The Securities and Exchange Commission has charged three former senior executives from software developer Embarcadero Technologies with stock options backdating.

The SEC alleges that former chairman and CEO Stephen R. Wong, former CFO Raj P. Sabhlok and former controller Michael C. Pattison concealed millions of dollars in compensation expenses associated with valuable "in-the-money" options secretly granted to company employees.

Wong, without admitting or denying the allegations, agreed to settle the SEC's charges by consenting to a permanent injunction against violations of the antifraud and other provisions of the federal securities laws, a $250,000 financial penalty, and a five-year bar from serving as an officer or director of a public company.

The SEC's complaints, filed in federal district court in San Francisco, allege that Embarcadero routinely provided valuable options at below-market prices to its employees. The SEC alleges that the three executives allowed Embarcadero to avoid reporting expenses for these options by backdating paperwork to make it appear as if the options had been granted on an earlier date, when the stock was trading at a lower price.

According to the SEC's complaints, Embarcadero made hundreds of backdated stock option grants during 16 consecutive quarters. As a result, the company significantly overstated its net income (or understated its net loss) from 2000 through 2005. In the year with the largest percentage impact, Embarcadero understated its net losses by more than 500 percent.

According to the SEC, Sabhlok and Pattison used false documents to support large option awards to themselves that were collectively in-the-money by almost $1.5 million. The SEC's litigated action against Sabhlok and Pattison charges both with violating the antifraud and other provisions of the federal securities laws, and seeks financial penalties, disgorgement and injunctive relief.

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