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SAN JOSE (AP) ― Technology companies Brocade Communications Systems Inc. and Mercury Interactive LLC on Thursday became the first two companies to pay fines to settle federal regulators' allegations of civil fraud in connection with backdated stock options.

Brocade has agreed to pay $7 million and Mercury is paying $28 million in settlements announced by the Securities and Exchange Commission, which has been investigating more than 100 companies over suspect timing of stock option awards to executives. The wide-ranging practices became corporate America's biggest scandal last year, and the SEC commissioners have been debating for months whether implicated companies should have to pay penalties.

The settlement with San Jose, Calif.-based Brocade, which designs data storage networking products and services, has been the subject of negotiation and discussions within the SEC for more than a year, and was widely seen as a pattern for resolution of similar cases.

"This enforcement action clearly demonstrates the SEC will use all the weapons in our arsenal, including significant corporate penalties, to protect investors and combat fraudulent stock option backdating," SEC Chairman Christopher Cox said in a statement.

The SEC also sued four former senior executives of software maker Mercury, including ex-chairman and CEO Amnon Landan, accusing them of perpetrating "a fraudulent and deceptive scheme" from 1997 to 2005 to give themselves and other employees secret compensation by backdating stock option grants and falsifying related documents.

Attorneys for all four said their clients are disputing the SEC's charges.

Federal prosecutors also have been investigating scores of companies in the options backdating affair. Brocade's former chief executive, president and chairman, Gregory L. Reyes, and former vice president for human resources, Stephanie Jensen, have been fighting criminal fraud charges as well as civil charges lodged by the SEC.

Brocade said Thursday that it "does not expect or anticipate" any action against it by the Justice Department.

The two Silicon Valley companies neither admitted nor denied the SEC's allegations, laid out in separate lawsuits filed in federal court in California. They did agree, however, to refrain from future violations of the securities laws.

The SEC accused Brocade of committing fraud through Reyes and other former executives, "who repeatedly granted backdated stock options, misstated compensation expenses and concealed the conduct by falsifying documents." As a result, Brocade falsified its reported earnings from 1999 through 2004, the agency said.

Mercury, based in Mountain View, Calif., was acquired last year by technology titan Hewlett-Packard Co. for $4.5 billion. As one of the first companies to acknowledge its stock option woes, Mercury was also among the first to begin to quantify the cost of its irregularities, erasing millions in previously reported profit.

Backdating options make the rewards even more lucrative by retroactively setting the exercise price to a low point in the stock's value. Usually, a stock option's exercise price coincides with the market value at the time of a grant to give the recipient an incentive to drive the price higher.

If companies backdate options without properly disclosing and accounting for the move, it can cause profits to be overstated and taxes to be underpaid.

In addition to Landan, the former Mercury chief executive, the SEC also named two former chief financial officers of Mercury, Douglas Smith and Sharlene Abrams, and Susan Skaer, a former general counsel. In what the agency said was a first, the SEC is seeking a court order to force Landan and Smith to relinquish back to the company their bonuses and profits from selling Mercury stock, under a provision of the 2002 Sarbanes-Oxley anti-fraud law.

That would be in addition to the civil fines the SEC is seeking to impose on the four former executives.

Brocade's general counsel, Tyler Wall, said in a statement, "We are pleased the SEC has accepted Brocade's offer of settlement and now have the investigation and matter concluded."

Hewlett-Packard said, "All of the conduct at issue occurred prior to Mercury becoming a wholly owned indirect subsidiary of HP in (November) 2006, and the settlement involves no charges of wrongdoing by HP."

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