Contrary criminal

A saintly corporate star bilked SafeNet of millions but kept none of it

Sun Special Report

May 04, 2008|By Tricia Bishop | Tricia Bishop,Sun reporter

NEW YORK -- In his 30-year legal career, Judge Jed Rakoff had pretty much seen it all when it came to white-collar crime. He even taught a course on it at Columbia Law.

He had prosecuted countless fraud cases and spent 12 years on the federal bench.

But Rakoff couldn't seem to quite figure out what had corrupted the woman sitting before him on that January day in his courtroom, No. 14B, in the U.S. District Court for the Southern District of New York.

Carole Diane Argo was a 46-year-old mother of three, Cub Scout pack founder, volunteer, active church member and caretaker of her widowed sister's family. More than 100 people had written letters to the court in her behalf. "There is not a selfish or self-serving bone in her body," one read.

Behind her, the courtroom was packed with friends and family for her sentencing. Many of them had relied on Argo for financial or emotional support, like Jennifer Brown. Her daughter is gravely ill, and Argo has stepped in to care for Brown's son when needed, as well as tend to her daughter.

More than a dozen former colleagues at SafeNet Inc. also made the trip to back Argo, even though she had devastated their Belcamp encryption-technology company. Argo changed the dates on stock option awards to inflate their value, which by itself isn't illegal. But she broke the law by covering up the alterations, known as "backdating." It was the equivalent of using weighted dice, turning a game of chance - the stock market - into a sure winner.

Argo was one of the first executives in the nation to face criminal charges over backdating. But she had never gotten so much as a speeding ticket before, according to Maryland court records. And she wasn't even a very good criminal. She didn't pocket a penny from the options scheme, while co-workers netted millions.

Her family's home in Baltimore's Guilford neighborhood was certainly comfortable, but also one of the more modest on her street. She didn't wear flashy clothes or take lavish vacations.

A big chunk of her salary went to pay for grade-school tuition: Her three kids attend private schools that cost $20,000 apiece each year, and after her brother-in-law died in 2004, she began paying tuition for her sister's two children as well. But there were no signs of financial desperation.

This was a convicted felon? It all made no sense. Nothing explained the leap into criminal behavior.

"We have here a woman who has in so many respects led a more than admirable life. The many, many letters I received attest to this, but the unquestioned undisputed facts attest to it," Rakoff said.

Still, she had pleaded guilty to one count of securities fraud. Rakoff couldn't let her off the hook. Options backdating cases had become a top federal priority, and she had changed dates on thousands of options granted to multiple SafeNet employees.

"The nature of the crime is too serious, lasted too long, was too intentional to not require some punishment, and there [are] important general deterrence issues here as well," he began.

Her crime carried a maximum sentence of 20 years and a $5 million fine. A probation officer advocated 4 1/2 years.

Rakoff opted for a sentence he characterized as "extraordinarily low:" six months in federal prison and a $1 million fine.

It was now Argo's turn to speak. She rose from her chair.

Her composure would break only once.

A young company

In 1999, Anthony A. Caputo was 57 years old and had been at SafeNet - then known as "Information Resource Engineering" - for 13 years. The company was founded by a couple of security engineers in a Timonium basement. Caputo was its first investor and soon its chief executive.

He molded the business into his own and took it public in 1992, weathering the typical struggles of a young technology company, including an attempted shareholder coup in 1998.

The company's stock reached a high of $31.62 in 1999. It had grown to 135 employees - 100 more than five years earlier. Its focus had expanded beyond encryption to message authentication and communication security.

But Caputo needed help. He had tech people to design the products and marketing people to sell them. But he didn't have an executive on staff who could oversee the daily demands of a quickly expanding business.

Argo was working at Optelecom Inc., a publicly traded fiber optics company in Germantown, and had more than 15 years of business experience. She was the chief financial officer, but the title didn't carry the weight it does at many companies. Her salary didn't even rank in the top three.

At SafeNet, she would be number two.

"She is a tremendous asset to our team," Caputo said in a July 1999 news release announcing that Argo had been hired as CFO and would report directly to him.

They made an odd pair. He was 20 years her senior, wore impeccable suits and had a perpetual tan. His hair was always coiffed and shoe-polish black.

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