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

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Monday, August 4, 2008

SEC Settles Backdating Charges Against HCC Insurance Holdings, Former CEO and Former GC

On July 21 the SEC settled backdating charges against HCC Insurance Holdings, Inc. (HCC), a Houston, Tex. insurance company; its former Chief Executive Officer, Stephen L. Way; and its former General Counsel, Christopher L. Martin.  The complaint alleged that, on at least 38 and as many as 58 occasions from 1997 through 2005, Way looked back at HCC's historical stock prices and chose grant dates for the options that coincided with the dates of low closing prices for the stock, and, at Way's direction or with his knowledge, Martin prepared the documentation for the purported option grants,  including written actions of HCC's compensation committee, stock option agreements, and Forms 4 and 5 reporting the grants to the SEC. The backdating of options caused the company to understate its compensation expense by approximately $26.6 million.

HCC consented to a permanent injunction from violations of the issuer-reporting, books-and-records, and internal-controls provisions of the federal securities laws.  The SEC explained that  it did not allege fraud claims and did not seek a monetary penalty against HCC based in part on the Company's remedial measures and its extraordinary cooperation in the Commission's investigation.

Way consented to a permanent injunction from violations of anti-fraud provisions of the federal securities laws and multiple other provisions, and agreed to pay a $200,000 penalty and to be barred from serving as an officer or director of a public reporting company for five years.

Martin consented to a permanent injunction from violations of anti-fraud provisions of the federal securities laws and multiple other provisions, and agreed to pay a $50,000 penalty. Martin also settled a related administrative proceeding pursuant to Rule 102(e) of the Commission's Rules of Practice by consenting, without admitting or denying the Commission's findings, to the entry of an order suspending him from appearing or practicing before the Commission as an attorney for two years. Settlement of the civil action is pending final approval by the court.

http://lawprofessors.typepad.com/securities/2008/08/sec-settles-bac.html

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