THE MONSTER WORLDWIDE OPTION BACKDATING CASES
In its most recent case with a Monster Worldwide, Inc. executive, the SEC settled option backdating charges with the former controller, Anthony Bonica. SEC v. Bonica, Civil Action No. 08 CV 4052 (S.D.N.Y. June 1, 2010). The complaint, like others involving the company, alleged that Mr. Bonica participated in a scheme at Monster between 1997 and 2003 in connection with option backdating. Specifically, during that period, in-the-money options were granted without reporting the compensation expense. As part of the scheme, papers were prepared which made it appear that the options had been granted earlier, when in fact they were not. This resulted in the public filings of the company with the SEC being false.
According to the SEC, Mr. Bonica’s fraudulent conduct caused Monster’s periodic filings and proxy statements to falsely portray the options of the company as having been issued at fair market value. As a result of the scheme, on December 13, 2006 the company restated its financial statements for the period 1997 – 2005 in a cumulative pre-tax amount of about $339.5 million. Mr. Bonica is alleged to have received backdated options.
To resolve the case, Mr. Bonica consented to the entry of a permanent injunction prohibiting future violations of Securities Act Section 17(a) and Exchange Act Sections 10(b) and 13(b)(5) and from aiding and abetting violations of Sections 13(a), 13(b)(2)(A) and 14(a). He also agreed to pay disgorgement of $115,736.71, along with prejudgment interest and a civil penalty of $60,000. In a separate administrative proceeding, Mr. Bonica consented to the entry of an order suspending him from appearing or practicing before the Commission as an accountant with a right to request reinstatement after three years. See also Litig. Rel. 21542 (June 1, 2010).
The Commission has filed other cases involving Monster and its executives based on the same backdating scheme. In May 2009, the company settled with the Commission. SEC v. Monster Worldwide Inc., Civil Action No. 09 CV 4641 (S.D.N.Y. May 18, 2009). Monster consented to the entry of a permanent injunction prohibiting future violations of the antifraud, reporting and proxy provisions of the federal securities laws and agreed to pay a penalty of $2.5 million. The founder of the company and its former CEO, Andrew McKelvey, also settled with the Commission. SEC v. McKelvey, Case No. 08 CV 0555 (S.D.N.Y. Jan. 23, 2008). Mr. McKelvey consented to the entry of a permanent injunction prohibiting future violations of the antifraud, reporting and proxy provisions of the federal securities laws as discussed here. A civil penalty was not assessed based on his personal circumstances. Mr. McKelvey also entered into a deferred prosecution agreement with the U.S. Attorney’s office.
Former Monster COO James Treacy settled with the Commission on similar terms. SEC v. Treacy, Civil Action No. 08 CV 4052 (S.D.N.Y. Nov. 8, 2009). Mr. Treacy also consented to the entry of an officer and director bar. The SEC withdrew its request for disgorgement and a penalty in view of the sentence imposed in a related criminal case, discussed here. Mr. Treacy has appealed that conviction. Myron Olesnychyj, the former general counsel of the company previously settled option backdating charges with the SEC. SEC v. Olesnychyj, Civil Action No. 07 CV 1176 (S.D.N.Y. Filed March 27, 2007). Mr. Olesnychyi consented to an injunction similar to the one entered against Mr. Treacy. He also pleaded guilty in a parallel criminal action to one count of securities fraud and one count of conspiracy to commit securities fraud and agreed to pay a forfeiture of $381,000.