Mather suit seen focused on Pixar option practices (Reuters)

LOS ANGELES (Reuters) - A former Pixar Animation Studioschief financial officer, expecting a stock options backdatingsuit by U.S. regulators, may argue that Pixar's board, outsidelawyers and auditors approved backdating long before she washired, a source familiar with the case said.

Ann Mather, who served as Pixar's chief financial officerthrough mid-2004 and now sits on Google Inc's board, on Mondaydivulged that the Securities and Exchange Commission may sueher for backdating at the animation company.

Mather's attorney said earlier this week that there was nobasis for an SEC lawsuit against her.

She will have an opportunity to present a defense to theSEC, if she chooses, before the agency decides whether to filesuit against her.

Options backdating, a practice in which option grant datesare changed retroactively to allow recipients to reap greaterprofit, is not illegal as long as it is properly disclosed andaccounted for in financial statements.

Pixar is among more than 200 companies that have disclosedinternal audits or government probes surrounding optionspractices. The Wall Street Journal reported Pixar had engagedin backdating as early as 1997.

"What (the policy) said was, 'We look back over the lastfew months and pick the date that has the lowest stock price.This is in an internal document and discussed very openly --this is not a big secret what they were doing," said a secondperson familiar with backdating at Pixar but not approved tospeak on the record about it.

An audit of Pixar conducted by new parent Walt Disney Cofound backdating of options grants but cleared then-ChiefExecutive Steve Jobs and anyone then associated with thecompany of "any intentional and deliberate acts of misconduct,"according to a securities filing.

Disney bought Pixar in 2006, a deal that made Jobs a boardmember and Disney's largest individual shareholder.

A Disney spokeswoman said this week that the company had noreason to believe that the SEC would bring enforcement actionagainst anyone now associated with Disney. She declined tocomment further on the matter.

Mather, 47, is the only Pixar executive who has been namedas a possible litigation target in the government probe.

The first person familiar with the case said the SEC islikely to allege that Pixar's stock options granting processwas set up by the company's 1996 proxy to allow routinebackdating of options and that Mather, hired in 1999, shouldhave alerted auditors KPMG that accounting charges needed to betaken.

The Pixar board, which included former CFO Lawrence Levyand outside legal counsel Larry Sonsini, was signing off onbackdated options that were dated, in some cases, monthsearlier, via "unanimous written consent" forms, said thesource, who has seen internal Pixar documents.

Pixar, which had no general counsel during much of Mather'stenure, turned to its outside law firm, Wilson Sonsini Goodrich& Rosati, which had vetted the policy, and to KPMG, to approveextraordinary stock grants usually to top executives, thesource said.

The company's stock options administrator wouldoccasionally forward to the board memos from managersrequesting options for employees, as well as stock charts withthe lowest price circled, the source said.

On grants that deviated from this practice, Matherrequested advice from Wilson Sonsini and was "repeatedlyassured that there was no problem," the source said.

The SEC regional office in Los Angeles did not return callsseeking comment. A spokeswoman for Wilson Sonsini had nocomment on Pixar or Mather on Friday.

Unless the government can show that Mather misrepresentedthe backdating to Pixar's lawyers and auditors, she may have ashot at avoiding an SEC lawsuit, said Phillip Stern, a formerSEC attorney and white collar defender at Neal Gerber Eisenbergin Chicago.

"If she obtained an opinion from Wilson Sonsini anddisclosed all relevant information to them ...that would be avery strong defense to negating an allegation that she actedwith... actual knowledge or reckless disregard," he said.

Reuters/Nielsen