Federal prosecutor Kevin Ryan of the Northern California U.S. Attorney’s office announced the formation of a Justice and FBI task force to investigate several tech firms over the practice of backdating stock options.
By backdating stock-based employee compensation, the employer can make that benefit much more lucrative for those receiving it. Since those individuals are usually among the highest-paid executives in a company, and receive significant numbers of stock option shares, that backdating can be worth millions of dollars.
Ryan’s announcement in San Francisco of a special task force to investigate what has become a widening scandal throughout the technology industry comes near the end of a week where more companies have disclosed the possibility of restating years of earnings.
Technology news website CNet is one of many firms in the line of fire. CNet said in a statement that “financial statements and all earnings and press releases and similar communications issued by the Company relating to periods commencing on January 1, 2003 should therefore not be relied upon.”
The company also suggested that as its internal review progresses, financial statements for other periods may be likewise suspect. Other firms like Apple, Mercury Interactive, and Rambus has been performing similar internal reviews of stock option practices.
If it turns out that dates for stock options have been improperly, the Sarbanes-Oxley Act will very likely come into play as Ryan’s task force completes its investigations. Not to mention the lawsuits by shareholders that look destined to follow.
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David Utter is a staff writer for Murdok covering technology and business.
