Nasdaq to cut Mercury in wake of accounting mess

Shares of software maker Mercury Interactive will be removed from the Nasdaq stock exchange on Wednesday because of Mercury’s failure to file financial reports on time, Mercury announced Tuesday. Losing its Nasdaq listing is a blow that will further hinder Mercury as it works to repair the damage from an accounting debacle.

Mercury Interactive, based in Mountain View, California, lost several of its top executives in November after a board investigation into the company’s accounting showed a pattern of incorrect reporting of stock-option grants. Over the past decade, Mercury frequently reported false option grant dates to artificially lower the strike price of grants. Mercury’s chief executive officer, chief financial officer and general counsel all knew of the inaccurate reporting and personally profited from it, according to the company’s board. All three executives resigned.

Mercury announced in August, soon after it commenced its internal investigation, that it would need to restate several years’ worth of financial results. Until that restatement is completed, Mercury is out of compliance with U.S. Securities and Exchange Commission requirements mandating timely filing of financial reports.

Nasdaq already granted Mercury one extension of time to complete its reports, pushing the deadline from Nov. 30 to Jan. 3. A Nasdaq panel declined Mercury’s request for another extension. Mercury has been trading under a modified trading symbol, MERQE (Nasdaq appends an “E” to the symbol of companies with delinquent financial reports.); on Wednesday, it will begin trading on the Pink Sheets under its usual symbol, MERQ. The Pink Sheets are a listing of over-the-counter stocks not traded on any of the major exchanges.

A Mercury spokesman said the company will continue working on its financial restatement and intends to reapply for Nasdaq listing after its financial reports are filed and compliant. No estimate is available on how long completing the restatement will take, he said.

Mercury is an IT governance and applications-testing software developer that had annual revenue of $685 million last year. It sits in the software market’s awkward middle: bigger than a boutique company, smaller than the giants like IBM and CA that it competes with.

Shares of Mercury rose slightly in Tuesday morning trading, up 2 percent to $28.25. Mercury’s shares have dropped since it announced its executive resignations on Nov. 2 — they closed at $35 the day before the departures — but have remained out of free fall thanks to confidence on Wall Street about the company’s attractiveness as an acquisition candidate.

“Even though the situation seems a little dire at the moment, we still think the company’s core testing business is the market leader, and this business remains the prime asset of the company,” Piper Jaffray & Co.’s analysts wrote Tuesday in a research note.