BEA Finds Options Abuse, Demotes Several Execs

BEA's investigation showed that for nearly 10 years, company officers manipulated grant dates to maximize the value of employee stock options, and they failed to properly record compensation expenses associated with the options.

Senior management executives "appear to have chosen grant dates with the benefit of hindsight" and slipped them through BEA's lax approvals process, while the company's human resources department exploited loopholes to maximize gains for some employees, BEA said in a statement.

For example, some employees were permitted to take a leave of absence immediately upon their hire, allowing them to receive a stock option grant and exercise price pegged to a date before they actually began their duties. Departing employees were "frequently" given leaves of absence or special termination agreements in lieu of severance payments, intended to open an extended window for options vesting and exercising, BEA said.

Alfred Chuang, BEA's CEO since Oct. 2001, made $2.4 million exercising improperly priced options granted to him in 1998 and 1999. BEA's audit committee, which conducted the investigation, "did not find that Mr. Chuang was involved in the mispricing of these grants," BEA said. Chuang has agreed to repay his after-tax gains on the difference between the shares' actual and corrected exercise prices.

BEA will recruit a new HR head to replace its current senior vice president of human resources, Jeanne Wu, who will leave the company after a transition period. BEA also is recruiting a new general counsel to replace Robert Donohue, who will remain with the company as a vice president in the legal department.

Also taking a step down the corporate ladder is William Klein, who was BEA's CFO from February 2000 through February 2005, when he became the company's executive vice president of business planning and corporate development. Like Donohue, Klein will remain with BEA in a diminished capacity, serving as a vice president.

Chuang and several other top executives have agreed to have all of their outstanding options repriced to a corrected measurement date, which will be determined by the audit committee. The exercise price of the options collectively held by the group will rise by roughly $23 million, BEA said.

The company plans to issue revised financial reports for its fiscal years from 1998 through 2007, adding non-cash compensation expenses of $340 million to $390 million to its previously reported totals.

BEA's board noted that it has "continued confidence in the leadership and integrity" of Chuang and the rest of BEA's current executive team.

BEA is one of more than 200 companies mired in internal or federal probes into options accounting, a scandal that has singed some of the tech industry's leading lights, such as Apple. BEA received a warning from Nasdaq in December that it risked having its stock delisted if it didn't quickly get current on filing financial reports.