Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Thursday, March 8, 2007

SEC Mulls Over Penalties in Backdating Settlement

Today's WSJ story on backdating stock options focuses on how the SEC will quantify the ill-gotten gains and harm caused by backdating -- issues that are apparently causing the SEC trouble as it is considering whether to approve a $7 million settlement with Brocade Communications, a settlement that is likely to be the model for future settlements.   In its January 2006 statement on corporate penalties, the SEC stated that the two primary considerations in determining corporate penalties are the presence or absence of a direct benefit to the corporation as a result of the violation and the degree to which the penalty will recompense or further harm the injured shareholders.  The WSJ reports that Brocade submitted a report to the SEC to demonstrate that it did not benefit from the wrongdoing.  Some members of Congress recently criticized the SEC for the slow pace of the backdating investigations.   See WSJ,  Options Fines: A Hard Call.

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