Information security provider SafeNet's (NASDAQ:SFNT) announcement last week that its two top executives were resigning became the latest domino to fall in the ever-widening stock option backdating scandal.
Earlier this year, the company -- which develops encryption technology for clients like PMC-Sierra (NASDAQ:PMCS), Swift Energy (NYSE:SFY), and Bank of America (NYSE:BAC), as well as numerous government agencies -- announced it was launching an investigation into how stock options were awarded, as it seemed fortuitous that many of the awards came when the stock was at its lowest point. Shortly thereafter, both the Office of the U.S. Attorney for New York's southern district and the SEC launched probes into the affair.
SafeNet concluded its investigation and found that certain stock option grants between 2000 and 2005 were indeed backdated and that it would have to record material, non-cash compensation expenses. SafeNet will restate its results from 2002 all the way until March of this year, and while it will take charges of only about $20 million, it may also default on $250 million worth of debt because it didn't file its quarterly financial reports on time.
Resigning CEO Anthony Caputo received more than 691,000 shares of the 5.2 million options that were granted during the five-year period in question, while President, COO, and CFO Carole Argo received 295,000 shares. Caputo ultimately exercised options worth $6.4 million, and Argo exercised $1.2 million worth.
SafeNet wasn't alone in announcing executive exits, as business consultant Sapient (NASDAQ:SAPE) also announced the departure of its CEO and CFO, which was due to its own options backdating probe. And just last week, UnitedHealth (NYSE:UNH) CEO William McGuire stepped down because of that company's options scandal.
While SafeNet's press release was solicitous of Caputo, thanking him for his 20-plus years of service to the company, the SEC filing also said its personnel committee would determine whether he was "terminated for Cause" or that he resigned "for good reason," as Caputo contends. It's an important distinction, because the committee's decision determines whether or not he receives the compensation outlined in his employment agreement. Along with the usual benefits an executive receives upon leaving a company on good terms, the agreement includes a fully funded $2 million variable life insurance policy, the lesser of $600,000 or his salary plus target incentives, and stock options that are now fully exercisable.
In light of the controversy surrounding McGuire's generous retirement package from UnitedHealth, perhaps SafeNet's board thought it best to extend the decision out until next March. Or maybe they really do feel that this separation was a termination rather than a resignation; after all, they've given Caputo the right to challenge any decision the personnel committee ultimately makes.
Whatever the outcome, the company still must contend with the other probes of its actions and that may end up resulting in a few more dominoes toppling over.
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Fool contributor Rich Duprey does not own any of the stocks mentioned in this article. You can see his holdings here. The Motley Fool has a disclosure policy.
