Mercury Interactive Plunges

Of all the ways to commit financial fraud, this has to be one of the lamest.

In a report filed with the Securities and Exchange Commission, Mercury said an internal investigation — launched after the SEC began an inquiry into the company in Nov. 2004 — found at least 49 cases in which the company misreported the dates on which it issued stock options. The practice, which applied to “the overwhelming majority” of grants issued between January 1996 and April 2002, the report said, likely allowed executives and employees to make more money on their options because it set a lower “strike price” at which the options could be exercised.
That’s because in almost every case of misdating, the price of Mercury shares on the reported option-grant date was lower than the share price on the actual day the options were issued, the SEC report said.
By manipulating the grant dates, Mercury “was able to provide employees with the lowest possible exercise price,” says Robert Willens, an accounting and tax analyst with Lehman Brothers in New York. “The lower the exercise price, the better off you are as an employee, so you’d want to cherry pick the dates on which the prices would be set,” he says.
Mr. Willens said the accounting trick was extremely blatant and somewhat surprising, since such option-grant manipulation is usually easy to detect by auditors. “This isn’t one of your more complex financial crimes,” he said.

The CEO and CFO have resigned. The stock could be delisted. Shares of Mercury Interactive (MERQE) are down 30% today.

Posted by on November 2nd, 2005 at 3:06 pm


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