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Tuesday, July 25, 2006

Backdating Charges Put Companies On Notice

Options dating may not make the front page of the NY Times or appear on Dateline, but the Feds could easily make this into the next Sarbanes-Oxley. By that, I mean you're guilty (not compliant) until you can prove that you have effective controls over equity awards. This is from Compliance Week. You'll have to pay for the full article.

With the first criminal and civil charges now filed against executives accused of manipulating the timing of stock option grants, federal prosecutors and regulators have sent a stern message to companies ensnared in backdating investigations: Clean up your act, or we'll do it for you.

Last Thursday the Securities and Exchange Commission, the FBI and the U.S. attorney in San Francisco all filed charges against two former executives at Brocade Communications Systems, a data storage company in California that allegedly hid $750 million in compensation costs by altering the dates of stock option grants. Indicted were Gregory Reyes, Brocade's former chief executive, and Stephanie Jensen, the company’s former vice president of human resources, each on one count of criminal securities fraud. The two also face civil charges with the SEC, as does Brocade’s former chief financial officer, Antonio Canova.

Experts say the charges make clear that the backdating scandal will mushroom further still. Nearly 60 companies are under investigation by the SEC or federal prosecutors, or are managing their own internal probes. How many more companies might join the crowd is anyone’s guess.

“The Brocade action sends the loud and clear message that the SEC and Justice intend to follow through in their numerous options backdating investigations by prosecuting corporate executives who knowingly engaged in misleading backdating practices,” says Spencer Barasch, former associate director in the SEC’s Fort Worth, Texas, office, and now a partner at Andrews Kurth.

posted by Brian Moran @ 8:57 AM   1 comments

At 9:57 AM, Blogger Karna said...

Options backdating has been on NYTimes for a few days consistently now. Its a very obscure, but important piece of the compensation and internal controls process. Nearly 80% of the companies that have been named have admitted to lack of good internal controls or "material" weaknesses in internal controls.


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