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.
Continue Reading...According to an article written by Justin Scheck of The Recorder and published on www.law.com, Larry Sonsini, director and lawyer for several companies suspected of illegally backdating stock options, has been under scrutiny for his possible role in manipulating option deals for employees.
According to Scheck, records filed by software maker Novell, Inc. show that in 1999, Sonsini and the rest of the company's board of directors deviated from the usual compensation plan by awarding themselves 50,000 options apiece. The grant reportedly occurred on October 26, 1999, when the stock was priced at a 17-month low. Over the following two months, the share price more than doubled, making the award worth more than $1 million on paper (the options ultimately became worthless before vesting due to the tech market crash). The timing of the grant has raised questions of whether the options were actually awarded on the day the company said that they were.
Additionally, Scheck reports, less than one month after the grant, Novell announced significantly more optimistic financial figures as compared to the prior fiscal year. This series of events makes corporate governance experts wonder whether the grants were also "spring loaded" - i.e. intentionally issued just before positive disclosures that the board knew would impact share prices. Although the practice of spring-loading is troubling to business ethicists, the Securities and Exchange Commission does not appear to view spring-loading with the same severity as it does backdating.
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