Securities Regulation Daily Wrap Up, ENFORCEMENT—Former Mercury Interactive CEO Fined $1 Million in Options Backdating Case, (Feb 22, 2013)

By John Filar Atwood

Amnon Landan, the former chairman and CEO of Mercury Interactive, LLC, consented to the entry of a final judgment by the SEC under which he will pay $1.25 million in disgorgement and prejudgment interest and a $1 million civil penalty. The final judgment also enjoins him from violating and/or aiding and abetting violations of 1933 Act Section 17(a) and 1934 Act Section 10(b) and Rule 10b-5, in addition to the financial reporting, recordkeeping, internal controls, false statements to auditors, and proxy provisions of the federal securities laws. The order also bars Landan from serving as an officer or director of any public company for five years. (SEC v. Mercury Interactive, et al., February 21, 2013).

Landan and three other senior Mercury officers were charged in 2007 with fraudulently awarding themselves and other Mercury employees backdated stock option grants between 1997 and 2005. The officers did not disclose the compensation and failed to record hundreds of millions of dollars of compensation expense.

The SEC’s complaint also alleges that during the same time period Landan and certain other Mercury executives backdated stock option exercises, and made fraudulent disclosures concerning Mercury’s supposed backlog of sales revenues to manage its reported earnings. The SEC also claimed that Landan and the other executives structured fraudulent loans for option exercises by overseas employees to avoid recording expenses.

Under the final judgment, and pursuant to Section 304 of the Sarbanes-Oxley Act, Landan will reimburse Mercury or Hewlett-Packard Co., which acquired Mercury after the alleged misconduct, $5.06 million for cash bonuses and profits from the sale of Mercury stock that he received in 2003. Landan’s Section 304 reimbursement will be considered partially satisfied by his prior return to Mercury of $2.8 million in vested options. While consenting to the entry of the final judgment, Landan neither admitted nor denied the allegations in the SEC’s complaint.

This is Case No. 07-CV-02822 WHA/JSC.

Attorneys: Alvin David Williams for SEC. James Neil Kramer (Orrick, Herrington & Sutcliffe, LLP) for Susan Skaer. Amitabh Chibber (Davis Polk & Wardwell) for Mercuty Interactive, LLC.

Companies: Mercury Interactive, LLC; Hewlett-Packard Co.

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