WASHINGTON — One of President Bush's uncles, William H.T. Bush, was among directors of a defense contractor who reaped $6 million from what federal regulators say was an illegal scheme by two executives to manipulate the timing of stock option grants, documents show.

The uncle, known as "Bucky," is the youngest brother of former President George H.W. Bush and heads an investment firm. William H.T. Bush was an outside, nonexecutive director of Engineered Support Systems Inc., a defense contractor whose profits were bolstered because of the Iraq war.

St. Louis-based ESSI supplied equipment and electronics to the military. It was acquired last year by another defense contractor, DRS Technologies Inc. ESSI has been under investigation by federal prosecutors and the Securities and Exchange Commission concerning the alleged options-backdating scheme.

Bush and the others who sat on the ESSI board were not accused of any wrongdoing in the SEC's civil lawsuit Tuesday against the company's former chief financial officer and former controller. Those two were accused of enriching themselves and others with a 5-year-long backdating scheme. Bush made about $450,000 selling some of the stock in 2005.

It was the third case by the agency since last summer involving alleged improper options backdating. More than 100 public companies are under investigation by the SEC and the Justice Department, more than $5 billion in profit has been erased by restatements and 18 chief executives have been swept from their jobs.

132,000 SHARES

The SEC said the former ESSI finance chief, Gary Gerhardt, told the ex-controller, Steven Landmann, to give the outside directors backdated options for 132,000 shares of company stock that exceeded what they were authorized by shareholders to receive.

"The company never disclosed to shareholders that it had awarded this additional compensation" to the directors, according to the suit in federal court in St. Louis. The directors "realized approximately $6 million in unauthorized compensation from the exercise of their additional stock options," the suit said.

ESSI employees and directors received about $20 million in unauthorized compensation as a result of the backdating, according to the SEC.

William H.T. Bush had no comment, an aide at the former president's office in Houston said yesterday.

SEC officials declined to comment.

The 68-year-old Bush is chairman of the St. Louis investment firm Bush O'Donnell & Co., which he founded in 1986. Before that, he was president of Boatmen's National Bank of St. Louis.

Bush, who was named to the ESSI board in March 2000, was a member of its audit committee, the watchdog over the company's accounting.

A number of retired high-ranking Army and Air Force officers sat on the company's board.

LOW EXERCISE PRICE

The SEC said in its suit that from 1997 through 2002, Gerhardt instructed Landmann to make company stock options more lucrative by backdating their exercise price to a historically 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; that gives the recipient an incentive to drive the price higher.

Backdating options can be legal if disclosed properly to investors and approved by the company's board or shareholders. If companies backdate options without accounting for the move, it can cause overstated profits and underpaid taxes.

IMMEDIATE VESTING

In the ESSI case, the improper backdating was worsened because the options vested immediately, enabling recipients to cash in instantly, the SEC said.

William H.T. Bush made about $450,000 in January 2005 by exercising his company stock options and selling shares, his filing with the SEC shows. When questioned by reporters about the sale at the time, he said he had not pulled any strings in Washington for ESSI.

Five other ESSI executives and directors also cashed in on the company's rising stock price at the time. The stock price was bolstered by record income, mainly from increases in the company's military contracts. They included adding armor to military trucks, refurbishing trailers the Army uses to haul tanks and supporting satellite communications for troops. The biggest windfall went to Gerhardt, who made nearly $7.5 million from selling stock on Jan. 31, 2005.

The SEC said Gerhardt and Landmann reaped $1.9 million and $518,972, respectively, from the options-backdating scheme. Landmann neither admitted to nor denied the SEC's allegations but agreed in a settlement to pay a $259,486 civil fine and $627,071 in restitution plus interest. He also was barred from serving as an officer or director of or as an accountant for any public company. The SEC's case against Gerhardt is pending.