Two Cyberonics executives resign over accounting problems

Cyberonics Inc., maker of a device to treat epilepsy and depression, said Monday that two top executives had resigned after an investigation revealed errors in its accounting practices.

Chief Executive Robert “Skip” Cummins resigned effective immediately, as did Pamela Westbrook, the company’s chief financial officer, sending the company’s shares soaring.

“Investors are relieved that a CEO whose credibility had reached Rumsfeldian depths has finally gone,” said Dr. Harry Tracy, publisher of the monthly journal NeuroInvestment.

Houston-based Cyberonics -- the only product of which is an implantable device that stimulates a nerve leading to the brain -- said it would restate its results for fiscal years 2000 through 2005 after a review by its audit committee showed flaws in its reporting of stock option grants between 1999 and 2003.

Cummins, known to many for his pugnacious manner and aggressive salesmanship, will receive $1.7 million in cash as part of a severance package that also includes stock and the early vesting of options.

“We find the board’s decision to lavishly reward him, with what we estimate to be roughly $5 million in cash and stock and the accelerated vesting of his options and restricted stock awards, to be inexplicable,” said Metropolitan Capital Advisors Inc., a hedge fund that holds about 7.3% of Cyberonics stock.

Cyberonics named Reese Terry Jr., the company’s co-founder and former chief executive, as interim CEO.

It named John Riccardi as interim chief financial officer and George Parker III as interim chief operating officer. The company did not previously have a COO.

Shares of Cyberonics rose $2.59 on Monday to $24.17. The stock has lost roughly half its value during the last 17 months as the government probed its options practices and the company failed to make good on upbeat prognostications for its device as a treatment for depression.

The Food and Drug Administration last year approved the company’s Vagus Nerve Stimulator for severe, treatment-resistant depression despite internal opposition from many of the agency’s own staffers.

Even so, insurance companies, which are content to pay for VNS therapy as a treatment for epilepsy, are reluctant to pay for it in depression, saying more long-term data are needed to prove its efficacy.

Shares of Cyberonics jumped last week amid reports that billionaire investor Carl Icahn had taken a stake in the company.