Former COO Of Monster Worldwide Convicted On Option Backdating Charges
The backdating scandal continues unabated this week with the conviction of James J. Treacy, former Chief Operating Officer and President of recruitment services for Monster Worldwide, Inc. Following a jury trial Mr. Treacy was found guilty on charges of securities fraud, conspiracy to commit securities fraud, filing false statements with the SEC, making false statements to auditors and falsifying the books and records of the company.
The charges against Mr. Treacy were based on an option backdating scheme at the company which took place between 1997 and 2003. As part of a scheme to grant in the money options without reporting the compensation expense Mr. Treacy and others at the company backdated the option grants and prepared papers which made it appear that they had been granted on an earlier date. This caused Monster’s public filings with the SEC during the period between 1997 and 2005 to understate the company’s compensation expense by over $300 million. For example in 2006 the company initially reported net income of over $69 million. Following a restatement which corrected for the compensation expenses related to the backdated options, net income was reduced to about $3.4 million.
To conceal the backdated options Mr. Treacy and others made false statements about the grant practices to the outside auditors. In one instance he signed a management representation letter in which he falsely represented that the financial statements of the company were presented in accordance with GAAP and that there had been no fraud involving management or employees who had significant roles in the internal controls.
Mr. Treacy received over one million backdated options in eight different grants. He exercised about 745,000 of those options for a total gain of over $24 million. He is scheduled to be sentenced August 25, 2009. U.S. v. Treacy, Case No. 1:08-cr-00366 (S.D.N.Y.).
Mr. Treacy has also been named in a related SEC enforcement action. SEC v. Treacy, Case No. 08 CV 4052 (S.D.N.Y. April 30, 2008). That case also names former Monster controller Anthony Bonica as a defendant.
Previously, Andrew J. McKelvey, the founder of the company entered into a deferred prosecution agreement with the U.S. Attorney’s Office for the Southern District of New York while Myron F. Olesnychyj, its former general counsel, pled guilty as discussed here. In addition, Messrs. McKelvey and Olesnyshyj, along with the company settled related shareholder action based on option backdating as discussed here.
Mr. McKelvey also settled an action brought by the Commission, SEC v. McKelvey, Civil Action No. 08-cv-05555 (S.D.N.Y. Filed Jan. 23, 2008), by consenting to the entry of a statutory injunction and an order requiring him to pay disgorgement and prejudgment interest totally about $275,000. He also consented to be barred from serving as an officer or director. The settlement did not include a civil penalty for what the SEC termed “overriding personal circumstances.” Mr. Olesnychyj was named as a defendant in a Commission enforcement action. SEC v. Olesnychyj, Civil Action No. 07 CV 1176 (S.D.N.Y. Filed Feb. 15, 2007).