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The backdating of stock option grants, used extensively to attract and retain top talent, became a major issue in 2007, with more than 170 companies either investigated by U. authorities or conducting internal inquiries into possible manipulation of stock-option grant dates.Another high profile backdating case winding its way through the court system is against the once high-flying head of KB Home, Bruce Karatz.
“As a matter of company policy, we will not comment directly on Mr. Brocade has already resolved these matters on behalf of the company and we remain focused on running our business,” the company said.
The direct cost to the employer is minimal, but accounting rules require companies to report the options as a noncash expense.
Backdating can make options more valuable by retroactively setting them at a lower price.
At its height, the backdating scandal touched dozens of local companies that came under federal investigation or launched their own accounting reviews, which led in some cases to firings, earnings restatements and shareholder lawsuits.
Even Apple CEO Steve Jobs came under investigation; he was never charged with wrongdoing, although two other Apple executives paid millions to settle lawsuits by the Securities and Exchange Commission, without admitting fault.
In a retrial, Gregory Reyes -- the first and highest profile executive to be accused of illegal backdating -- was convicted on nine charges related to securities fraud, but acquitted of one count of conspiracy, a spokesman for the Department of Justice said. Backdating is the practice of locking in financial gains by retroactively pricing option grants on days a company’s stock price was low, in effect increasing the value of the options. Friday’s ruling was a big win for the government, which has struggled to secure convictions in these type of cases.
court convicted the former chief executive of Brocade Communications Systems Inc of securities fraud on Friday, a victory for the government in its high-profile crackdown on illegal options backdating.“Some would say it fizzled,” added defense attorney Jan Nielsen Little, who argued that a wave of investigations that shook the tech industry had turned up little evidence of wrongdoing in connection with a practice that was “widespread, albeit misunderstood.” But as authorities gear up for a retrial next month of Jensen’s former boss, ex-Brocade CEO Greg Reyes, federal officials and legal experts say the investigations found widespread accounting abuses at a host of companies.These led to numerous civil and criminal enforcement actions that helped change those practices, they say, despite some high-profile stumbles by prosecutors in recent months.And 23 companies have paid out nearly billion to settle class-action lawsuits by investors alleging that companies had failed to disclose backdating and its effect on earnings, according to Risk Metrics, a financial research and risk management firm.“I do think it was a real wake-up call for the industry, just given the number of people caught up in improper conduct,” said Marc Fagel, regional director for the SEC in San Francisco.Defendants settled most of the civil cases without admitting wrongdoing, but agreed to injunctions and in some cases financial penalties — ranging from 0,000 each for three former directors at Mercury Interactive to million by Santa Clara-based Marvell Technology Group.