LEV L. DASSIN, the Acting United States Attorney for
the Southern District of New York, announced that JAMES J.
TREACY, former Chief Operating Officer and President of
recruitment services giant Monster Worldwide, Inc. (“Monster”),
was convicted today of one count of securities fraud, and one
count of conspiracy to commit securities fraud, file false
statements with the United States Securities and Exchange
Commission, make false statements to auditors, and falsify books
and records, in connection with the backdating of millions of
dollars’ worth of employee stock option grants at Monster. The
jury returned the guilty verdict after a three-week trial before
United States District Court Judge JED S. RAKOFF in Manhattan
According to the evidence at trial:
The grant of stock options — i.e., the right to
purchase company stock at a specific price — is generally an
accepted form of compensation for corporate employees. However,
if a company issues stock options that are “in the money” (that
is, having an exercise price lower than the current market value
of the stock), applicable accounting principles require the
company to increase its compensation expenses (thus reducing its
earnings) by the amount that the options are “in the money.”
In an effort to grant “in the money” options without
reporting a corresponding compensation expense, TREACY and other
senior executives at Monster systematically backdated option
grants between 1997 and 2003 by papering them as though they had
occurred on earlier dates when Monster’s stock price was at or
near a periodic low point. The resulting backdated options were
thus “in the money” at the moment they were issued, but because
they appeared to have been issued at the fair market price on the
earlier date that they were supposedly granted, the need to take
a charge against Monster’s earnings was fraudulently disguised.
As a result, Monster’s public filings with the SEC
between 1997 and 2005 understated the company’s compensation
expenses by over $300 million. For example, Monster’s Form 10-K
for 2001 reported that Monster’s net income was $69,020,000.
However, after Monster later, in 2006, correctly recorded the
appropriate compensation expense for the backdated options, the
company’s net income for that period dropped to $3,439,000.
TREACY himself, while employed at Monster, received in excess of
one million backdated options (adjusted for a stock split and a
spin-off of a Monster division) on eight different grant dates.
Between December 2005 and April 2006, just before the backdating
scheme was disclosed, TREACY exercised approximately 745,000 of
those options for a total gain of more than $24 million.
TREACY and his co-conspirators also made false and
misleading statements about their options grant practices to
Monster’s outside auditors. For example, TREACY signed
management representation letters in which he falsely represented
that Monster’s financial statements were presented in conformity
with Generally Accepted Accounting Principles and that there had
been no fraud involving management or employees who had
significant roles in internal controls.
TREACY faces a total maximum sentence of 20 years in
prison on the substantive securities fraud count and five years
in prison on the conspiracy count. In addition, on each count,
TREACY faces up to three years supervised release and a fine of
the greater of $250,000 or twice the gross gain or loss from the
TREACY is scheduled to be sentenced by Judge RAKOFF on
August 25, 2009 at 4:00 p.m.
Mr. DASSIN praised the investigative work of the USPIS
and the Criminal Investigators of the United States Attorney’s
Office, and thanked the SEC for its assistance in this matter.
Assistant United States Attorneys DEIRDRE A. McEVOY and
JOSHUA A. GOLDBERG were in charge of the prosecution.