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Two at tech service firm quit over stock options

From Reuters

Affiliated Computer Services Inc. said Monday that its chief executive and chief financial officer had resigned because they had violated ethics rules in the granting of stock options.

The company also said it would record about $51 million in additional compensation expenses to correct the accounting of misdated option grants.

Lawyers for CEO Mark King and Chief Financial Officer Warren Edwards said the executives hadn’t intentionally engaged in misconduct.

Analysts said the news lifted a cloud of uncertainty that had lingered since March, when the Dallas-based computer service company disclosed a Securities and Exchange Commission probe of option grants.

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“ACS had kind of become a poster child in this whole options backdating scandal,” said Jefferies & Co. analyst Joseph Vafi. “They clearly today sent a signal that they are taking this very seriously.”

Affiliated Computer Services said an investigation by its board concluded that “certain conduct” of CEO Mark King and Chief Financial Officer Warren Edwards violated the company’s code of ethics. Both quit their posts effective Sunday but will remain employees through June.

The internal investigation, initiated in response to an informal inquiry by the SEC and a subpoena from a federal grand jury in New York, found that the company had recorded incorrect dates on some options granted from 1994 through 2005.

More than 160 companies have launched internal investigations or are the subject of U.S. federal probes to determine whether dates of stock option grants were manipulated.

Affiliated Computer Services shares fell 49 cents Monday to $50.25. The stock has dropped about 20% since the company disclosed the SEC investigation in March.

Goldman Sachs analyst Julio Quinteros said in a note to clients that he viewed the news “as a positive” for Affiliated Computer Services shares.

Vafi at Jefferies & Co. said the stock could rise over the next few weeks now that uncertainty surrounding the investigation had been lifted.

The company appointed Chief Operating Officer Lynn Blodgett president and CEO. Blodgett, 52, has been with Affiliated Computer Services since 1996, when it acquired a company that he had founded. He has been a company director since September 2005.

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The company also named executive vice president of corporate development John Rexford chief financial officer. Rexford, 49, joined the company in 1996 as a senior vice president.

King’s lawyer, Karen Seymour, said her client voluntarily resigned as CEO and had “acted at all times in good faith and did not engage in any intentional misconduct.”

Gary Naftalis, a lawyer for Edwards, said his client “engaged in no intentional misconduct.”


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