The flock of company executives and directors being ousted, he added, "increases the likelihood that somebody's going to be prosecuted." At issue is whether company insiders manipulated the timing of stock option grants to bring big payoffs to executives by improperly backdating the grants to coincide with low points in stock prices.As first noted in a series of groundbreaking articles in the Wall Street Journal , these patterns of almost too-good-to-be-true timing took place in the late 1990s and early years of this century.This is what Rock Center faculty director and Stanford Law professor Joseph Grundfest calls “asymmetric springloading,” and a federal appeals court ruled 38 years ago (for those of you with access to Westlaw: SEC v.Texas Gulf Sulphur Co., 401 F.2d 833) that it amounts to fraud–even if the board, after the fact, declares that it didn’t really mind.And they still show up as two separate accounts on my credit report.Note that length of credit history is only 10% of your FICO score, but it wouldn't hurt to get a no-fee AMEX card, and it would also lower your credit utilization.Stock options become more valuable as the market price rises above the exercise price, so backdating fattens the spread — and executives' payoff when they eventually sell their stock.In some instances, shareholders are suing the companies, their top officials and directors, alleging manipulation to enrich executives at the expense of the bottom line.
The number of public companies under investigation by the Securities and Exchange Commission or federal prosecutors has grown to more than 30, and executives at several companies have been fired.Optical switch maker Sycamore Networks disclosed this week that it received a subpoena from federal prosecutors in Massachusetts, high-tech firm Rambus said it had launched an internal investigation, and Quest Software and drug company Sepracor reported SEC inquiries. attorneys' offices in several cities including New York, which led off the wave of criminal investigations.Yet to be determined is whether federal prosecutors will bring criminal charges against any of the companies or executives. "The sheer number of cases that are out there makes it much more likely that somebody is going to be charged" in a criminal case, said Tim Coleman, a former federal prosecutor who is an attorney at Dewey Ballantine in Washington.Among the companies that have disclosed receiving subpoenas or SEC requests for documents are big, well-known names like United Health Group and Caremark Rx.Many are from the world of high-tech, where stock options have long been a prized perk and incentive for executives and employees alike: Affiliated Computer Services, Juniper Networks, KLA-Tencor Corp., Open Wave Systems, Vitesse Semiconductor Corp. The SEC, with power to impose civil fines and sanctions, is looking at whether plans to backdate options to a specific date were properly approved by a company's board and disclosed to shareholders in regulatory filings.