Posted on 09/07/2006 12:46:01 PM PDT by nickcarraway
U.S. Securities and Exchange Commission (SEC) Chairman Christopher Cox told a Senate panel his agency is currently investigating more than 100 companies for possible fraudulent reporting of stock option grants. The total is 25 percent more than the the agency said it was probing a month ago.
"The companies are located throughout the country, and include Fortune 500 companies as well as smaller [companies]," Cox told the Senate Banking Committee on Wednesday. "They span multiple industry sectors."
Cox told reporters in San Francisco on July 20 when he announce the indictment of former Brocade Communications Systems Inc. executives in connection with the probe that the SEC was investigating more than 80 companies.
Cox told lawmakers they should not expect each probe to result in indictments. "At the same time, we have to expect other enforcement actions will be forthcoming in the future," he said.
Dozens of companies have been implicated in the scandal. Most of the allegations have centered on the practice of backdating stock options—retroactively granting options on dates when a company's stock price is relatively low, maximizing the potential profits for the option holder.
The U.S. Justice Department has filed multiple charges against two of the former Brocade executives implicated by the SEC, as well as three former employees of software vendor Comverse Technology Inc. The SEC also filed charges against the former Comverse executives.
In Northern California, U.S. Attorney Kevin Ryan has created a stock options backdating task force to investigate allegations that Silicon Valley companies retroactively changed grant dates for stock options. Ryan has refused to say how many companies he is investigating, but a number of companies have disclosed in SEC filings that they have received subpoenas from his office.
Cox outlined a number of policy and legislative changes that have been implemented in recent years to prevent stock options backdating, including the Sarbanes-Oxley financial disclosure law. Most stock options backdating is alleged to have occurred prior to the enactment of Sarbanes-Oxley, which requires that stock options grants for top executives be reported to the SEC within two days.
A new accounting rule, Cox said, has eliminated the incentive to grant "at-the-money" options—options that are immediately profitable because they are granted below the stock's current price. New SEC executive compensation rules now require "a complete quantitative and narrative disclosure of a company's executive compensation plans and goals," Cox said. The rules will soon be complemented by more accounting guidance, Cox told lawmakers.
"Each of these steps by itself is an important contribution to preventing backdating abuse," Cox said. "In combination, they have effectively slammed the door shut on the easy opportunities to get away with secretive options grants."
Which 100 companies I wonder.
Hope everyone has their stop orders in.
Who cares? Just because the beat cop has been lax on petty theft doesn't mean those who have been stealing for years under his nose should act shocked when suddenly a new cop on the beat starts cracking down on them. Tough.
I think that companies got the impression what they were doing was strictly prohibited.
Instead of investigating these companies, how about having the government stop creating a business environment that encourages this type of structuring. Accounting and compensation would be much, much simpler if the government removed the labyrinth of rules and regulations regarding the same.
There wouldn't be any cattle futures contracts uncovered in this investigation dating back to the early 1990s?
here's Cox's opening statement:
http://www.sec.gov/news/testimony/2006/ts090606cc.htm
Of course not!!! Just some development land along the White River, in Arkansas.
It's like they are back-dating the law...
Good point.
This is ironic (Yes, I'm using the word correctly).
The SEC's primary function is to protect investors from getting taken. Backdating of stock options is often legitimate, but when it is not, it amounts to a (generally very small) theft from stockholders. When the SEC goes after a "company" for backdating stock options, the stock usually takes a huge hit, costing the stockholders far more than any backdating could have.
A simple rule change will end any future shenanigans.
Grants are not effective until the date an SEC filing has been recorded.
It's the "new tone in Washington." The SEC and IRS have received big budget increases in recent years. I'll let you decide which Republican president is responsible.
Why can't we go back and prosecute the Senate for building itself a new luxury spa back when the stock market was tanking in 2001/2002?
Hell no. Way to screw the little guys and entrepreneurs. Beside, how would you deal with grants that theoretically have no SEC filing requirements?
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