Monster: Profit Overstated by $271.9 Million

In its amended annual report to the Securities and Exchange Commission, Monster Worldwide claims it overstated its profit from 1997 to 2005 by a total of $271.9 million.

A committee of independent directors analyzed the company’s stock options and accounting practices after the U.S. Attorney for the Southern District of New York subpoenaed the company in June.

In the amended report, the company notes that the committee “has determined that the exercise price of a substantial number of stock option grants during the periods between 1997 through March 31, 2003, differed from the fair market value of the underlying shares on the measurement date.”

In the SEC filing, the company recorded a net charge of $9.2 million for 2005, $14.4 million for 2004, $27 million for 2003, $44.9 million for 2002, $65.6 million for 2001, and $110.8 million for the cumulative period of 1997 through 2000.

The company also says it has “incurred material expenses in 2006 as a direct result of the investigation into our stock option grant practices and related accounting. These costs primarily relate to professional services for legal, accounting, and tax guidance.”

In addition, it has incurred costs related to litigation, the informal investigation by the SEC, the investigation by the U.S. Attorney for the Southern District of New York, and the review of restated financial statements. The company says it expects to continue to incur costs associated with these matters.

“They did what a lot of large companies tried to do,” notes Barbara Ling, president of RiseTrends. “But now there is a whole new way of trying to bring accountability to these firms.”

“Two days ago they announced they were accepting PayPal, which is a remarkably smart move because it opens the door for smaller businesses to buy their product. This is yet another step toward making it easier for them to make money,” says Ling.

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In November, the company announced that it faced a possible delisting on the Nasdaq due to the company’s failure to file its third-quarter earnings report because of its ongoing stock-option review. (Wednesday’s filing now meets all Nasdaq requirements.) Also in November, the company fired legal counsel Myron Olesnyckyj.

In October, Andrew McKelvey resigned as Monster Worldwide’s chairman, chief executive officer, and board member after declining to be interviewed by a board committee reviewing these stock-option grants, according to a filing with the Securities and Exchange Commission.

Monster is one of more than 180 companies conducting internal investigations or subject to a Securities and Exchange Commission investigation concerning potential backdating of stock options.

The “backdating” of employee stock options, which may boost profits and lower taxes, refers to options that are issued retroactively to coincide with low points in a company’s share price. The practice isn’t necessarily illegal, but it must be properly recorded to shareholders.

An analysis from market research firm Glass Lewis & Co has found that the stock scandal could implicate hundreds more companies.

Elaine Rigoli has nearly 15 years of experience managing content and community for various B2B and consumer websites. Elaine has written thousands of business and technology articles and has been quoted in The Wall Street Journal and eWeek, among other publications.


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