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Quest trio to pay more than $300,000 in fines to close backdating case

The software maker improperly awarded millions of stock options from 1999 to 2002, the SEC says.

March 13, 2009|William Heisel

An Aliso Viejo software maker and three of its executives have agreed to pay the Securities and Exchange Commission more than $300,000 to settle allegations that the executives improperly altered the dates of their stock option grants to make their shares more valuable.

The SEC on Thursday accused Quest Software Inc. and three current or former officers with failing to accurately account for the stock-option backdating and to report it to shareholders.

The complaint alleged that the company, Executive Chairman Vincent Smith, Vice President Kevin Brooks and former Chief Financial Officer John Laskey backdated millions of options from 1999 to 2002, picking the date each month that had the lowest stock price and granting themselves and others in-the-money stock.

When the backdating finally came to light, the SEC said, Quest issued a $113.6-million restatement of its operating income in September 2007.

Before charges were filed, Quest, Smith, Brooks and Laskey agreed to settle the case without admitting or denying any wrongdoing.

"Today's action reinforces that the commission will hold companies and executives accountable for engaging in misconduct that deceives investors," Rosalind R. Tyson, director of the SEC's Los Angeles regional office, said in a statement. "By participating in the backdating scheme, these executives ignored their responsibilities as Quest's primary financial gatekeepers."

Quest backdated 28 stock option grants involving more than 11 million shares of common stock, the SEC said. Smith received options worth $10.1 million; Laskey, $98,000; and Brooks, $270,000.

Unlike Bruce Karatz, the former chief executive of KB Home who was charged last week in a similar case after allegedly making more than $6 million on backdated options, most of the Quest executives did not profit from the backdating because they held on to their shares.

Only Brooks sold shares, making $69,550 before taxes, according to the SEC. He paid half of that back to the company after it completed an internal audit in January 2007.

Brooks agreed to pay more than $100,000 in penalties and repayment of his backdating profits. Smith will pay a $150,000 penalty and Laskey $50,000.

Brooks had assumed the backdated options were a legitimate part of his compensation, his lawyer said.

"What Kevin did is consistent with what scores and scores of people in the high-tech and other industries did," attorney Michael Perlis said. "Kevin has paid back his profit and even paid an additional sum."


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