Saturday, December 16, 2006

Will Another GC Be Indicted for Options Backdating?

An article in The Recorder (here) states that former McAfee Inc. general counsel Kent Roberts may be indicted by prosecutors in the Northern District of California for backdating documents related to options he received from the company.  The options-timing investigations have already resulted in a guilty plea from another GC, William Sorin at Comverse Technology.  McAfee terminated Roberts on May 30, 2006, stating in a press release (here): "In connection with [an internal] review, the Company became aware of one episode involving the General Counsel in 2000 that was improper. As a result, the Board has terminated his employment."  It is not clear whether this is the only instance under investigation.

The options-timing investigations are now about six to nine months along, and a number of companies have announced the preliminary results of their internal investigations.  It appears that the companies are cooperating with the government by turning over the results of those reviews, including privileged materials.  The government's investigations are probably far enough along that we should expect to see indictments and SEC enforcement actions starting in January.  Unlike the accounting fraud cases of the past few years, the options-timing cases are much less complex in most instances because they involve a fairly narrow range of transactions and the initial issue is whether documents were altered or created to make it appear the decision was contemporaneous with the grant.  While issues may arise about the timing of the exercise of the options, raising tax questions, this conduct also involves fairly discrete transactions that are not difficult to investigate.  (ph)

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Prosecutions, Securities | Permalink

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