U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20020 / February 28, 2007
Accounting and Auditing Release No. 2567 / February 28, 2007
SEC v. Kent H. Roberts, United States District Court for the District of Columbia, Civil Action No. 07-CV-00407 (D.D.C. February 28, 2007)
SEC Charges Former General Counsel of McAfee, Inc. for Fraudulently Re-Pricing Option Grants
The Securities and Exchange Commission today charged Kent H. Roberts, the former General Counsel and Corporate Secretary of McAfee, Inc., with securities fraud for wrongfully re-pricing McAfee stock option grants awarded to him and others in an effort to secretly increase the value of the grants. The Commission's complaint alleges that Roberts, secretly and without authorization, changed the grant date of a February 2000 grant made to him in order to take advantage of McAfee's then-declining stock price, which increased the potential value of his option grant by approximately $197,500. Roberts concealed his fraudulent re-pricing by filing false stock ownership reports with the Commission, and by failing to properly disclose in a McAfee proxy statement, which he signed, that the grant had been illicitly re-priced to confer a potential benefit of approximately $197,500 on Roberts.
The complaint also alleges that in 2002, Roberts, in his capacity as secretary of the compensation committee of McAfee's board of directors, falsified the minutes of a compensation committee meeting, and directed the company to issue a 420,000 share option grant to McAfee's chief executive a day later than the committee had directed. By re-dating the grant to a day after the committee's intended grant date, Roberts gave the chief executive a potential benefit of approximately $739,200, due to an intervening decline in McAfee's stock price. Roberts later signed a company proxy statement that misleadingly described the chief executive's option grants, and failed to disclose that the CEO had received an extra $739,200 of potential value due to the unauthorized re-pricing.
Roberts was terminated from his positions at McAfee, Inc. in May 2006, after he confessed his option re-pricing to members of McAfee's board of directors. Roberts did so as McAfee was conducting an internal investigation into option granting practices.
Roberts is charged with violating Section 10(b) of the Securities Exchange Act of 1934 ("Exchange Act"), and Rule 10b-5 thereunder, the antifraud provisions; with violating Section 13(b)(5) of the Exchange Act and Rule 13b2-1 thereunder, for circumventing internal controls; and with violating Section 16(a) of the Exchange Act, and Rule 16a-3 thereunder, regarding disclosures of stock ownership by public company officers. He is also charged with violating, and aiding and abetting violations by McAfee, Section 14(a) of the Exchange Act and Rules 14a-3 and 14a-9 thereunder for proxy statement disclosure violations. The Commission is seeking injunctive relief, disgorgement, and money penalties against Roberts, in addition to a permanent bar to prohibit Roberts from serving as an officer or director of a public company.
The Commission acknowledges the assistance of the United States Attorney's Office for the Northern District of California, which conducted its own separate, parallel investigation.
The Commission's investigation in this matter is continuing.