Ex-Safenet CFO gets prison term in options case

NEW YORK Mon Jan 28, 2008 12:23pm EST

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NEW YORK (Reuters) - A former chief financial officer of information security company SafeNet Inc was sentenced on Monday to six months in prison for manipulating employee stock option grants.

Carole Argo also was fined $1 million. She admitted to backdating options awards from 2000 to 2006 for herself and others at SafeNet, a Maryland-based company that was taken private last year by an investor group.

Argo, who pleaded guilty to one count of securities fraud in October, is among a handful of former U.S. executives who have been charged criminally with wrongdoing related to backdating of option awards. More than 200 companies have disclosed internal audits or government probes surrounding options practices.

Argo, 46, of Baltimore, Maryland, could have faced at least nine years in prison under federal sentencing guidelines. Her lawyers had asked for leniency, urging U.S. District Judge Jed Rakoff to sentence her only to probation, saying that she had owned up to her mistakes and would not repeat them.

But Rakoff said that some prison time was necessary in the case.

While Argo had led an otherwise exemplary life, the judge said, "She also was willing when push came to shove to break the law."

Argo, her voice breaking, apologized to the court, which was filled with her family, friends and former co-workers.

"I am just very sorry for what I did -- for the mistakes I've made. ... " she said. "I've learned from this. I truly have."

Backdating stock options in itself is not illegal, as long as it is properly disclosed and accounted for in company earnings statements. But prosecutors contended that Argo routinely changed the dates of option grants with the benefit of hindsight so that she and others could get particularly advantageous exercise prices, concealing the practice from shareholders, auditors and regulators.

In other options backdating cases, a former chief executive of Brocade Communications Systems Inc (BRCD.O), Gregory Reyes, was sentenced to 21 months in prison and a $15 million fine by a federal judge in San Francisco earlier this month after being found guilty at trial of 10 counts of conspiracy, securities fraud and making misleading statements about Brocade's finances.

Last year, former Comverse Technology Inc CMVT.PK general counsel William Sorin was sentenced in U.S. District Court in Brooklyn to a year in prison for his role in a backdating scheme. Also charged in that case is former Comverse CEO Jacob "Kobi" Alexander, who is in Namibia as that government considers a U.S. request to extradite him.

Last week, former Monster Worldwide Inc (MNST.O) CEO Andrew McKelvey, who is terminally ill, struck a deal with federal prosecutors in New York in which he admitted to options-related wrongdoing but will avoid prison time.

McKelvey was criminally charged with securities fraud and conspiracy, but the government agreed to defer prosecuting him for 12 months because of his poor health. The case will be dropped after a year if he stays out of legal trouble.

(Reporting by Martha Graybow; Editing by Brian Moss)

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