Quest Software Officials Charged by SEC with Backdating Stock Options
Three current and former executives with Orange County (Ca.)-based Quest Software, Inc. and the company itself have been accused of stock option backdating by the Securities and Exchange Commission.
Quest executive chairman Vincent Smith, former chief financial officer John Laskey, and former controller and principal accounting officer Kevin Brooks granted millions of stock options to company executives and employees from 1999 through 2002, the SEC said. The misconduct allowed Quest to report a $113.6 million restatement of its operating income in September 2007.
To settle the SEC charges, Quest and the former executives have agreed to pay more than $300,000, the SEC said.
Backdating Led to Misleading Disclosures
The SEC complaint, filed in federal court in Santa Ana (Ca.), alleges that Quest failed to accurately describe its stock option practices in its public filings by failing to properly account for the backdated options in its financial statements from 1999 through 2005.
Also, Quest backdated 28 separate grants involving more than 11 million shares of common stock, causing the company to overstate its operating income by four percent to 963.1 percent and understate its operating loss by 26.12 percent to 154 percent from 1999 to 2005, the SEC said.
Pooling of Stock Option Grants Alleged
Smith and Laskey are accused of approving a policy of Quest pooling stock option grants each month and backdating the grants to coincide with the lowest stock price of the month. This practice resulted in artificially low exercise prices for the options, the SEC said.
Smith served as the company’s chief executive officer from 1998 until October 2008. Through his leadership, Quest has become one of the premier enterprise systems management companies in the software industry. Prior to joining Quest Software, Smith co-founded Patrol Software.
Brooks knew of the pooling and backdating of stock options and failed to ensure the accuracy of Quest’s financial statements and disclosures, the SEC said.
All three defendants also conspired to prevent independent auditors from detecting the scheme, including by issuing false written consents from Quest’s board of directors.
Quest, which has more than 3,500 employees in offices around the world, earned $735 million in 2008, up 16.5% from 2007, according to the company.
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