Ex-Mercury Interactive Executives, SEC in Settlement Talks

Three former executives of Hewlett-Packard Co.’s Mercury Interactive Corp. and the U.S. Securities and Exchange Commission are in talks to settle allegations the employees broke securities laws by backdating company stock options, a judge said.

U.S. District Judge William Alsup in San Francisco didn’t rule on arguments today by lawyers for the former executives that the SEC allegations are too old and their clients’ actions weren’t improper. The SEC had requested the judge decide the case in its favor without a trial.

Alsup said both sides were holding settlement talks immediately after the hearing and told attorneys that “I am going to issue an order in the next few days. If you are going to preempt that with a settlement, do it quickly.””

Alvin D. Williams, an SEC attorney, and James A. Meyers, attorney for Mercury Interactive’s ex-general counsel Susan Skaer, said in court that they would meet today with U.S. Magistrate Jacqueline S. Corley for settlement discussions.

The agency is pursuing a five-year-old lawsuit against former Chief Executive Officer Amnon Landan, former Chief Financial Officer Douglas Smith and Skaer over changing dates on stock options to make them more valuable, a practice among many technology companies that led to a federal investigation, the ousters of 90 executives and directors, billions of dollars in restatements and criminal charges against executives at 10 companies.

Inflates Value

SEC attorneys say more than 40 stock option grants at Mercury Interactive were backdated from 1997 to 2002, and $258 million in compensation expenses weren’t reported to investors as a result, according to court documents. Landon, Skaer and Smith were all involved in the practice, the SEC said.

Backdating grants to days when share prices were low inflates their value and may hide costs from investors if left undisclosed. Mercury Interactive paid $28 million in 2007 to settle a related SEC lawsuit and three former company directors and a former chief financial officer settled SEC lawsuits over the practice.

The executives say the company was open about backdating, the SEC waited too long to sue and the agency lacks evidence that they violated securities or accounting rules.

The case is SEC v. Landan, 07-2822, U.S. District Court, Northern District of California (San Francisco).

Before it's here, it's on the Bloomberg Terminal.