Fifty-two companies currently under criminal investigation. Moreover, the company avoids having to expense the options as current compensation, thus increasing earnings in the near term.
As a consequence, the option is immediately profitable, or “in the money,” to the option holder.
- Corporate Ownership & Control Journal - October (4th Quarter/Autumn) 2008 Where is Accounting Professors?
NEW YORK (Reuters) - The former chief executive officer of Comverse Technology Inc pleaded guilty on Wednesday to securities fraud, a decade after he fled to Namibia from the United States to avoid prosecution.
In addition, the company awarded thousands of stock options to fictional employees and then transferred the awards to a secret slush fund under the name I. Before he disappeared, Alexander, an Israeli citizen and a US permanent resident, transferred million to Israel, fueling speculation he may have fled there, authorities said.
He later turned up in the Republic of Namibia, where he was briefly detained by local authorities but thereafter was allowed to freely live with his family while fighting extradition.
NEW YORK (AP) — An Israeli fugitive former technology company CEO who frustrated federal authorities by living comfortably in exile in southwest Africa for the past 10 years has agreed to return to the United States to face charges he hatched a scheme to pocket millions of dollars by secretly manipulating stock options and is expected to plead guilty, prosecutors revealed on Tuesday.
The lower the strike price, the greater the potential for making money when exercising the options.Subsequently, the Securities and Exchange Commission (SEC) took an interest, followed by the securities plaintiffs’ bar and many corporations. The practice of options backdating, apparently widespread from 1996 through 2002, is widely believed to have been short-circuited by the enactment of Sarbanes-Oxley in 2002.Although backdating had not yet been recognized as a problem, the provisions of Sarbanes-Oxley requiring that insiders report the acquisition of securities, including options, within two days of receipt greatly hindered the ability of corporations to backdate options.Dozens of companies – including United Health Group, Comverse Technology, Vitesse Semiconductor and Affiliated Computer Services – have caught the eye of the Securities and Exchange Commission and the Department of Justice for the timing of their stock option grants.The question: did these companies backdate options grants – and falsify records – to make them more lucrative for their top employees?