The Securities and Exchange Commission is nearing completion of a formula for punishing companies that improperly backdated stock options, clearing a logjam that has held up dozens of cases and frustrated its enforcement staff.
The staff negotiated a tentative settlement in the first stock options case, against Brocade, the world's largest maker of data storage switches, nearly a year ago. But the deal ran into trouble because commissioners could not agree on how large a penalty to impose.
Other cases have backed up because the enforcement staff did not want to suggest penalty sizes until they had a better sense of where the commission would come down on Brocade, people familiar with the cases said.
The five commissioners are divided on the issue, but they agreed last year that penalties should be closely related to the financial benefit the company reaped from its misbehaviour.
Now SEC economists are putting the finishing touches on a model that measures the ways backdated stock options can lead to improper corporate benefits. The Brocade case could come up for a vote in six weeks and other cases could follow in quick succession.
The SEC is investigating more than 130 companies for backdating stock options.
The penalties fight has not affected efforts to punish corporate executives involved in the backdating because their personal economic benefit is easy to measure and fining them does not cause collateral damage to investors, SEC officials said.
The commission often wrestles with the first case in a new arena because it is trying to lay down a model for other settlements.
In 2003, the SEC drew criticism for settling its first market-timing cases with Putnam Investments without announcing a firm penalty because they were waiting for an economic study of the harm to investors.
The stock options divisions reflect a larger split at the commission level. Two Republicans oppose large fines because they could hurt shareholders, who were already victims.
Two Democrats argue that penalties deter other misbehaviour and note that the money goes into a "fair fund" that is distributed to investors.
Christopher Cox, the SEC chairman, has sought consensus based on whether a corporation reaped economic benefits, underscoring the need for a model in the stock options cases.
Asked whether the commissioners were divided on stock options penalties, Mr Cox said last week: "That's a case-by-case determination and, in that respect, notdifferent from other cases generally."
