Bush's uncle tangled in options probe: SECReuters: Wed Feb 7, 2007 4:01 PM ET
By Tim McLaughlin
NEW YORK (Reuters) - President George W. Bush's uncle, William H.T. "Bucky" Bush, was part of a group of outside directors at a defense contractor who realized about $6 million in unauthorized pay from an options backdating scheme, according to U.S. securities investigators.
Bush and other non-employee directors who served on the board of Engineered Support Systems Inc., now owned by DRS Technologies Inc., are not accused of any wrongdoing in a civil complaint filed on Tuesday by the U.S. Securities and Exchange Commission.
The SEC complaint, however, says the non-employee directors benefited from stock options not approved by shareholders.
"As a result, the company provided significant additional compensation to its outside directors beyond what shareholders had approved," the SEC complaint said. "These same directors later realized approximately $6 million from the exercise of their addtional stock options."
The complaint did not break out how much Bush and the other outside directors received from a total of 132,000 shares of unauthorized shares.
Bush, whose brother is former President George H.W. Bush, was unavailable for comment. He served on St. Louis-based ESSI's board from 2000 until the St. Louis defense contractor was acquired last year for nearly $2 billion by DRS, which sells engineering services to the U.S. military.
Bush served on ESSI's audit committee and received $2,500 a month in consulting fees, an arrangement that later was ended for him and other outside directors. Bush also received a fixed amount of ESSI shares each year for his work on the board.
Before the DRS deal was approved in January 2006, Bush held ESSI shares worth $3.8 million, SEC filings show.
Between 1995 and early 2005, ESSI's stock climbed nearly 900 percent as the company sold cargo loaders, generators and trailers to the Pentagon. ESSI's board was politically connected and included several retired generals.
The SEC on Tuesday accused ESSI's former chief financial officer, Gary C. Gerhardt, and former controller, Steven J. Landmann, of orchestrating a backdating scheme that spanned six years. In all, executives and directors netted $20 million in unauthorized pay, according to the complaint filed in U.S. District Court in St. Louis.
Outside directors received backdated options issued in 1996, 1998, 1999 and 2001, the SEC complaint alleges.
Landmann has agreed to give back about $519,000 in option-related compensation while paying $367,585 in penalties and interest. He did not admit or deny the SEC allegations, and will be permanently barred from serving as an officer of publicly-traded company.
Records unsealed in federal court in St. Louis late last year show that the SEC is investigating Michael F. Shanahan Sr., who co-founded ESSI; his son, who served on the board's compensation committee; and Shanahan Sr.'s son-in-law, David Mattern, who was general counsel.
The SEC wants the Shanahans and Mattern to produce e-mails, meeting notes, telephone logs and board meeting minutes related to the pricing of Engineered Support stock options, court papers show.
The SEC's complaint against Gerhardt said nearly half of the unauthorized and undisclosed gains from options backdating, or about $8.6 million, went to Shanahan Sr. He has not been charged by the SEC.
Court records also show there is an ongoing criminal investigation that mirrors, in part, the SEC's probe.
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