Two Former Mercury Interactive Executives Settle SEC Suit

Two former executives of Hewlett-Packard Co.’s Mercury Interactive unit settled a lawsuit with the U.S. Securities and Exchange Commission over allegations of backdating company stock options.

The SEC reached agreements with former Chief Executive Officer Amnon Landan and former Chief Financial Officer Douglas Smith after the two men and a third former official, ex-general counsel Susan Skaer, appeared today for a hearing on the case before U.S. District Judge William Alsup in San Francisco.

The settlement was confirmed by Michael Torpey, a lawyer for Skaer, whose case isn’t settled, he said. An electronic court docket entry also listed the settlements, without providing any details on the terms.

The former executives argued that the SEC allegations are too old and their actions weren’t improper. The SEC had requested that the judge decide the case in its favor without a trial.

The agency has pursued the five-year-old lawsuit against Landan, 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.

‘Do It Quickly’

Alsup said in court today that settlement talks were set for 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.”

Stephan Schlegelmilch, an SEC lawyer, said the staff’s recommendation for settlements must still be approved by the commission.

“We cannot comment on any settlement, but any settlements will be made public if approved by the commission,” he said in an e-mail.

K.C. Maxwell, a lawyer for Landan, also declined to comment.

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. Landan, 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 said 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.