Try the new FT.com

July 4, 2006 7:18 pm

US options inquiry widens

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

The stock options backdating scandal in the US widened this week as four companies said they were being investigated by the Securities and Exchange Commission or federal prosecutors.

Mercury Interactive, a California-based business software company, said three of its directors had offered to step aside from the company’s audit and compensation committees after being told by the SEC it was considering a civil enforcement action against them for violations of federal securities laws.

About 60 companies have said they are subject to government probes. Many are also conducting internal reviews.

Authorities want to know whether companies falsified documents to make the backdated granting of an option appear on a different date from that already announced by the company.

They also want to know whether stock options that were backdated were properly accounted for and disclosed to shareholders.

A number of companies have already been hit with class action lawsuits from public pension funds and other shareholders claiming that the accounting effects of backdated options were not properly disclosed to them and that executives fraudulently pocketed profits as a result of the backdating.

Mercury’s stock options practices have been under SEC review since 2004, around the time when a wider SEC probe into the issue began.

The inquiry widened three months ago after it emerged that a finance professor at the University of Iowa alerted the SEC to a suspicious pattern at dozens of companies showing a sharp rise in the share price after the backdating of an option.

This pointed to the deliberate timing of options grants at or near the lowest point in a company’s share price. Investigators want to know if this was done improperly to maximise executives’ returns.

In Mercury’s case, a special committee of the company, in co-operation with the SEC, last year found the actual grant dates for certain past stock options differed from the originally stated grant dates.

The same day, chip makers Maxim Integrated Products and Zoran said they had received subpoenas from the US attorney for the southern district of California. Zoran said it was subject to an informal SEC inquiry as well. Delta Petroleum said it had been asked by the SEC to co-operate with investigations.

Copyright The Financial Times Limited 2017. You may share using our article tools.
Please don't cut articles from FT.com and redistribute by email or post to the web.

  • Share
  • Print
  • Clip
  • Gift Article
  • Comments

NEWS BY EMAIL

Sign up for email briefings to stay up to date on topics you are interested in

SHARE THIS QUOTE