Summary
As a former Assistant Chief Accountant in the SEC’s Division of Corporation Finance, I believe that members of the boards of directors of U.S. public companies have always been potentially at risk for civil sanctions. The real news is that beginning with Enron the SEC has increasingly insisted as part of any settlements with directors that they agree not to request indemnification from the company or its insurers for part or all of the imposed civil monetary sanctions.
Analysis
I can recall running into a former SEC colleague of mine at a conference a couple years ago where I inquired as to why he was grinning from ear-to ear. His response was, in so many words, that “we just hit the Enron and Worldcom directors where they live…in their wallets.” Then he elaborated that the multi-million dollar settlements his office had just struck with the directors of Enron and Worldcom included for the first time a stipulation that such directors could not seek indemnification for a substantial part of their individual sanctions.
As per the referenced WSJ article, the SEC apparently is considering the same for the directors of Mercury Interactive. I would assume that, at a minimum, the directors who were also members of Mercury’s Compensation Committee are personally at risk for substantial civil sanctions for which they will not be able to seek indemnification. I would expect that the SEC will look to similarly inflict substantial personal pain upon the directors of other public companies ultimately found guilty of engaging in the back-dating of stock options.
