Former McAfee lawyer indicted for backdating

A former legal counsel for McAfee was indicted Tuesday for stock options backdating irregularities

The former legal counsel for McAfee is facing federal charges of improperly backdating stock options at the security software company.

Kent Roberts, 50, of Dallas, was indicted Tuesday by a federal grand jury on seven counts of fraud for improperly backdating options between 2000 and 2002, according to a statement from the U.S. Attorney's Office for the Northern District of California in San Francisco.

Roberts is charged with "devising a scheme to defraud by granting himself and others valuable in-the-money stock options while hiding the true nature and value of the stock option grants," the statement says. Roberts hid the fraud from the company, then known as Network Associates Inc., its board, shareholders, auditors and the U.S. Securities and Exchange Commission (SEC).

Roberts joins a small but growing list of executives or former executives of companies charged in the U.S with improperly backdating stock options grants to make them more profitable for the recipients, but at the expense of shareholders. More than 100 U.S. companies are under investigation by the SEC, federal prosecutors or through internal audits.

According to the indictment, the Network Associates board granted Roberts the option to buy 20,000 shares of Network Associates' stock at the strike price of US$29.62, which was the price at which the stock closed on Feb. 14, 2000. In late 2000, Roberts became concerned that his options were "underwater," that is, the US$29.62 exercise price of the grant was more than the market price for stock. Roberts allegedly caused Network Associates' then-controller to change the grant date and exercise price in the computer system that recorded stock option grants. The grant date was changed to April 14, 2000, with a new exercise price of US$19.75.

Furthermore, Roberts implicated the then-controller in the improper backdating of other stock options for consultants to the company. Roberts initiated an investigation in 2002 and recommended that the controller be removed from his position. Roberts also participated in a conference call with the SEC at the time, in which he implicated the controller. All the while, the indictment says, Roberts never mentioned that the controller backdated his options, too.

The government also says that Roberts altered board meeting minutes to change the date on which options were granted to the company's then-CEO and chairman. He allegedly changed the options date from Jan. 15, 2002, when the stock closed at US$27.19, to Jan. 16, when it closed at only US$25.43.

The greater the difference between the lower options price and the higher market price when the executive exercises the option, the greater the profit.

Roberts is scheduled to be arraigned Thursday before Federal Magistrate Judge Joseph C. Spero in San Francisco. Roberts' attorney Neal Stephens could not be reached for comment.

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Robert Mullins

IDG News Service
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