Sunday, December 6, 2009
The SEC's options backdating cases are not over yet. The agency announced that, on December 4, 2009, it filed a civil action in the United States District Court for the Western District of Pennsylvania against Black Box Corporation ("Black Box"), a Lawrence, PA technical services provider, its former Chief Executive Officer Frederick C. Young, 53, of Silver Point, Tennessee, and its former Chief Financial Officer Anna M. Baird, 52, of Bridgeville, PA, alleging violations related to stock-options backdating. Without admitting or denying the Commission's allegations, all three defendants agreed to settle the matter.
The Commission's complaint alleges that, in July and August 2007, as a result of a previously announced review of its stock options practices, Black Box filed quarterly and annual reports restating its net income for fiscal years 1994 through 2006 (the "Restatements") by identifying approximately $70.9 million of unrecorded expenses it had incurred as a result of mispriced stock option grants. Black Box was required to, but did not, record an expense for options issued at below-market prices ("in the money" options). More than one-half of the unrecorded expenses reported in the Restatements, approximately $38.1 million, stem from backdated options awarded at Young's direction.
The complaint alleges that, as Chief Executive Officer, Young had authority for the granting of stock options at Black Box. On six occasions, from 1998 through 2001, Young intentionally backdated stock option grants totaling millions of shares, to hundreds of recipients, including Black Box's officers, directors, and employees. Young chose dates for these grants from between two weeks to over a year prior to the actual dates such grants were awarded. By doing so, the options were "in-the-money" in amounts ranging from $3.19 to $43.86 per share on the dates they were actually granted (or 13% to 58% lower than the market price on the actual grant date).
The complaint further alleges that, in or about December 2000, Baird, then Black Box's Chief Financial Officer and a CPA, also participated in granting backdated options to Black Box's officers and employees. Baird personally exercised backdated options for $87,243 in excess profits. The complaint further alleges that Young and Baird engaged in their conduct despite knowing, or having reason to know, that the Company had improperly recorded compensation expenses for the options and violated the terms of its own stock option plans as disclosed in various filings with the Commission.