TheCorporateCounsel.net

As the number of backdating lawsuits grow (we have links to numerous complaints in our “Timing of Stock Option Grants” Practice Area on CompensationStandards.com), the perspective of the economists grows more important as they will help dictate what the level of damages will be. In this podcast, Bruce Deal of Analysis Group, an economic consulting firm, provides some insight into the challenges of calculating damages in option backdating lawsuits, including:

– How is the economist’s role different from the accountant’s role in the pending option backdating cases?
– What types of valuation methods do you expect to be used in these cases?
– How might the use of these methods impact settlements and judgments of backdating cases?
– What other economic issues might arise in these cases other than the value of option grants?
– What types of damage do you expect to see plaintiffs’ claim in litigation?

Section 409A Consequences Forces Some Option Backdaters Out of the Closet

As noted in this article, at least 28 companies disclosed that they are investigating for stock-options backdating during the past three weeks as these companies awarded repriced options by the end of last year to keep their senior managers from paying a 20% surtax on potential profits from the options. Per my earlier blog, I noted that the IRS had issued Notice 2006-100 to provide interim guidance to employers regarding their reporting and withholding obligations for calendar years 2005 and 2006 with respect to deferrals of compensation and amounts includible in gross income under Section 409A.

And some companies don’t appear to care much about what shareholders think of their backdating practices, as this Saturday WSJ article reports that these companies have paid bonuses to employees in an amount equal to the value that the employees might lose due to backdating. Shareholders don’t want to pay even more for the backdating practices of these companies (on top of all the money being paid to investigate them, etc.) – and in fact, at some companies, executives have paid back the amounts they reaped due to backdating back to the company.

Is Backdating Criminal?

As noted in this article, the FBI is devoting significant resources to options backdating investigations as they have mushroomed to comprise one-eighth of the FBI’s corporate fraud caseload.

Kevin LaCroix provides some thoughts on D&O Diary Blog Steve Jobs and criminal backdating, as well as links to others who have shared their thoughts on this hot topic.