scandal

The flip side of the stock options scandal

Tue, 11 Mar 2008 07:59:59 -0400

Some of you would argue that Sarbanes-Oxley adequately addresses the issue of stock options backdating. By forcing disclosure within two days of grant, it makes it harder to play games with grant dates. But Sarbox does not apply to donations of stock. According to other rules, executives who give stock (to charity, for example) do not have to disclose the fact until 45 days after the fiscal year ends. The Wall Street Journal notes that his allows for some games when it comes to donations. Indeed, an NYU professor has found that some donations of stock just happen to occur right before the stock tanks. That maximizes the value of the donation and tax savings. Given all the options scandals, I'm not at all surprised by this.

For more:
- here's the Wall Street Journal item

Related Articles:
How widespread is options backdating? Article
Options scandal: Where were the auditors? Article
PwC ensnared in backdating controversy. Article
How to control for options dating miscues. Article
Union steps up war on options abuses. Article

ALSO NOTED: Spotlight On... Daughter of CEO uses corporate jet for school commute; Should audit committees have oversight over

Tue, 11 Sep 2007 06:59:58 -0400

Today's Spotlight... Corporate Scandal
Hmm. Daughter of CEO uses corporate jet for school commute. The recent trend has been away from such use by the CEO's friends and family. Critics assail the company. Article

News Watch:
> Should audit committees have oversight over credit raters? Article
> Deloitte takes a hard line mortgage company Novastar. Article
> New study: Sarbox whistleblowers prevail in just 3.6 percent of cases. Article
> Is the credit crunch really a crisis of character? Article
> Sarbox, one of many regs that affect the supply chain. Article
> Local recruiter: Demand for financial pros still high. Article
> Bayer says delisting from NYSE saves a lot. Article

Scandal Watch:
> International Rectifier fires CFO, puts CEO on a leave following discovery of fraud. Article
> Internal review discovers irregularity at Ace, no wrong-doing cited. Article

IT Watch:
> A new way to monitor file access? Release
> Westbrook Technologies, Sherpa to offer Fortis Email Management. Release
> SAP embraces best practices for GRC software. Article

And finally ... Fear and loathing for business travelers. Article

The benefits of an ethical culture

Mon, 11 Jun 2007 20:01:39 -0400

Corporate ethics have obviously gotten a lot of press since the passage of Sarbanes Oxley. People are quick to point to cases like the Duke Business School cheating scandal as signs that corporate ethics in America have some systemic problems. But there is also some good news. One is that companies really benefit from instilling ethics in their workforce. This is easier said than done. It goes way beyond merely complying with Sarbox. Recent research from Kenexa, a talent acquisition and retention solutions firm, make clear the upside on many aspects of work. Employees in strong ethical cultures are more likely to stay with their organization and they rate their companies much higher in confidence in management and general satisfaction. Of course, developing such a culture is the hard part.

For more:
- read this release

How to commit financial crimes

Mon, 14 May 2007 20:01:39 -0400

A new study, "Control Overrides and Financial Statement Fraud," by the Institute of Fraud Prevention has looked at 834 companies filing restatements and found that it apparently takes teamwork to perpetrate fraud. About 45 percent of the restatements studied resulted in charges of securities fraud by shareholders or the government. The study found that an average of seven people--the CEO, CFO, Chief Operating Officer, general counsel, members of the Board of Directors, and internal and external auditors--were involved in these cases. So what does this mean? Well, even before Sarbanes-Oxley, fraud seems to be something that was rationalized by group-think. Hey, if everybody says it's okay and everybody's doing it, it must be. The options back-dating scandal comes to mind. The issue is whether the same mentality holds today, post Sarbox. My sense is that Sarbox has changed the mentality but perhaps not completely. There will always be those who succumb to temptation. Hopefully, their peers and auditors will make them less comfortable indulging their whim.

For more:
- here's an article from accountingweb
- here's the study

How to control for options dating miscues

Mon, 26 Feb 2007 19:01:39 -0500

It is often said that Sarbanes-Oxley has solved the options mis-dating scandals, given that the new rules basically ban improper backdating. But that would be a bit naive. The bottom line is that options controls are now something that the board must evaluate and perhaps even attest to. It would be hard not to call it a 404 issue, especially in the current climate. Of course, one could do this all manually. But many big companies will likely want to consider one of the emerging automated solutions. It boils down to a time-stamp issue in many cases, which may require a common and inexpensive time server. The thought is that a system will be able to note exactly when options were awarded and cross check that with the options' stated grant dates--all in a way that is audit-able. It may be worth looking into.

