Legal News

Thursday?s Backdating News: Former Monster Exec. Gets Two Years

By Ashby Jones

How strange, bumpy and unpredictable the fallout of the stock-options backdating situation has been. We’ve had gigantic class-action settlements, big derivative-suit deals, lawsuits dismissed, SEC suits, and overturned convictions. Give us a backdating allegation, and we’ll give you about a dozen precedents for how it all might play out.

The latest: James Treacy, a former executive at Monster Worldwide, was sentenced to two years in prison following his conviction this year for fraud in a scheme to improperly backdate millions of dollars in stock-option awards at the online job-search company. Click here for the AP story and here for our Law Blog post from May on Treacy’s conviction.

Manhattan federal judge Jed Rakoff sentenced Treacy to 24 months in prison. Treacy also was ordered to pay $6.3 million in restitution and $6.3 million in forfeiture.

A jury convicted Treacy of conspiracy and securities fraud in May. Prosecutors alleged at trial that he reaped more than $24 million in a scheme in which he, Andrew J. McKelvey, Monster’s founder and ex-chief executive, and others “gamed the system” in order to make millions of dollars off stock options from the company.

Prosecutors claimed that six of eight option awards to Treacy were improperly backdated, covering 450,000 stock options. The government alleged Treacy had at least two opportunities to stop the backdating scheme, but chose not to.

The backdating situation at Monster has proven a bit more damaging than it has at other companies. Andrew J. McKelvey, Monster Worldwide's founder, in early 2008 entered into a deferred prosecution agreement with federal prosecutors in which he admitted, along with others, to routinely selecting "prices for stock-options grants based on historical dates when Monster's stock price had closed at, or near, a low point, resulting in grants of in-the-money stock options" between 1997 through 2003. McKelvey died in late November of pancreatic cancer.

Myron F. Olesnyckyj, Monster's former general counsel, pleaded guilty in 2007 to criminal charges in connection with the alleged backdating and agreed to cooperate with prosecutors.

In July 2008, Monster agreed to settle a shareholder class-action over backdating for $47.5 million. Suffice it to say it’s been a monster of a problem for the company. (Insert groan here.)

Full post as published by Law Blog - WSJ.com on September 03, 2009 (boomark / email).