Former Monster COO Guilty Of Stock Fraud

May 15, 2009
This article is part of a series called Financial.

Former Monster COO James Treacy faces up to 25 years following his conviction Tuesday on charges he defrauded investors by helping engineer a scheme to backdate stock options granted to employees of the job board company.

A New York City jury took less than four hours to convict the 51-year-old Treacy of one count of securities fraud, and one count of conspiracy to commit securities fraud, file false statements with the U.S. Securities and Exchange Commission (SEC), make false statements to auditors, and falsify books and records. The verdict came in late Tuesday.

Federal prosecutors charged that Treacy and other senior executives systematically backdated options granted between 1997 and 2003, issuing them the closing price of the stock on the day of issue, but making it appear the options had been granted on a day when the stock actually did close at the option price. While a company can legally issue a grant at below market price, federal securities and accounting rules require the company to take the difference as an expense to current earnings and report the actions.

Not only didn’t the company take the charge, prosecutors maintained that Treacy and other executives, including the late Andrew McKelvey, Monster’s founder, former chairman, and CEO, had conspired to hide the backdating. McKelvey resigned from the company in late 2006 rather than cooperate with investigators who were then onto the backdating scheme.

The amount of the backdating was staggering. When Monster finally went back to adjust its financial reports, the charges came to $272 million. In 2001 alone, the adjustments changed Monster’s earnings from $69 million to $3.4 million. Treacy himself was alleged to have profited by more than $24 million from selling stock accrued from backdated options and resulting stock splits and spin-off.

For his defense, Treacy blamed McKelvey and other senior executives for the backdating. His attorneys told jurors Treacy relied on them and on former General Counsel Myron Olesnyckyj to select the dates for valuing the options and to properly account for them.

Terminally ill when he was charged, McKelvey made a deal with prosecutors that required him to admit his guilt. McKelvey died last year. Olesnyckyj also made a deal, pleading guilty to fraud and cooperating in the investigation.

Monster reacted to the jury verdict with a statement saying, “This verdict brings us closer to the end of an unfortunate chapter in the company’s history and putting the issue firmly behind us.”

Treacy will be sentenced Aug. 25th. In addition to prison, he could be fined and required to turn over gains made from the sale of the backdated options.

This article is part of a series called Financial.
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