This WSJ article from last week notes that the SEC has ramped up its examination of options timing and is now conducting reviews of about 20 companies. 20 companies! This truly has been shocking to me as I had assumed it would be a half a dozen bad apples at the most. It’s a good reminder to push back if you ever are placed in the position of doing something that “doesn’t feel right.”
Some companies are claiming their processes legally involved backdating. For example, in this Form 12b-25 filed by Affiliated Computer Services, the company notes “the Company has granted stock options principally utilizing a process whereby its compensation committee or special compensation committee, as applicable, would approve stock option grants through unanimous written consents with specified effective dates that generally preceded the date on which the consents had been executed by all members of the applicable compensation committee. In connection with option grants to senior executives, the historical practice was for the Company’s chairman, who during periods prior to September 2003 was also a member of the Company’s compensation committee, to engage, on a relatively contemporaneous basis with the effective date specified in the written consent, in individual telephonic discussions with each of the members of the applicable compensation committee, during which the committee member would indicate his approval of the option grants in question.” It will be interesting to see if the company’s Chair can prove he made all these phone calls for each grant.
It’s breathtaking to look at the scope of some of the restatements announced so far – UnitedHealth might restate three years worth of financials due to option back-dating, trimming off $286 million of net income! This is precisely why we included a panel on how to design internal controls for compensation matters in our “1st Annual Executive Compensation” Conference (video archive of that panel and more are in the “Internal Controls” Practice Area of CompensationStandards.com). I would imagine that auditors are paying closer attention to compensation items now.
Remember that these CEOs and CFOs had to sign a certification saying their financial statements were correct (and if backdating did occur, the financials could well have been incorrect). They also would have signed representation letters to the auditors. My guess is it will be tough for executives to argue they knew nothing about the backdating, if in fact things had been backdated. Perhaps this is why a federal prosecutor is looking into all of this.
In the “Timing of Stock Option Grants” Practice Area on CompensationStandards.com, we have posted a host of resources, including links to a number of Form 8-Ks filed by companies under investigation and the complaints filed in two lawsuits against UnitedHealth. Also some good stuff today in Jack Ciesielski’s “AAO Weblog.”
Following up on my blog about XBRL alternatives a few weeks ago, in this podcast, Michael Becker, Director, Global Disclosure & Financial Reporting Services of Business Wire, talks about “EarningsDirect,” an XBRL templated service being offered by Business Wire in conjunction with CoreFiling, including:
– What is the difference between what services you offer and what the SEC is trying to accomplish in its pilot programs so far?
– How have your clients found your offerings? What questions do they ask?
– How about analysts? Do they seem to be interested in using the data that your clients provide through your services?
Pre-Emptive Press Releases
From the “Lies, Damn Lies & Forward-Looking Statements” Blog: “They don’t appear often enough to call them a trend, yet.
A number of law firms (and their clients) have begun putting out press releases in advance of the deadline for filing a lead plaintiff motion, often indicating their intention to file a lead plaintiff motion.
Last week, Bernstein Litowitz Berger & Grossmann LLP and the Police and Fire Retirement System of the City of Detroit put out this release regarding the securities class actions pending against Bausch & Lomb Inc. in the United States District Court for the Southern District of New York. The release indicated the Police & Fire Retirement System’s intention to both file an expanded complaint and a lead plaintiff motion.
The previous week, Kahn Gauthier Swick, LLC and WestEnd Capital Management, LLC put out this release regarding the securities class actions pending against Pixelplus Co., Ltd., also in the Southern District of New York. This release simply noted that WestEnd had retained Kahn Gauthier to pursue claims, with no mention of lead plaintiff issues.”