The five-year deadline for punishing securities fraud is shaping up to be a key point of contention as US prosecutors begin pressing criminal charges against corporate executives involved in backdating stock options.

More than 200 companies have been caught up in the scandal, in which firms altered the date of options grants to provide more favourable prices to key executives. But the vast majority of the mispricing occurred before mid-2002, when the Securities and Exchange Commission tightened the rules for reporting such grants.

Government attorneys profess not to be concerned, saying they can argue that there was a conspiracy to hide the backdating that continued well beyond the 2002 cut-off, but some defence attorneys say they hope to argue that some prosecutions are barred by the statute of limitations.

“Time is becoming a precious resource,” says Henry Hu, a securities law expert at the University of Texas law school. “The statute of limitations is not something a judge will just extend.”

The time limit issue is gaining greater currency as more cases move from the investigative to the prosecution phase.

Since mid-February, the former general counsels of Monster Worldwide, parent of the online job group, and McAfee, the antivirus software group, and the former chief executive of games developer Take Two have all faced criminal charges, and more cases against individuals are expected shortly.

Criminal charges against companies are rare, and the SEC has not brought any civil corporate cases either. The five commissioners are said to be having difficulty reaching a consensus on the size of the fines that should be imposed.

Meanwhile, the SEC has largely been content to let companies hire outside lawyers to do independent investigations and wait for the results. Walter Ricciardi, the SEC’s deputy enforcement director, says enforcement staff have been focusing more resources on those companies where the backdating seems particularly egregious or widespread and on those firms where the staff are not satisfied by the progress or independence of the company’s own investigation.

One key issue that has not yet been resolved is how the SEC and prosecutors will handle company executives who engaged in backdating but did not profit personally.

So far the only case of this kind was the first investigation into widespread backdating at Brocade, the world’s largest maker of data storage switches. A recent appeals court decision in an Enron-related case has raised questions about whether employees can be charged with fraud if they did what their client or company bosses wanted and did not profit personally.

“The question that still remains is, are we going to start seeing more cases like Brocade, where there is significant backdating but it doesn’t benefit the backdaters as we have seen in Apple Computers?” says John Coffee, Columbia University law professor. “The cases we’ve seen so far all involve self-dealing. [The appeals court decision] is an obstacle for cases that don’t.”

So far the criminal options cases have focused on executives who personally benefited from the options backdating and were personally involved in the process. Several have either admitted or been accused of falsifying documents, a key detail that makes it easier for the government to win cases.

In that sense, the stock options cases reflect a marked shift from the accounting scandals this decade when few lawyers faced criminal charges. By contrast, general counsels have so far been a prosecutor’s most common target.

“General counsels have replaced accountants as the safeguards that failed,” says Jacob Frenkel, a former SEC enforcement attorney with law firm Shulman Rogers.

“The real question is whether we will see anyone other than the general counsel charged …These cases are not about the underlying integrity of the business.”

Several of the former general counsels – most recently Myron Olesnyckyj of Monster – have pleaded guilty and co-operated with the government, raising the possibility that prosecutors may be seeking evidence that will allow them to move up the corporate chain of command.

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