Former Monster COO Guilty Of Stock Fraud

Former Monster COO James Treacy faces up to 25 years following his conviction Tuesday on charges he defrauded investors by helping engineer a scheme to backdate stock options granted to employees of the job board company.

A New York City jury took less than four hours to convict the 51-year-old Treacy of one count of securities fraud, and one count of conspiracy to commit securities fraud, file false statements with the U.S. Securities and Exchange Commission (SEC), make false statements to auditors, and falsify books and records. The verdict came in late Tuesday.

Federal prosecutors charged that Treacy and other senior executives systematically backdated options granted between 1997 and 2003, issuing them the closing price of the stock on the day of issue, but making it appear the options had been granted on a day when the stock actually did close at the option price. While a company can legally issue a grant at below market price, federal securities and accounting rules require the company to take the difference as an expense to current earnings and report the actions.

Not only didn’t the company take the charge, prosecutors maintained that Treacy and other executives, including the late Andrew McKelvey, Monster’s founder, former chairman, and CEO, had conspired to hide the backdating. McKelvey resigned from the company in late 2006 rather than cooperate with investigators who were then onto the backdating scheme.

The amount of the backdating was staggering. When Monster finally went back to adjust its financial reports, the charges came to $272 million. In 2001 alone, the adjustments changed Monster’s earnings from $69 million to $3.4 million. Treacy himself was alleged to have profited by more than $24 million from selling stock accrued from backdated options and resulting stock splits and spin-off.

For his defense, Treacy blamed McKelvey and other senior executives for the backdating. His attorneys told jurors Treacy relied on them and on former General Counsel Myron Olesnyckyj to select the dates for valuing the options and to properly account for them.

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Terminally ill when he was charged, McKelvey made a deal with prosecutors that required him to admit his guilt. McKelvey died last year. Olesnyckyj also made a deal, pleading guilty to fraud and cooperating in the investigation.

Monster reacted to the jury verdict with a statement saying, “This verdict brings us closer to the end of an unfortunate chapter in the company’s history and putting the issue firmly behind us.”

Treacy will be sentenced Aug. 25th. In addition to prison, he could be fined and required to turn over gains made from the sale of the backdated options.

John Zappe is the editor of TLNT.com and a contributing editor of ERE.net. John was a newspaper reporter and editor until his geek gene lead him to launch his first website in 1994. He developed and managed online newspaper employment sites and sold advertising services to recruiters and employers. Before joining ERE Media in 2006, John was a senior consultant and analyst with Advanced Interactive Media and previously was Vice President of Digital Media for the Los Angeles Newspaper Group.

Besides writing for ERE, John consults with staffing firms and employment agencies, providing content and managing their social media programs. He also works with organizations and businesses to assist with audience development and marketing. In his spare time  he can be found hiking in the California mountains or competing in canine agility and obedience competitions.

You can contact him here.

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10 Comments on “Former Monster COO Guilty Of Stock Fraud

  1. Monster reacted to the jury verdict with a statement saying, “This verdict brings us closer to the end of an unfortunate chapter in the company’s history and putting the issue firmly behind us.”

    Actually, no. This puts nothing behind them. It is a collective part of the history, story and brand that created Monster and it’s stink will be there for years to come.

  2. This reminds me of a report I read many years ago about a businessman’s failure. It concluded with a remark that included that “…the market failed him…”.

    It left an ambiguous impression in the reader’s mind – was this a good guy or a bad guy? Did the market “fail” him as being a poor businessman or did the market “fail” him as in disappointing him?

    Words are powerful when carefully chosen.

  3. Treacy is the poster child for literally hundreds of companies and thousands of leaders in those companies who failed the real stockholders by ripping off company profits. I’m especially critical of the legal, financial and HR board members whose active and passive acceptance of these backdating practices led to it becoming so widespread.

  4. I met with “Jim” for breakfast in ’05, we met to talk about new media recruitment strategies and trends. I am sprised he was that kind of businessman. He’s the “feed the Monster” strategy guy. TMP Worldwide, the parent company at that time, had purchased dozens of recritement advertising agencies with the purposed to “feed the Monster”. That strategy made Monster the market leader. Jim said there were management differences between him and Andrew McKelvey, but we did get deep into details, but Jim did say Andrew “Could not manage himself out of a paper bag.”

    He told me about his teen kids and how he was going to their games. He was on a couple Boards, Dice and others, and how he was spending the summers at his shore house in LBI.

    I guess after getting to know a guy you feel bad and hope its not true, but I’m sure the courts and jury have their facts right, if so Jim will need to pay his dues to society.

  5. I have known Jim Treacy for many years – over 20 in fact. He is well respected finanial professional having worked in top roles for WPP group and TMP. It’s enough for me to say that Jim is a man of integrity. If Jim says that he was set-up, then he was. Sorry to see this happen to good man.

  6. Evin. The stock option manipulations were so widespread I have no doubt many participants viewed themselves as victims.
    I’ve also no doubt that Jim is probably a good person at heart. I also am a person who has made dumb moves in my life and so am not one to judge any individual as either good or bad.
    But the actions of an individual can and should be judged and the consequences of participating have to be accepted and paid.

    The hundreds of Financial, HR and Executive officers who literally stole the investments of joe public (and I certainly include myself in that group) by illegally manipulating their stock through greed and arrogance need to be held accountable- no less than the
    Madoff.

    Ignorance, pasive acceptance of a windfall, all of the rationales a unacceptable excuses of smart people looking the other way and failing the test of critical intelligence…for which they were paid big bucks.

    If they don’t go or lucked out and didn’t get sent to jail, I would list each and every name and short the stock of every company that had the temerity to hire them.

    They offer a new definition to the term hubris.

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