For more:
- here's an article from Wall Street Technology

Related Articles:
Options scandal: Where were the auditors? Report
Meet the man who uncovered the options scandal. Report
How much will the options scandal cost shareholders? Report

ALSO NOTED: Options scandal to die down; Worried abut overlapping compliance laws?;

Mon, 15 Jan 2007 19:01:38 -0500

> The loss of listing business to overseas exchanges--Sarbox is often blamed--has been big news. But the to exchanges are not sitting back. Both the NYSE and Nasdaq have just opened offices in Beijing. Article

> The options backdating and spring-loading scandal may die down soon. Article

> Depending on your industry, you likely have a lot of overlapping compliance regimes to worry about. Finding a solution that covers all your bases can be tough. A good example is smaller financial institutions. Article

> Most people assume that small companies will get some relief in 2007. That's the hope, anyway. Article

> EU looks for ways to smooth audit process for foreign firms. Article

> If you haven't noticed, there are a lot of small companies still struggling to comply. We'll see more announcements of delayed reports like this one.

And Finally... Games real estate agents play. Article

Options scandal: Where were the auditors?

Mon, 06 Nov 2006 19:01:39 -0500

It's the question that has been lurking in the back of many minds out there: In the ongoing options scandal, where were the auditors? One story making the rounds on the Net holds that Daniel Goelzer of the Public Company Accounting Oversight Board (PCAOB) was asked whether the PCAOB will slap auditors for not catching the abuses. Goelzer reportedly said that accounting rules historically did not count options expenses as compensation, so why would auditors really search for bad practices in this area? This came up at a recent conference, and at least one person was dismayed by the attitude. You have to wonder what SEC enforcement staffers think. If we see a lot of charges come down over backdating, the audit firms may yet be held accountable in some form.

For more on this:
- read this Forbes article

ALSO: This editorial makes the point that options back-dating scandal would not have happened if Sarbox was enacted about 10 years earlier. Editorial

Related Articles:
Meet the man who uncovered the options scandal. Report
How much will the options scandal cost shareholders? Report
Should CFOs be stripped of all stock options? Report
Kickback scandal raises issue of independent boards. Report

How much will the options scandal cost shareholders?

Mon, 11 Sep 2006 20:01:39 -0400

You could argue the costs of the options scandal in many ways. The only study on this issue was released recently by three University of Michigan researchers. They found that the average pay of an executive with backdated options was boosted by $600,000, while the ensuing decline in the stock knocked $500 million of the market cap of each firm involved. One could quibble with the methodology and assumptions. But the study bolsters the case that lots of costs are involved, from higher legal fees to extra taxes, from flagging stocks to possible payments for settling class action suits. The study's release was timed to coincide with Congressional hearings. It may yet end up an issue in the upcoming elections.

For more on the study:
- Here's a New York Times article

And here's an article on the growing ranks of companies under investigation.

ALSO NOTED: Congress told of options costs; Sarbox driving deals?

Mon, 11 Sep 2006 20:01:38 -0400

> Is Sarbox leading to more deals by small- and medium-sized companies? The idea is not far-fetched. Consider Omeros' merger deal with Nura. Article

> Time Warner CEO Dick Parsons speaks about Sarbox's effect on the board: Like a pendulum. Article

> Congress told of costs of options scandal. A legislative solution likely? Article

> At least one congressman aims to probe all players in the options scandal: Accountants, consultants, lawyers and others. Article

> Case study: Due to the options scandal, one analyst notes that there is a "potential risk, however remote" that Steve Jobs of Apple might lose his job. Article

> Recall that a Wal-Mart employee sought Sarbox protection recently, claiming retaliation for blowing the whistle. The case has taken some odd turns. Update

> Despite relief, two S. Korean firms may delist in the U.S. because of Sarbox. Article

> HP board scandal update. Article

And finally ... Offshoring lawyers? Article

More convictions in options grant date scandals

Mon, 14 Aug 2006 20:01:39 -0400

It's doubtful that prosecutors will pursue every company that backdated their options awards. So who will face the wrath of the government? For clues, look to the convictions of Comverse Technology. The prosecution contends executives took active steps to mislead its compensation committee, involving the use of a slush fund of options and fictitious names and the like. This is a lot different than fully disclosing the options awards to a committee that received approval from an auditor or law firm. One could argue that those that took extraordinary steps to deceive will make the best targets.

> Here's a New York Times article.
> The man at the center of all this has fled. Article
> Judge refuses to toss the first convictions in options scandal. Article
> More charges against Brocade execs. Article
> Here's some additional material on the FierceSarbox Web site.