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TheStreet Open House

Mercury Directors Get Wells Notices

Updated from 12:20 a.m. EDT

The Securities and Exchange Commission is contemplating pursuing civil charges against three directors at Mercury Interactive (MERQ) as part of its option backdating investigation.

The SEC sent so-called Wells notices -- which indicate the commission is considering taking enforcement action -- to Mercury directors Igal Kohavi, Yair Shamir and Giora Yaron, the company disclosed in a news release and a regulatory filing Tuesday.

Mercury's stock was barely affected by the news and in recent trading, shares were off 5 cents to $35.55.

Sharlene Abrams, Mercury's former CFO, also received a Wells notice. She's now the CFO of Opsware (OPSW). Opsware, which develops IT automation software, isn't a target of the investigation, the company said. Even so, investors reacted sharply, knocking 50 cents, or 6.1% off the value of the stock, to $7.68 a share.

"The proposed action against Ms. Abrams relates to practices at Mercury involving the timing of stock option grants and the apparent timing of quarter-end shipments and certain expense items and accruals," Opsware said in a press release. "Although the remedies the SEC might seek are uncertain, they could include an injunction against Ms. Abrams, prohibiting violations of the securities laws, and a bar against Ms. Abrams serving as an officer or director of a public company."

Douglas Smith was CFO of Mercury at the time the scandal erupted. He resigned immediately, along with two other executives.

In its Own press release , Mercury also said it had restated financial results for its fiscal years 2002, 2003 and 2004.

Mercury, which makes business software, said the directors plan to argue to the SEC that they did not violate securities laws and did not participate in or know about options backdating. It also stated that "former officers of the Company are likely to receive or have received similar notices."

Mercury was one of the first companies to come under SEC scrutiny for alleged options backdating, a practice in which companies change the date of options grants to executives to give them more lucrative strike prices. Investigators are now looking into options-granting practices at scores of companies.

Mercury was forced to restate its financials after a special board committee found last year that several executives benefited from a program to favorably price options grants. Along with Smith, CEO Amnon Landan and general counsel Susan Skaer resigned after the findings.

The company was delisted from the Nasdaq in January after it failed to meet a deadline for the restatements.

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