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It's no mistake.

The Amnon Landan making the headlines this week is the same Amnon Landan who the business press had been applauding for the last five years. It is the same Amnon Landan featured on the cover of Forbes, which named him entrepreneur of the year two years ago.

Why do we have the gall to call the man who led Mercury Interactive, one of the brightest stars in the Israeli hi-tech scene, something as grave as "manipulator"?

Because we read the press release that Mercury itself published last Wednesday. The company briefly described the findings of a special internal committee that the company itself established to check the way the company had handled stock options, several months after the U.S. Securities and Exchange Commission began a probe of its own.

A year and a half ago we devoted this column to Mercury as run by Amnon Landan (originally published on March 21, 2004). We argued that the company may have been presenting terrific profits, but claimed it was actually losing money hand over fist. The discrepancy was due to aggressive use of dubious accounting methods, and its habit of rewarding employees through stock options that it did not count under costs.

Like a lot of other hi-tech companies on Wall Street, Mercury felt otherwise. It argued that dispensing hundreds of millions of dollars' worth of stock options to management, directors and workers was not a cost. The options were granted at market value, it said. The benefit would only kick in when the share price climbed: "The market" is what created the profit for workers, it felt.

Warren Buffett, the most highly-esteemed investor in the world, once accused companies of sinning in their calculation of pension costs by using extreme assumptions of investment return rates. "All that is bad, but the far greater sin has been option accounting," Buffett wrote in the New York Times. Options are a huge cost for many corporations and a huge benefit to executives, which explains their ferocious fight to avoid posting charges against their earnings.

Elsewhere he commented that the combined misstatements make the Enron and Worldcom lies look minuscule, referring to the two American companies that defrauded investors, falsified their financials, went bankrupt and burned up the retirement savings of millions of Americans.

The impetus behind our article then was Mercury's financial statement for the year 2003. In its notes the company wrote that if it had fully expensed stock options to Landan, management and workers, instead of netting $41 million as it reported - it would have presented a loss of $90 million.

Roulette in retrospect

But what we didn't know when writing that column was that Landan, his chief financial officer and his general counsel had taken the smelly but legal options gambit a step father, into the territory of misinformation, which could yet turn out to be a criminal offense.

Lax options accounting enables companies to avoid recording the cost of stock options when they are granted at the market price.

Landan and his crew went one better. Instead of setting the exercise price according to market price on the day they granted themselves the options, they waited. They checked backward. They sought a moment when the share price had fallen low - and then recorded that date retroactively as the date on which the options had ostensibly been granted.

Sound complicated? It is not. It's like a gambler at a casino who places his token on the roulette table only after the wheel has finished turning.

Did they have calendars?

Or as the special committee put it, "From 1995 to the present, there have been 49 instances in which the stated date of a Mercury stock option grant is different from the date on which the option appears to have actually been granted. In almost every such instance, the price on the actual date was higher than the price on the stated grant date."

Dispelling any lingering doubt, Mercury admitted, "Chief Executive Officer Amnon Landan, Chief Financial Officer Douglas Smith and General Counsel Susan Skaer were each aware of and, to varying degrees, participated in the practices discussed above."

The committee did not say how much Landan personally made from the scam. It is known that Landan made $200 million, about half of which derived from options, over the years.

The committee has not yet published its full report, and the parallel U.S. Securities and Exchange Commission probe is still continuing. But the details published so far allow these conclusions to be reached:

1. For years Mercury falsified its financial statements with the knowledge of the three top officers, ignoring directors responsible for auditing. Smooth public relations and the ignorance of many readers enabled Landan to sell the press a story that he fell over technicalities, and to write an e-mail to workers that he had done nothing wrong and has nothing to be ashamed of.

Yet the committee wrote: "During the relevant period, Mercury's internal controls and accounting controls with respect to option grants and exercises were inadequate. The weaknesses allowed dates of both grants and exercises to be manipulated."

2. Amnon Landan can be expected to face a sweeping criminal investigation: The committee's findings arouse suspicion that securities laws were broken.

3. Mercury faces lawsuits from investors and Landan may yet have to give back tens of millions of dollars, if not more.

4. The Mercury board made a mistake by naming Giora Yaron to replace Landan. Yaron is a successful, experienced businessman but he, Yair Shamir and Igal Kohavi sat on the compensation committee that approved Mercury's stock options plans. Mercury should have rid itself of the lot.

5. We can be sure that Mercury is in good company on Wall Street, vis-a-vis stock options shenanigans. When tens of millions, or hundreds of millions, or billions of dollars can be shoveled into the pockets of directors, managers and employees without booking costs in the financial statements, the temptation is too great.