U.S. SECURITIES AND EXCHANGE COMMISSION
Litigation Release No. 20210 / July 26, 2007
Accounting and Auditing Enforcement
Release No. 2653 / July 26, 2007
SEC v. Robert J. Therrien, Civil Action No. 07 CA 11364 RCL (D. Mass.)
SEC Charges Former Chairman and CEO of Brooks Automation, Inc. with Securities Fraud and Reporting Violations in Stock Option Backdating Scheme
The Securities and Exchange Commission today announced the filing of a civil securities fraud action against Robert J. Therrien of Osterville, Massachusetts, former President and CEO of Brooks Automation, Inc., a Chelmsford, Massachusetts software company, alleging that Therrien received millions of dollars in undisclosed compensation when he fraudulently backdated his exercise of an option to purchase company stock and engaged in a scheme to manipulate grants of stock options in order to provide Brooks' employees and executives, including himself, with more lucrative in-the-money options, while avoiding having to inform shareholders of the millions of dollars in resulting compensation expense. According to the complaint, Therrien engaged in the scheme to grant in-the-money options by falsifying company records to create the false appearance that the options actually had been granted at a lower market price on an earlier date. The complaint alleges that Therrien personally benefited by over $10 million from his fraudulent conduct.
According to the complaint, Therrien engaged in a scheme in which Brooks granted "in-the-money" options (which had exercise prices below the stock's market price on the day of the grant, giving the recipient an immediate paper gain) to himself and other employees, but backdated them to make it appear that the options were "at-the-money" (with an exercise price the same as the stock's market price on the day of the grant). Under applicable accounting principles, Brooks did not need to record an expense in its financial statements for grants of at-the-money options, but was required to record an expense for any in-the-money options. Accordingly, the complaint alleges, by backdating the options, Therrien and Brooks concealed millions of dollars in compensation expenses incurred in the option grants. As a result of the transactions alleged in the complaint, Brooks' financial statements allegedly overstated income and understated employee compensation expenses by at least $54 million during the period from 1999 through 2005. After the backdating of stock option grants was discovered, Brooks announced in July 2006 that it was restating its financial results for the fiscal years 1996 through 2005 to record additional cumulative compensation expense of $64.5 million reflecting all options grants.
The complaint alleges that Therrien received approximately $5.8 million in undisclosed compensation from a single options transaction that was falsely reported. That transaction allegedly took place in November 1999, after Therrien learned that an option he held to purchase 225,000 shares at approximately 10% of Brooks' market price had expired unexercised the previous August. Therrien allegedly signed false documents in November 1999 resulting in the issuance of a new in-the-money option to him at the original price, which he immediately exercised to purchase 225,000 shares of Brooks' stock at a fraction of its current market price. According to the complaint, as a result of his fraudulent exercise, Therrien received approximately $5.8 million in undisclosed compensation from Brooks. The complaint alleges that Brooks and Therrien falsely reported this transaction in Commission filings as an option exercise that had occurred the prior August and failed to report Therrien's compensation from the issuance of the new option.
The Commission's complaint describes several instances of company-wide option grants with purported grant dates that Therrien allegedly knew were backdated and in which he personally received backdated options. For example, the complaint alleges that he knew that option grants with a purported date of October 1, 2001 in fact were not finalized until November 30, 2001. During that period the price of Brooks' stock rose by more than $11 per share, so that the backdating produced immediate compensation to its recipients totaling over $22 million, which Brooks failed to disclose in its financial reports. Therrien personally benefited by $1 million from this instance of backdating.
The complaint alleges that by his conduct Therrien violated the general antifraud provisions of the federal securities laws, and provisions that prohibit falsifying records, making materially misleading filings with the Commission, and making misrepresentations to accountants, including Section 17(a) of the Securities Act of 1933, and 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 thereunder, and that he aided and abetted Brooks' uncharged violations of financial reporting, recordkeeping and internal controls requirements, including Exchange Act Sections 13(a), 13(b)(2)(A) and 13(b)(2)(B) and Exchange Act Rules 12b-20, 13a-1 and 13a-13 thereunder.
The Commission's action seeks injunctive relief, a civil penalty, disgorgement and an officer and director bar against Therrien.