems like a small price to pay considering the size and scale of the problem. In July the company said it had reduced its income earned between 1992 and 2004 by $566.7m to account for the fiddle.
Following a slump in value Mercury’s shares were eventually delisted from Nasdaq in January due to its failure to file its restated financial reports. The company is currently updating its Form 10-K for the year ended December 31, 2005, to incorporate the proposed settlement expense and said expects to file the form with the SEC this week.
