A founder of Brooks faces charge over options

The federal government's campaign against the backdating of stock options at technology firms ensnared its first executive at a Massachusetts public company as Robert J. Therrien, the former chief executive of Brooks Automation Inc., was charged with fraud and tax evasion.

In a civil case filed late Wednesday, the Securities and Exchange Commission alleged Therrien earned more than $10 million in a scheme to falsify company stock-option records. Meanwhile, federal prosecutors indicted Therrien on a tax-evasion charge in connection with some of the same options.

Therrien, 72, a founder of the Chelmsford software company who served as its chief executive through 2004 and its chairman until 2006, denied wrongdoing and vowed to defeat the claims in court. The cases will turn on the testimony of co-workers, and on technical questions of how companies treated stock options at the height of the technology boom.

The cases filed in US District Court in Boston also likely will touch Brooks's accounting firm, PricewaterhouseCoopers, and its former law firm, Brown Rudnick Berlack Israels LLP. Therrien relied on their advice, said his attorney Robert Popeo, though he did not specify the firms by name.

In all, the SEC says it is investigating about 140 companies across the country over their accounting of stock options, and has brought claims against 22 former executives of 12 companies. Other Massachusetts technology firms that have acknowledged problems in clude Sycamore Networks Inc. of Chelmsford and American Tower Corp. of Boston.

Brooks itself was not charged and said it has cooperated with prosecutors' investigations. The company already has restated its results from 1996 through 2005 to account for $64 million in extra stock-based compensation it had paid out. In 2006, the last two directors who had been at the company before 2001, Amin J. Khoury and Roger D. Emerick, stepped down.

Stock options are rights to buy shares of a company in the future at the closing price on a certain day. They have been widely used as incentives for executives, who can profit handsomely if the stock rises. Start-up companies often used them under previous accounting rules that made them cheaper to issue than other forms of compensation. Since 2005 academic studies have suggested many award dates were manipulated to benefit executives and other company insiders at the expense of shareholders.

According to the SEC's complaint, in 1994 Therrien was issued an option to buy 225,000 shares of Brooks stock at $2.43 per share, accounting for splits, or $546,750 total. The option was set to expire on Aug. 15, 1999. In November of 1999 Therrien was told by finance department personnel that it had expired, and on Nov. 11, 1999, he and two other directors signed a document stating that in June 1999 they had authorized lending Therrien $546,750 to exercise the options.

In fact, the June authorization did not happen, the SEC's complaint states, but Therrien was still able to use the loan to purchase the 225,000 shares of Brooks stock for his option price of $2.43, less than 10 percent of their market price at the time, around $28 per share. Including interest costs, Therrien wound up with a benefit of $5.8 million from the company that he failed to note on Brooks's financial statements, the SEC alleged.

The SEC's complaint includes other cases of alleged backdating. In one instance, it alleges, Brooks's director of human resources sent an e-mail to Therrien on Dec. 6, 2001, describing how on Nov. 30 the company had "finalized" a date of Oct. 1, 2001, for roughly 1.9 million stock options awarded to various employees. Therrien signed a document falsely suggesting that date was picked on Oct. 1 itself; as it turned out, that day marked the lowest price of the year for Brooks stock -- and thus the most advantageous date for options recipients. The options were granted Nov. 30, 2001, when the stock traded at $36.75 a share, the SEC said, a difference of $22 million that Brooks wound up recording in its restatement.

The grand jury indictment filed by the US attorney's office centers on charges Therrien falsely described his dealings with outside directors that allowed him to exercise the options and gain benefits that amounted to tax evasion.

Popeo, Therrien's attorney, said in a statement that the SEC's actions were "fatally flawed and based entirely on hearsay evidence which conflicts with the documentary record in this case." The options in question were given Therrien for his "outstanding performance" as chief executive, he said, and added that all the documents Therrien signed were prepared and reviewed by the company's outside attorneys and auditors.

As for the indictment, Popeo said it is "an outrageous use of the criminal justice system. Of all the individuals involved in this complex financial transaction, the government chose to indict the one person who never has taken a course in taxes or accounting." He added that all of Therrien's actions were reviewed by the professional firms and approved by Brooks's compensation committee.

PricewaterhouseCoopers said in a statement that it wouldn't comment on work for clients, but noted the government suits both contend Therrien falsely represented facts to the accounting firm.

A Brown, Rudnick spokeswoman said attorney-client rules prevented the firm from commenting on the case.

David Bergers, head of the SEC's Boston office, said he couldn't discuss whether the professional firms or other executives would be charged in connection with the Brooks case.

In its complaint, the SEC seeks unspecified penalties and for Therrien to repay his gains, plus interest. Therrien faces up to five years in prison and a fine of $250,000 or twice his gains in connection with the Justice Department actions.

Ross Kerber can be reached at kerber@globe.com.