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Executives at Mercury Interactive Step Down

November 03, 2005|From Bloomberg News

Mercury Interactive Corp., which makes software to test computer programs, said three of its top executives resigned after a company investigation found that they had manipulated the value of stock options for six years. Its shares plunged 27%.

Chief Executive Amnon Landan, Chief Financial Officer Douglas Smith and General Counsel Susan Skaer resigned, effective immediately, Mountain View, Calif.-based Mercury said in a statement Wednesday. The company named Anthony Zingale CEO.

Mercury said that by changing the dates of when options were granted, the executives were able to make it appear as though they had made less money and reduce their taxes.

Mercury said it had found 49 instances since 1995 in which the stated date of an option grant was different from when it was actually granted, and the new date was almost always one when Mercury shares traded at a lower price.

"The fraud is ugly, the perpetrators are gone, and this is an embarrassment in a huge way," said Richard Williams, a Garban Institution Equities analyst. "Now the issue is one of the new leadership: Can they keep everyone focused? Can they keep the wheels on the wagon?"

Shares of Mercury fell $9.34 to $25.66, the biggest drop in the stock in almost a decade. More than 45 million shares traded, which is more than 23 times the three-month daily average.

Williams said that the executives' actions didn't appear to have had a significant effect on the company's finances and that the company's delay in filing its financial statements and the possibility of delisting were larger threats.

The executives' actions are "not acceptable," said a committee of directors formed in June to investigate the options, after the Securities and Exchange Commission said it had begun an inquiry.

Mercury said the 49 instances represented the "overwhelming majority" of grants from January 1996 to April 2002.

Mercury spokeswoman Robin Stoecker declined to comment. SEC spokesman John Heine said the commission couldn't comment on whether it was still investigating the company.

Zingale, the new CEO, joined Mercury in December 2004 as president and chief operating officer.

The company also said it had named Giora Yaron chairman and David Murphy chief financial officer.

The special committee found on three occasions from 1998 to 2001 that incorrect reporting of stock option dates resulted in understated income for Landan and potentially exposed the company to penalties for failing to pay withholding taxes, Mercury said.

The committee also determined that three board members -- Igal Kohavi, Yair Shamir and Yaron -- should have questioned whether six option grants the board unanimously approved were properly dated.

Those members should not have relied on management to give them proper documentation for the grants, Mercury said.

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