Options Probe Claims ACS Chief Executive And CFO

Technology and back-office outsourcer Affiliated Computer Services said Monday that its CEO and chief financial officer have resigned in the wake of a probe investigating the backdating of stock options at the company.

ACS said CEO Mark King and CFO Warren Edwards have tendered their resignations, but will stay on until the close of ACS's current fiscal year in June 2007. The internal probe also implicated former ACS CEO Jeffrey Rich in the scam. Rich resigned from the company last year.

ACS said the executives improperly backdated the price of options grants during a period from 1994 to 2005. During that time, ACS said the executives deliberately chose days on which ACS's stock took a dip as the effective date for the options, making them more valuable when exercised. Rich, King, and Edwards "used hindsight to select favorable grant dates," ACS said in a statement.

ACS said it estimates the practice cost the company $51 million in unrecorded expenses.

Company veteran Lynn Blodgett will replace King as CEO, ACS said. John Rexford will replace Edwards as CFO. The company also stated that chairman Darwin Deason's role in the options program was limited to "broad authorization" and that he wasn't involved in establishing effective dates for options.

During the internal probe, which was conducted on behalf of ACS by former New York City mayor Rudolph Giuliani's law firm Bracewell & Giuliani, investigators sifted through more than 2 million pages of hard copy and e-mails. Electronic documents created prior to 2000 weren't searchable because they lacked the necessary metadata, ACS said.

The Securities and Exchange Commission and the U.S. Attorney's Office in New York are continuing to investigate options dating at ACS. The company in a statement said that it is cooperating with the investigators. Calls to ACS officials were not immediately returned.

Last month, McAfee chairman and CEO George Samenuk resigned after the company found discrepancies in his stock option grants. Also in October, Monster.com chairman Andrew McKelvey stepped down because of an options probe, as did Shelby Bonnie, CEO of CNET Networks.

Apple Computer also has acknowledged that CEO Steve Jobs was aware that some of his options had been backdated. But an internal board cleared Jobs of any wrongdoing, in part because he didn't realize any financial benefit from the backdating, Apple has said.