Monster's Founder Quits Board Amid Options Probe [WSJ]
By JAMES BANDLER and MARK MAREMONT
October 31, 2006; Page A3
Monster Worldwide Inc.'s founder, Andrew McKelvey, resigned from the company's board after declining to be interviewed by lawyers conducting an internal investigation into backdating of stock options at the company.
Mr. McKelvey, who founded the company that was the precursor of Monster 39 years ago, had been the company's chairman and chief executive until earlier this month, when he stepped down from both posts, citing the demands of dealing with the options probe. Yesterday, he resigned his remaining positions as director and chairman emeritus. Monster is the parent of the popular Monster.com job-search Web site.
The broadening options-backdating scandal so far has focused on more than 150 companies, and white-collar attorneys say executives increasingly are refusing to cooperate with in-house probes for fear that their statements will be used against them by the government. But failure to cooperate makes it difficult or impossible for the executive to stay in his or her position. Nearly all of the companies involved are conducting internal probes, and typically turn over the results to federal investigators.
MORE ON OPTIONS
[it_wallet.gif] • Text of Monster's SEC filing (PDF)
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Robert Jones, a Monster spokesman, said the company and its board "demanded full compliance with the special committee and its representatives." He declined to comment further.
Behind yesterday's departure was an initial interview Mr. McKelvey, 71 years old, gave in July to the lawyers at Akin Gump Strauss Hauer Feld LLP conducting an internal probe for a special committee of Monster's board. At that time, Mr. McKelvey said that he had no knowledge of any options backdating at Monster, a person familiar with his interview said. This person said that Akin Gump lawyers found evidence contradicting this assertion.
Mr. McKelvey's new attorney, in a letter dated Oct. 29 submitting his client's resignation, tried to clarify remarks the former Monster chief had made in July. He said his client was "jet-lagged, came in without counsel and....did not express his thoughts and recollections as clearly or accurately as he would have liked."
Mr. McKelvey's lawyer, Steven F. Reich, said in the letter that his client had "misunderstood" what the July questions were about, and "focused too narrowly on the issue of whether he knew at the time that improper conduct had occurred, and not on the more general issue of whether backdating had occurred." Mr. Reich added that his client now wished to make clear that he didn't understand at the time that backdating of options was improper or that the practice could have legal or accounting implications.
Mr. McKelvey had been scheduled to be interviewed again by the Akin Gump lawyers yesterday, but Mr. Reich canceled the meeting, saying as new counsel he needed more time to prepare.
"We think the letter from Mr. McKelvey's lawyer is fairly self-explanatory," said Andrew Levander, an outside lawyer for Monster.
Options give their recipient the right to buy a stock at a fixed price, allowing the recipient to profit if the market value of the stock rises from the day the option was granted. But it turns out many companies cheated by pretending that their options were granted on earlier dates, when the stock price was much lower, a practice that gives an instant paper profit to grant recipients. Backdating is illegal if not properly disclosed to shareholders, and also can pose serious accounting and tax problems for companies and executives.
Three former executives at Comverse Technology Inc. have been charged criminally with fraud connected with alleged options backdating at the New York telecommunications software firm. All three purportedly had given confessions to private lawyers conducting an internal probe. One, the company's former finance chief, has pleaded guilty.
At Monster, several top executives, not including Mr. McKelvey, received options supposedly granted at highly favorable times when the company's stock price was low. Several grants were at quarterly or annual low points. The company previously announced the suspension of Myron Olesnyckyj, its general counsel, and has said it is very likely to restate its financial results over options issues.
In a June interview with The Wall Street Journal, Mr. McKelvey said his practice was to sign off on grants and pass them on to the board's compensation committee, but he didn't know the "mechanics" of how options were ultimately awarded. In June, Mr. McKelvey also said that he didn't know of evidence of backdating or other improprieties.
Yesterday, Securities and Exchange Commission Chairman Christopher Cox said the corporate response to stock-option abuses was "unprecedented" and reflects how the corporate environment has changed after accounting scandals at companies such as Enron Corp.
In remarks to reporters after addressing a Stanford University conference in Washington, D.C., Mr. Cox said the forceful private-sector response shows "an unmistakable message has been received" on the need for firms to investigate and address stock-option abuses.
Mr. Cox told reporters the SEC has a number of investigations into stock-option abuses, and said he expects "we'll be seeing more." SEC enforcement division director Linda Thomsen said the agency has more than 120 probes under way, focusing on the worst behavior, such as falsifying documents, creating fictitious employees and lying to auditors -- conduct the SEC alleged against former Comverse executives, which Ms. Thomsen suggested may have occurred at other firms as well.
Separately, Intuit Inc. said that the SEC has decided not to recommend any enforcement action in its investigation of the company's options-granting practices. Intuit, a Mountain View, Calif., maker of personal-finance software, previously had said an internal probe found no evidence of fraud or wrongdoing in its options practices. The company concluded it didn't need to restate historical results. |
