Thursday, April 5, 2007

Barnes & Noble Finds Backdating, But No One Is to Blame

A special board committee at Barnes & Noble, Inc. determined that there were numerous instances of stock options backdating, but concluded that everyone received the benefit so no one was to blame for the "mistakes" in the process because there was no intent to defraud.  According to a press release (here):

The Special Committee indicated that the Committee and its advisors received the Company's full  cooperation throughout its investigation. Based on this review, which encompassed 3.8 million pages of documents and interviews of approximately 35 persons, the Special Committee has determined that there were numerous instances of improperly dated stock option grants by the Company. Although the Special Committee determined that there were instances of stock options having been dated using favorable dates that were selected with the benefit of hindsight and that serious mistakes were made, the Special Committee did not find any intent to defraud or fraudulent misconduct by any individual or group of individuals.  The Special Committee found that the Company's dating and pricing practice for stock options was applied uniformly by Company personnel to stock options granted and was not used selectively to benefit any one group or individual within the Company.

Although the company may have exonerated those responsible, and it doesn't appear anyone lost their position over this, it remains to be seen whether the SEC or federal prosecutors will take the same benign view of the conduct.  At a minimum, backdating corporate documents violates the books and records provisions of the securities laws, and the fact that no one responsible for the backdating was a pig by favoring himself or herself to the exclusion of others does not mean there was no fraudulent intent if the goal of the backdating was self-enrichment.  The absence of a favored few receiving options makes it less likely there will be a criminal case, but the SEC will likely review the conduct with a careful eye. (ph)

Investigations, Securities | Permalink

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