2 ACS executives resign following ethics probe

DALLAS — The chief executive and top financial officer at Affiliated Computer Services Inc. resigned after an investigation found that they manipulated grant dates for stock options, violating the information-technology company's ethics code.

CEO and President Mark A. King and Chief Financial Officer Warren D. Edwards signed separation agreements and relinquished their titles on Sunday. ACS said Monday that both executives would stay as transitional employees through June.

The company immediately named Chief Operating Officer Lynn Blodgett as president and CEO, and it promoted Executive Vice President John Rexford to CFO.

Dallas-based ACS, which provides back-office services to other companies and government agencies, also said in a filing that it might seek to recover profits it believes former CEO Jeffrey Rich received by backdating stock-option grant dates. Rich served as CEO for six years before resigning last year.

ACS also said a lower-level employee, whom it didn't identify, knew of the intentional misdating of documents. The company said the employee would be reassigned and have stock options repriced.

The company said it expects to take a noncash charge of $51 million plus tax expenses for the incorrect accounting of grants dated from 1994 to 2005. ACS said it didn't know whether it would have to restate current or past financial results.

In September, the company delayed the filing of its annual report and said it would review stock option grants going back to 1994. The probe was launched in response to a pending informal investigation by the Securities and Exchange Commission and a grand jury subpoena from the U.S. Attorney for the Southern District of New York.

Under their separation agreements, the exercise price on all options held by King and Edwards will be increased to offset the benefit — $3.2 million for King and $1 million for Edwards — that they would have reaped from backdating the options, the company said.

King's lawyer, Karen Patton Seymour, said the former CEO "acted at all times in good faith, and did not engage in any intentional misconduct." She said King cooperated with the company investigation.

King served under Rich as CFO from 1995 to 2001 and chief operating officer from 2001 until Rich resigned in September 2005. Edwards had been CFO since 2001.

Gary Naftalis, Edwards' attorney, said his client had also cooperated and directed company investigators to relevant documents.

"He did not become the CFO until March 2001, engaged in no intentional misconduct and acted in good faith at all times in connection with the company's long-standing and historical option-granting practices," Naftalis said.

Calls to Rich's attorney were not immediately returned.