SEC sues 2 former execs of military contractor
The Securities and Exchange Commission sued two former executives at DRS Technologies Inc.’s Engineered Support Systems unit in St. Louis on Tuesday, accusing them of backdating stock options to improperly pay employees $20 million.
Gary C. Gerhardt, who was chief financial officer of Engineered Support Systems, and Steven J. Landmann, who was controller, fraudulently backdated options that vested immediately, resulting in “instant compensation” at the military equipment and technical services contractor, the SEC said. Landmann agreed to settle the case by paying $890,000, including a $260,000 fine.
For the record:
12:00 a.m. March 29, 2007 For The Record
Los Angeles Times Thursday March 29, 2007 Home Edition Main News Part A Page 2 National Desk 2 inches; 77 words Type of Material: Correction
Stock-option inquiry: Articles in Business on Tuesday and Feb. 7 about the alleged backdating of stock options at Engineered Support Systems Inc. from 1997 to 2002 described the company as a unit of DRS Technologies Inc. However, DRS did not acquire Engineered Support until 2006, after the two former Engineered Support executives who are accused of wrongdoing in the case left the company. The name Engineered Support Systems was not used for the business after the acquisition.
The SEC has sued executives at two other companies as it examines whether more than 100 companies falsified dates on employee stock options to inflate their value. If backdating isn’t disclosed, the option grants can hide compensation costs from investors while distorting income taxes and earnings.
“Gerhardt and Landmann undermined the company’s stated goal of using stock options to tie management’s compensation to shareholder return,” Merri Jo Gillette, head of the SEC’s Chicago office, said. “Instead, they granted themselves and others instant compensation that was entirely unrelated to the future performance of the company’s stock.”
The SEC said that the backdating occurred from 1997 to 2002, and that Gerhardt at least twice ordered Landmann to cancel worthless options and replace them with new options. Gerhardt also told Landmann to issue more options to independent directors, paying them an additional $6 million, the regulator said.
“I have not read the complaint, and therefore am not in the position to comment,” said Gerhardt’s attorney, Eugene Goldman.
Landmann’s attorney could not be reached for comment.
DRS Technologies, a New Jersey-based maker of thermal-imaging equipment for armored vehicles, acquired Engineered Support Systems in January 2006. A DRS spokeswoman couldn’t be reached for comment.
