Options backdating which companies are at risk great open ended questions for dating
In order to reduce the likelihood of an adverse outcome due to investing in company stock, pension fiduciaries must carefully consider relevant risk factors.There is no statute that explicitly outlaws backdating stock-option grants, but it seems virtually impossible to backdate options and achieve the ultimate goal of putting grants “in the money” without first deliberately falsifying documents and then covering up the sham.ESOs are usually granted at-the-money, i.e., the exercise price of the options is set to equal the market price of the underlying stock on the grant date.Because the option value is higher if the exercise price is lower, executives prefer to be granted options when the stock price is at its lowest.Its 2006 Comprehensive Annual Financial Report shows .34177 billion as plan net assets as of June 30, 2006. Click here to review ownership statistics, courtesy of Thomson Financial (and reprinted by the .)The intent of this post is not to single out any one company nor to imply that the filing of a complaint supports any or all of the allegations. What is important is to understand that executive compensation practices can (and often do) impact shareholder value.While NYCERS equity exposure to Apple is large in absolute terms, it is small compared to the equity interests held by institutional investors such as Fidelity Management & Research (60,316,011 shares as of September 30, 2006) or Alliance Bernstein L. If the market interprets a particular practice as far removed from economic reality and/or regulators start sniffing around, defined benefit and defined contribution participants stand to lose a bundle.
Looking backward, I'll ruminate a little about how we got here, and finally, at the risk of appearing to be or worse, actually being the secular equivalent of a sanctimonious twit, offer some thoughts looking forward on lessons we might take away from all of this. I have reached the point in life where I view the world through ridiculously expensive progressive lenses, but I guarantee you these lenses are not rose-colored. To recap much of what you may already have read or heard, the Division of Enforcement is investigating over 100 matters relating to potential abuses of employee stock options.This process makes the granted option in-the-money and of value to the holder.This process occurred when companies were only required to report the issuance of stock options to the SEC within two months of the grant date.In recent months, the SEC has brought two enforcement actions one relating to Brocade and another involving Comverse.With respect to both, there are pending parallel criminal actions as well.Backdating allows executives to choose a past date when the market price was particularly low, thereby inflating the value of the options.An example illustrates the potential benefit of backdating to the recipient.Most shareholder approved option plans prohibit in-the-money option grants (and thus, backdating to create in-the-money grants) by requiring that option exercise prices must be no less than the fair market value of the stock on the date when the grant decision is made. For example, because backdating is used to choose a grant date with a lower price than on the actual decision date, the options are effectively in-the-money on the decision date, and the reported earnings should be reduced for the fiscal year of the grant.(Under APB 25, the accounting rule that was in effect until 2005, firms did not have to expense options at all unless they were in-the-money.In settling with the SEC, the former Comverse CFO consented to, among other sanctions, a permanent injunction against violation of the securities laws, a permanent bar against serving as a corporate officer or director, and payment of .4 million in disgorgement and pre-judgment interest.reporter Jessie Seyfer describes a judge's refusal to dismiss the case, with significant focus surrounding the issue of material economic harm to shareholders. " Should pension fiduciaries ask to meet with the compensation committee and more thoroughly vet company stock risk factors related to option awards for those at the top of the management ladder? Not addressed in the article but an interesting point to ponder relates to possible conflicts of interest.