Saturday, November 17, 2007

The SEC Starts Winding Down the Options Backdating Investigations

The flood of options backdating investigations seems to be receding, with the SEC closing cases without filing civil charges.  An article in The Recorder (on Law.com here) reports that the investigation of VeriSign has concluded without any further action.  The company's 8-K (here) states, "The staff of the Securities and Exchange Commission (“SEC”) has formally notified the Company that the SEC’s investigation concerning the Company’s historical stock option granting practices has been terminated and that no enforcement action was recommended to the SEC."  The company took a $160 million accounting charge related to the options, and its CEO and CFO both resigned.  The notification to VeriSign comes on top of other recent case closings involving backdating at high-tech firms Electronic Arts, Linear Technology, Nvidia, PMC-Sierra. and Zoran Corp. 

The Commission appears to be clearing out its investigative docket, likely closing the weaker cases while it prepares the stronger ones for some type of enforcement action.  Don't be surprised to see some new filings in the new year as the SEC moves beyond options backdating and faces new areas of concern arising from the subprime meltdown, especially disclosure issues related to the multi-billion write-downs of CDOs by leading financial companies. 

Over on the criminal side, there haven't been any significant new cases since the conviction of former Brocade CEO Gregory Reyes in August 2007, and it may be that the criminal pipeline is also shrinking.  Options backdating looks like it may be on its way to becoming yesterday's news. (ph)

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Comments

All of the cases mentioned have been dropped, Apple's shareholder lawsuit was tossed recently and the Brocade accomplice HR VPs case has been diminished from 10 to 2 charges. As has been stated all along, companies felt that choosing the lowest strike price within the quarter for employees, prior to closing the books, was legal and expected practice. To call this criminal was really a stretch from the beginning, and there is obviously no political will to jail Steve Jobs over it, even though Apple seems to be the major offender with the largest grants and witnesses and emails between the CEO and other executives regarding the actual strike price of the options. The SEC stated recently that they are going to continue to persue cases, but only go after the "criminal" ones- but that simply isn't true- because all of these cases are similar in nature and Apple stood out as the worst, or most criminal- certainly moreso than Brocade where no transcript of any kind existed to show the CEO even knew backdating occurred much less that an accounting charge was required (the government didn't even CALL their witness, the company CFO in the trial, now why is that?). To continue with this charade that backdating cases are worth persuing is pure folly. Either arrest Steve Jobs or let everybody go.

Posted by: Smort4 | Nov 17, 2007 9:20:15 AM

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