Stock Options Scandal Claims McAfee President, CEO

Data security giant McAfee said Wednesday it has fired its president and accepted the resignation of its CEO after an internal investigation into stock options accounting turned up problems that will require extensive restatement of past earnings.

CEO George Samenuk, who also held the position of chairman, said his decision to retire after six years at McAfee, the number two antivirus software maker, was “in the best interests of the company, its shareholders and employees.”

“I regret that some of the stock option problems … occurred on my watch,” he said.

Casualties Mounting

McAfee said the Board of Directors had also voted to terminate the employment of President Kevin Weiss effective immediately. The company named Dale Fuller, a McAfee board member and the former CEO of Borland Software, to serve as interim CEO and President.

The firing and resignation are the latest high-profile casualties of what has become a massive scandal regarding the timing of and accounting for stock options grants. A host of companies, including some of the biggest names in technology — such as Apple and the parent of Monster.com — have found themselves caught up in the fray.

The house-cleaning at McAfee came after the company discovered discrepancies in how options were issued and accounted for that will force it to adjust past earnings statements by US$100 million to $150 million over a 10-year period.

The changes came after a special committee of the board reported its findings after looking at a decade’s worth of stock options grants.

Though the specific findings were not detailed by McAfee, the company had been known to be looking into whether options were back-dated to ensure that executives received the biggest financial benefit possible.

Also on Wednesday, technology publisher CNET Networks said CEO and Chairman Shelby Bonnie had resigned. Bonnie was also a co-founder of CNET and left after an internal investigation showed several instances of options back-dating between 1996 and 2003. CNET’s CFO and general counsel have also left the company recently for similar reasons.

Everybody’s Doing It

The companies are just two of some 140 now said to be involved in either internal or external investigations around stock options grants and the practice of back-dating, in which a company adjusts the timing of stock options grants to a time when the market price of the stock was low. The result is a wider spread between the option price and the trading price.

McAfee shares were up nearly 3 percent to $26.50 in midday trading. The stock has fallen about 5 percent this year as the options scandal dogs the company.

Many of the firms involved in the options scandals are technology companies, which relied heavily on options to attract top talent during the 1990s, when the lure of a potentially huge windfall from stock options was a strong draw for workers.

Apple CEO Steve Jobs has publicly apologized for any back-dating of options that took place at that company. Additionally, the founder and chairman of Monster Worldwide recently resigned, saying the task of dealing with the options issues was taking too much time away from running the business.

Meanwhile, the Securities and Exchange Commission (SEC) is known to be investigating dozens of companies and a slew of private lawsuits have also been filed, likely meaning the last word on the options scandals won’t come for several years.

The practice may have led to billions of dollars worth of misstatements, according to University of Iowa associate business professor Erik Lie. Lie estimates that as many as 15 percent of all options granted between 1996 and mid-2002 were back-dated, with a smaller percentage in more recent years.

Weathering the Storm

According to some estimates, that could represent costs of as much as $100 billion tied to the scandal, from legal fees and restatement costs to lost market value.

Lie noted that options backdating is itself not illegal, but if companies misled regulators or investors by filing false statements about when grants were made, there could be legal exposure.

Still, it is believed that the majority of the disclosures of backdating have already come, that the worst of the scandal is now in the past and that even companies that had admitted engaging in the practice will withstand the fallout with little damage to their stock prices.

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