"Altruistica": Seeking a return to full financial disclosure and regulatory oversight. A financial market analysis blog for "entertainment purposes" only by an experienced CFA seeking new hedge fund engagements for investment writing and analysis. The author has experience investing internationally, running a hedge fund, making angel investments, and helping launch five startup companies. Investors should do their own due diligence.

22 December 2006

The Continuing Options Backdating Outrage

As if "formal investigations" by the SEC into the widespread practice of options backdating by executives wasn't enough to generate shareholder outrage, now the scale of the ripoff grows daily. Just take a look at the latest mega restatement- telecommunications equipment seller Juniper Networks.

The summarizes:
Juniper (JNPR - commentary - Cramer's Take) said it will take a $900 million charge for stock compensation expenses after auditors found several instances of option backdating. An audit team appointed by the company has found "numerous instances in which grant dates were chosen with the benefit of hindsight as to the price of the company's stock, so as to give favorable prices," Juniper said Wednesday.

The Sunnyvale, Calif., Internet-gear maker, which has been under investigation by federal regulators over possible manipulation of employee stock option grant dates, has now placed itself second on the list behind Broadcom (BRCM - commentary - Cramer's Take) in terms of big option bookkeeping adjustments. Broadcom found it needed to book about $1.5 billion worth of charges to cover misdated option grants.

Yeah, "possible manipulation"...but how come no one has actually put together the whole sleazy story of where options backdating fit into a broader scheme of stock manipulation in the run up to the 2000 stock bubble implosion? Gee, remember all those companies that made gobs of money selling options? What about all the quarters that "beat by a penny"? What was the role of auditors and boards in this scheme? Why is now becoming clear that possibly TWO THOUSAND TWO HUNDRED PUBLIC COMPANIES engaged in options backdating, many for up to a decade? Often, especially with non-independent boards, directors who were supposed to provide oversight for shareholders also got paid.

Sometimes, it didn't even matter if you were dead- or were a compensation consultant, you scored backdated options !

It turns out that there's a complete roadmap of accounting legerdemain published by the accounting sleuths at the Center for Financial Research and Analysis.

For a Brief While, Options Scandals Sent Stocks Diving

Options Scare Hits SafeNet, Juniper
MAY 19, 2006,

Fear about stock-option pricing scandals appeared to grow in scope and scale in the past two days, with new legal action, analyst scuttlebutt, and stock-market scares hitting a handful of companies. SafeNet Inc. (Nasdaq: SFNT - message board) and Juniper Networks Inc. (Nasdaq: JNPR - message board) shares were among the hardest hit, losing 22 percent and 6.5 percent of their value in the market, respectively. Safenet and Vitesse Semiconductor Corp. (Nasdaq: VTSS - message board) are among five companies served with federal subpoenas as authorities peer into stock-option cases that have snowballed into major scandals.

Nowdays, executive cash out by selling their 'nicely-priced options and mega massive salaries, get pardoned by their boards and walk away with a "get-out-of-jail" card from the SEC. One egregious case of Bruce Karrass at KB Homes (see my 21 November 2006 on KBH post for more). But, one must ask, why cheat when the pay packages are so huge ALREADY???


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