More Companies in Stock Option Probes
Thursday June 29, 9:03 pm ET
By Marcy Gordon, AP Business Writer
More Companies Become Entangled in Stock Options Controversy
WASHINGTON (AP) -- More U.S. companies have become entangled in the controversy over suspicious timing of stock option grants to top executives. Several disclosed this week that they are under scrutiny by federal authorities.
In expanding investigations, more than 50 public companies are under scrutiny by the Securities and Exchange Commission or the Justice Department, or both, for possible manipulation of options grants to boost their value to the recipients.
On Thursday, Apple Computer Inc., maker of personal computers and the iPod music player, became one of the best-known companies to acknowledge that some stock options awarded to employees might have been mishandled -- a problem that could raise questions about the accuracy of past financial statements. Apple said its own internal review had uncovered "irregularities" in employee stock options issued between 1997 and 2001.
Information technology company CA Inc. said it would have to delay reporting its fiscal-year financial results because of newly discovered problems with stock option grants, also from 1997 to 2001.
And Intuit Inc., which makes the popular TurboTax and Quicken personal-finance software programs, said it had received a subpoena for options-related documents from federal prosecutors. Intuit had previously disclosed an SEC inquiry, and said Thursday that it had begun an internal review.
The investigations are meant to determine whether insiders at the companies -- many of them in the technology sector -- rigged the system to increase the likelihood that executives would reap huge windfalls.
Under the practice, the options are backdated to an ebb in a company's stock price instead of pegging the exercise price to the prevailing market value at the time of the award.
Stock options become more valuable as the market price rises above the exercise price, so backdating fattens the recipient's profit.
Backdating of options can be legal when properly approved by a company's board and disclosed to shareholders in regulatory filings, securities experts say. But while the practice may not be illegal in itself, it appears some companies did not follow accounting rules requiring them to deduct that added compensation from their bottom line.
Earlier this week:
-- Foundry Networks Inc., a maker of computer network switches and routers, reported Tuesday that its stock options awards had become the subject of an SEC inquiry and that it also had received a subpoena from Justice Department prosecutors.
-- Computer chip supplier Rambus Inc. warned Tuesday that some of its previously reported profits might be erased because the timing of stock options granted to its employees wasn't properly recorded -- a problem that could affect scores of other companies as they review their past options-granting practices.
Rambus has been conducting an internal review of its stock options awards.
-- Cnet Networks Inc., VeriSign Inc. and Cyberonics Inc. disclosed Tuesday that they had received subpoenas for information about their stock option awards from federal prosecutors.
Cyberonics, a maker of medical devices, is said to have granted options to top executives in June 2004 shortly after it received positive news certain to boost the share price. Cyberonics has called the assertions of unusual timing made by a Wall Street analyst "inaccurate and without merit."
-- Macrovision Corp., Asyst Technologies Inc. and Linear Technology Corp. reported Wednesday that they had received Justice Department subpoenas.
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Stocks listed in story:
AAPL
ASYT
CA
CNET
CYBX
FDRY
LLTC
MVSN
RMBS
VRSN |
