Bloomberg News

SafeNet, Ex-CEO Anthony Caputo, Settle SEC Backdating Charges

November 12, 2009

Former SafeNet Inc. (SFNT:US) Chief Executive Officer Anthony Caputo and former Chief Financial Officer Kenneth Mueller settled U.S. Securities and Exchange Commission claims that the maker of data-security software backdated stock options and released false information about its finances.

Caputo and Mueller “engaged in a scheme to backdate option grants to senior executives and employees” from 2000 to May 2006, the SEC said today in a suit filed in U.S. District Court in Washington. Caputo, Mueller and three former SafeNet accountants also took part in a plan to “meet or exceed quarterly earnings-per-share targets through the use of improper accounting,” the SEC said.

SafeNet, based in Belcamp, Maryland, agreed to pay a $1 million fine, the SEC said. Caputo, 67, was liable for $1.9 million in ill-gotten gains plus interest and agreed to pay a $250,000 fine, according to the SEC complaint. Caputo’s liability for the gains was satisfied by a previous settlement, the SEC said.

Mueller, 57, agreed to pay financial penalties totaling more than $125,000, including a $75,000 civil fine, and almost $100,000 in the improper gains plus interest were resolved in a previous settlement, the SEC said.

Through backdating of options, companies retroactively change grant dates to periods when share prices were lower, boosting recipients’ profits while potentially distorting earnings. At least 225 companies have disclosed internal or federal investigations of options irregularities since 2006, and more than 140 have said they would restate financial results.

“We voluntarily cooperated with the government investigation since 2006,” SafeNet spokeswoman Donna St. Germain said today in an interview. The company was acquired by Vector Capital Corp. in April 2007. Efforts to locate lawyers for Caputo and Mueller weren’t immediately successful.

Argo Sentence

In January 2008, former CFO Carole Argo was sentenced to six months in prison for illegally backdating options for herself and Caputo. U.S. District Judge Jed Rakoff in New York also ordered her to pay a $1 million fine.

Argo pleaded guilty in October 2007 to complying with a request by Caputo to record the options as if they had been issued when the stock was trading at a low. On Oct. 18, 2006, SafeNet ousted Argo and Caputo after an internal probe uncovered the backdated options.

To contact the reporter on this story: Ian Katz in Washington at ikatz2@bloomberg.net.

To contact the editor responsible for this story: Alec D.B. McCabe at amccabe@bloomberg.net


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