SEC Charges Quest Software and Three Executives for Stock Option Backdating - 14 Mar 2009

Saturday, March 14, 2009 :: Staff infoZine

The Securities and Exchange Commission charged Aliso Viejo,
Calif.-based software manufacturer Quest Software, Inc. and three
current or former officers for stock option backdating.

Washington, D.C. - infoZine - The SEC's complaint alleges that Quest,
its executive chairman Vincent Smith, its former chief financial
officer John Laskey, and former controller and principal accounting
officer Kevin Brooks improperly granted undisclosed in-the-money stock
options to executives and employees by backdating millions of options
from 1999 through 2002. As a result of this misconduct, Quest reported
a $113.6 million restatement of its operating income in September 2007.
Quest has agreed to settle the SEC's charges, and the three executives
have agreed to pay more than $300,000 combined to settle the
allegations against them.



"Today's action reinforces that the Commission will hold companies and
executives accountable for engaging in misconduct that deceives
investors," said Rosalind R. Tyson, Director of the SEC's Los Angeles
Regional Office. "By participating in the backdating scheme, these
executives ignored their responsibilities as Quest's primary financial
gatekeepers."



According to the SEC's complaint, filed in federal court in Santa Ana,
Calif., Quest failed to accurately describe its stock option practices
in its public filings and failed to properly account for the backdated
options in its financial statements. This resulted in false and
misleading disclosures to Quest's shareholders in filings with the SEC
from 1999 through 2005.



The SEC further alleges that Quest backdated 28 separate grants
involving more than 11 million shares of common stock. Quest's failure
to properly record compensation expenses in connection with the
backdated options resulted in the overstatement of Quest's operating
income by 4 percent to 963.1 percent and the understatement of its
operating loss by 26.12 percent to 154 percent from 1999 through 2005.



Specifically, the SEC's complaint alleges that Smith and Laskey
approved a policy by which Quest would pool stock option grants each
month and backdate the grants to coincide with the lowest stock price
of the month. The complaint alleges that the backdated grant dates bore
no relation to when the grant was actually approved,...

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