A 9/11 Twist On Options Scandal

A 9/11 Twist on Options Scandal

http://www.forbes.com/feeds/ap/2007/...ap3494772.html

By The Associated Press 03.07.07, 3:50 PM ET

Several public companies have acknowledged backdating of stock options granted after Sept. 11, 2001, in the latest twist in the options-timing scandal that suggests some executives may have profited from Wall Street's plunge following the terror attacks, The Wall Street Journal reported Wednesday.

Some companies recently have admitted to improperly dating options grants to executives and other employees to make it appear that they were awarded at low points in the companies' stock prices after Sept. 11, the Journal found. It said they were Affiliated Computer Services Inc., Corinthian Colleges Inc., KLA-Tencor Corp., Progress Software Corp. and Take-Two Interactive Software Inc.

Other companies that have acknowledged substantial backdating also granted options dated in the period following 9/11, but haven't said whether those options were backdated, the Journal noted. An analysis by the newspaper published in July showed that, among 1,800 companies, the frequency of options awards more than doubled in late September 2001 during the stock market's low point.

Stock options allow the recipients to buy shares of their company's stock in the future at a set price. If the stock rises before the options are exercised, the employee can buy the stock at the predetermined, lower price, then sell it at the higher, current price - and pocket the difference.

Options can be made more lucrative by backdating their exercise price to a historically low point in the stock's value. Backdating options can be legal if disclosed properly to investors and approved by the company's board or shareholders.

But unauthorized compensation from options is deemed illegal and can bring fraud charges if documents are falsified in a backdating scheme or information is concealed from the board. If companies backdate options without accounting for the move, it can cause overstated profits and underpaid taxes.

About 130 public companies are under investigation by the Justice Department or the Securities and Exchange Commission in the options scandal, which SEC Chairman Christopher Cox recently described as "a pandemic of crooked accounting."

Eight company executives have been criminally charged.

In the scandal's wake, more than $5 billion in company earnings has been erased by restatements and more than 60 senior officers and directors - including 18 chief executives - have been swept from their jobs.