Irvine-based Quest Software Inc. said Thursday it has received an inquiry from the Securities and Exchange Commission regarding past stock option grants, an issue that has dogged the company for a few weeks.
The company gave no other details, but said it would fully cooperate with the “informal inquiry.”
The company said late last month it has formed a committee of independent directors to look at options grants.
The SEC, the Justice Department and other regulators are looking at a dozen or more companies to see whether they backdated options for executives to make them more lucrative.
Regulators are looking at whether companies picked low points for their stocks as the dates for granting options.
Backdating instantly gives executives a paper profit on the options. It also nixes the motivating force behind options: encouraging holders to work toward boosting the stock price. Backdating also can violate tax and disclosure rules.
Quest has come under increasing scrutiny from analysts over possible backdating violations, helping drag its stock down by more than 20% in late May. The stock finished up nearly 1% in trading Thursday.
Quest on May 19 saw an analyst downgrade its shares to “in-line” from “outperform,” given the overhang of the options issue, according to Goldman Sachs Group Inc.’s Sarah Friar.
Friar in a note said her look at Quest found “somewhat well-timed option grants.”
A third of Quest’s grants from 1998 to 2002 are at lows for 40-day periods, she said. Friar said her discussions with management suggest “no wrongdoing”
Quest scores well on corporate governance issues, according to Friar.
