May 31 (Bloomberg) -- The U.S. Securities and Exchange Commission approved a settlement with Brocade Communications Systems Inc., the first fine against a company for backdating stock options, said two people with knowledge of the decision.

Brocade, the largest U.S. maker of switches for data-storage networks, will pay about $7 million to resolve allegations that it improperly issued stock options to employees, said the people, who declined to be identified before an official announcement. SEC commissioners voted on Brocade in Washington last week after disagreeing about how much to penalize companies accused of manipulating options grants.

``What they actually do in their first case here will set the standard,'' said William Portanova, a former federal prosecutor, now in private practice in Sacramento, California. ``This case will be a signal to the world exactly how bad their punishment is going to be.''

Brocade, the first corporate target in an options probe that has ensnared more than 100 companies, has been waiting since July for the agency to approve a settlement. The agreement may set the stage for the SEC, led by Chairman Christopher Cox, to complete other cases held up during the agency's internal debate.

The SEC also signed off on an options-related settlement with Analog Devices Inc., the people said. Analog said in a May 22 filing with the SEC that it had agreed to pay $3 million.

Mercury's Offer

A third company, Mercury Interactive Corp., said last September that it had offered to pay $35 million to settle an SEC options probe. The SEC may announce that accord as soon as this week, the people said. Mercury has since been acquired by Hewlett-Packard Co.

Leslie Davis, a spokeswoman at San Jose, California-based Brocade, and SEC spokesman John Nester declined to comment. Maria Tagliaferro, a spokeswoman for Analog in Norwood, Massachusetts, didn't return calls seeking comment. Robert Sherbin, a spokesman for Palo Alto-based Hewlett-Packard, didn't immediately return a call today.

The SEC is investigating companies including UnitedHealth Group Inc., the largest U.S. health insurer, and Home Depot Inc., the world's biggest home-improvement retailer, to determine if grant dates on employee stock options were falsified to inflate their value at shareholders' expense.

At least 200 companies have disclosed internal or federal options-related investigations, and about 100 have said they must restate previously reported financial results. So far, the restatements, revisions and charges exceed $12 billion. More than 90 executives and directors have left their jobs.

Penalties

While the SEC and criminal prosecutors have brought charges against individual executives for options backdating, no company has been sanctioned so far.

SEC commissioners have been divided over corporate fines. Republican Paul Atkins has opposed them as harmful to shareholders, while Democrat Roel Campos has said the penalties are a deterrent.

Brocade said in July that it had reached a tentative settlement with SEC investigators. The same day, the agency accused the company's former chief executive officer, Gregory Reyes, of inflating the value of options granted to employees. Reyes, who was also charged with criminal fraud, has pleaded not guilty.

Analog Devices, which makes electronic chips used in mobile phones and cars, said in last week's filing that it expected to be accused of failing to disclose that it granted options before announcing ``favorable financial news.'' The company said it also expected to be faulted for backdating some options in 1998, 1999 and 2001.

Mercury Interactive, a software maker based in Mountain View, California, said in November 2005 that an internal investigation found 49 instances of backdated options over six years. The company's CEO, chief financial officer and general counsel resigned.

To contact the reporter on this story: Otis Bilodeau in Washington at obilodeau@bloomberg.net.

Last Updated: May 31, 2007 11:55 EDT