First service backdating stock options
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.
Two indictments have been issued and multiple guilty pleas have been entered in the most egregious cases. To a public corporation, the potential consequences of engaging in options backdating are manifold and can range from none whatsoever to having founders and CEOs going to prison. For example, in the case involving Brocade Communications, the SEC charged the former CEO and the former Vice President of Human Resources with criminally violating the securities laws.
In addition to the governmental investigations, more than 200 companies have completed, or are conducting, internal investigations — either because they want the comfort of knowing that they have not engaged in options backdating or they have an inkling that they did and want to be proactive in addressing the problem. In a follow-up study to his earlier work, Professor Lie estimated that 29 percent of 7,774 companies he surveyed backdated option grants to executives between 19. The facts of that case as set forth in the indictment were egregious.
Other similar practices are being reviewed by government officials as well.Options were also backdated for new employees to dates prior to the date employment actually commenced.In addition, hundreds of thousands of backdated options were issued to fictitious employees and parked in a slush fund to be awarded at the CEO’s discretion.“Spring loading” involves the issuance of options immediately prior to the announcement of favorable financial news expected to have a positive impact on the underlying share price, thereby providing an immediate profit to the option holder.the release of bad news that cause the stock price to take a temporary dip, which increases the probability that the option will become profitable in the short term.
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Likewise, in a case involving Comverse Technology Inc., the U. Attorney charged the former CEO, the former CFO, and the former General Counsel with violating securities laws.