May 19, 2006
The Options Scandal
Posted by Gordon Smith

The investigations relating to option backdating are expanding. If you are new to the issue, the W$J has a primer.

It's hard to tell where this will stop, but this looks like it could be another corporate scandal with traction. The reason: backdating is easy to understand. An example from the W$J:

At Brooks Automation, a semiconductor equipment maker in Chelmsford, Mass., the compensation committee granted 233,000 options to its chief executive, Robert Therrien, with a date of May 31, 2000. Brooks's stock plunged more than 20% that day and surged over 30% the next day.

What was unusual was that Messrs. Khoury and Emerick, the compensation-committee members who oversaw the CEO option grants, also benefited. Although Brooks directors typically got options only in July, that year a special grant was awarded just to these two directors. In a statement, Brooks said Messrs. Khoury and Emerick had resigned voluntarily.

How many other stories like this are out there? I don't know, but over the next week, we can expect to see lots of press releases from companies that are "voluntarily" restating their financials.

UPDATE: The SEC sent out three more letters on Friday. See the W$J report.

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