The Securities and Exchange Commission today charged Blue Coat Systems and its former chief financial officer Robert Verheecke, alleging that they backdated stock option grants to executives and employees and reported false financial information to shareholders.
The complaint against the Sunnyvale network security company and its ex-CFO alleges that “from approximately 2000 through 2005, Blue Coat concealed nearly $50 million in compensation expenses associated with valuable ‘in-the-money’ options by backdating paperwork to make it appear as if the options had been granted on earlier dates.”
Both Blue Coat and Verheecke have agreed to settle the SEC’s charges without admitting or denying the allegations. Verheecke will pay more than $185,000 in disgorgement, penalties, and prejudgment interest.
Verheecke, who lives in Palo Alto, served as CFO from May 2001 through May 2005. According to the SEC’s complaint, at various times he used “hindsight” to pick stock option grant dates, prepared or distributed misleading option paperwork, and approved Blue Coat’s false and misleading financial statements and SEC filings. The SEC says that Verheecke personally exercised backdated options for $30,000 in excess profits.
Verheecke agreed to pay back $35,946 to cover his gain on the option exercise along with prejudgment interest, and to pay a financial penalty of $150,000. He also agreed to a not serve as an officer or director of a public company, nor appear or practice as an accountant before the SEC for five years.
According to the SEC complaint, Verheecke obtained his state CPA license in 1977 but it was inactive during his tenure at Blue Coat. Prior to joining Blue Coat, he served as CFO to Business Objects and Netframe Systems. He also served as an auditor at PricewaterhouseCoopers from 1979 to 1983.
Blue Coat, which the SEC credited with cooperating in its investigation, essentially agreed not to violate the anti-fraud and other provisions of the federal securities laws in the future.