The SEC is investigating many companies, ranging from small to Fortune 500 companies, for options irregularities.
Similarly, the FBI has reported that it has 52 companies under criminal investigation. Department of Justice has said it will bring criminal charges where defendants falsify corporate books and records; issue false financial statements; lie to boards of directors, auditors or the SEC; or file false reports.
Not surprisingly, the defendants themselves earned millions of dollars from backdated options.
Another troublesome outcome for a corporation is that the SEC will bring civil fraud charges stemming from options backdating in all cases where criminal charges have been filed.
In that case, corporate officers inserted backdated option grant dates into board of directors’ unanimous written consents that were transmitted to the compensation committee.And in addition to officer and director bars imposed by government authorities, internal investigations have led to numerous officer resignations from at least 25 companies including Quest Software, KB Homes, United Health Group, Inc., Mc Afee, Inc., CNET Networks, Inc., and Monster Worldwide.Even Apple Computer CEO Steve Jobs was implicated by an internal investigation into backdating, although he apparently did not receive, or otherwise benefit from, the backdated grants.But even if no criminal charges are filed, the SEC still can bring a civil fraud action in federal court.This sort of case can be brought against the corporation and its officers and directors and can result in the disgorgement of profits, stiff monetary penalties, and prohibitions against officers and directors serving any public company in those capacities in the future.
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With its attendant investigation, legal actions and executive fallout, the practice of options backdating is expected to have a short shelf life.