Backdating goes to Washington

Scott Tong Sep 6, 2006


SCOTT JAGOW: During the dot-com boom days, a lot of tech companies were giving their employees back-dated stock options. It was a nice little benefit. The company picked a day when the stock’s value was down, so employees could make a tidy profit. It’s not illegal, but the government says it is scandalous and it’s rustling up charges against some of those firms. The practice has just come to light in the past few months. Today, the Senate holds hearings on backdating. More now from Scott Tong.

SCOTT TONG: The key witness before the Senate banking committee today is Securities and Exchange Commission chairman Chris Cox.

DON LANGEVORT: He should be quite aggressive on this issue.

Georgetown Law professor Don Langevort.

LANGEVORT: The SEC has been accused in the last couple of years of not being on top of these scandals, coming at them too late.

The SEC has joined the Justice department and filed charges against two firms so far and the findings of more probes by regulators and companies should come out this fall.

David Yermack teaches finance at NYU.

DAVID YERMACK: You’re probably going to see many dozens of indictments over the next six to nine months.

Yermack and others think the practice of backdating has ended, though a questionable action known as spring loading may still be going on.

That’s where a company grants stock options just before announcing good news increasing the stock price.

In Washington I’m Scott Tong for Marketplace.

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