Backdating Investigations Ramp Up
A front page story in the Wall Street Journal today highlights fast-moving backdating investigations across the country, as state and federal prosecutors and regulators alike wade through investigations of the 140 or so companies with options issues.
The WSJ article focuses on two investigations, in particular. According to the WSJ article, federal prosecutors are strongly considering bringing criminal charges against the CFO of Broadcom Corp. regarding the backdating of options at the company. Among other internal documents that have caught prosecutors’ attention is a January 4, 2002 email from the CFO to other top executives which said, “I VERY strongly recommend that these options be priced as of December 24.” Broadcom’s share price had risen 23% between the two dates.
The WSJ also details the continuing investigation into backdating at Monster Worldwide Inc. Yesterday, a former general counsel of Monster pleaded guilty to securities fraud in federal court in New York. A 1999 email authored by the general counsel regarding backdating of options was one of the centerpieces of the government’s case there too, and may lead to charges against other Monster execs.
These two investigations teach us two lessons (tongue firmly implanted in cheek): first, don’t backdate your stock options; second, if you are going to backdate your options, don’t write about it in an email! It becomes more clear every day that that the proliferation of email as a convenient and instant means for business people to communicate has become perhaps the most important prosecutorial tool of the modern era. In investigation after investigation it seems, the “smoking gun” is located in an email exchange, which has been permanently (and quite conveniently) been preserved for investigators.
