U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20221 / August 1, 2007
Accounting and Auditing Enforcement Release No. 2662 / August 1, 2007
Securities and Exchange Commission v. Carole D. Argo, Civil Action No. 07-1397 (JR) (D.D.C. Aug. 1, 2007)
The Securities and Exchange Commission today filed a civil injunctive action in the United States District Court for the District of Columbia against Carole D. Argo formerly the president, chief operating officer, and chief financial officer of SafeNet, Inc., alleging that Argo engaged in a fraudulent scheme to grant undisclosed in-the-money options to herself and others by backdating stock option grants to take advantage of historically low closing prices of SafeNet stock. Specifically, the Commission's complaint alleges that, by selecting these highly favorable dates and causing options to be granted on dates when she knew the options were already in-the-money, Argo created an opportunity for herself and other executives and employees at SafeNet to reap substantial profits. Argo then backdated documents to conceal from SafeNet's investors that SafeNet was issuing in-the-money option grants.
According to the complaint, Argo was aware that SafeNet routinely granted in-the-money options, and she knowingly or recklessly failed to cause SafeNet to record compensation expense as required by Generally Accepted Accounting Principles ("GAAP"). Consequently, SafeNet reported materially misstated financial results for periods beginning in late-2000 through early-2006. The complaint further alleges that Argo regularly prepared, reviewed and/or signed proxy statements, periodic reports and registration statements that she knew, or was reckless in not knowing, contained materially false and misleading statements and omissions concerning SafeNet's financial condition and options granting practices.
Argo is charged with, among other things, violating the antifraud provisions of the federal securities laws, falsifying SafeNet's books and records, circumventing SafeNet's internal controls, misleading SafeNet's auditors, and causing SafeNet to issue false and misleading financial reports. By engaging in this conduct, Argo specifically violated Section 17(a) of the Securities Act of 1933 ("Securities Act"), Sections 10(b), 13(b)(5), 14(a), and 16(a) of the Securities Exchange Act of 1934 ("Exchange Act") and Exchange Act Rules 10b-5, 13a-14, 13b2-1, 13b2-2, 14a-9, and 16a-3, and aided and abetted SafeNet's violations of Exchange Act Sections 10(b), 13(a), 13(b)(2)(A), 13(b)(2)(B), and 14(a) and Exchange Act Rules 10b-5, 12b-20, 13a-1, 13a-13, and 14a-9 thereunder. The Commission is seeking injunctive relief, disgorgement, pre-judgment interest, and money penalties against Argo, in addition to a permanent bar to prohibit Argo 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 Southern District of New York and the United States Postal Inspection Service, which conducted a separate, parallel criminal investigation. The Commission's investigation in this matter is continuing.