The SEC has been such a hotbed of activity lately that you might not have noticed - but more of the backdating investigations initiated last year are out of the exploratory phase. And they’re moving into the “prosecution” stage.
. . . the backdated grants resulted in materially misleading disclosures, with the company overstating its actual net income (as restated) or understating its actual net loss (as restated) in fiscal years 1997 through 2005, including a 528 percent overstatement of actual net income in fiscal year 2004. The Commission further alleges that [CFO] Fischer personally benefited from the backdating scheme. Fischer received backdated options which he later exercised to reap undisclosed profits.
It’s the options equivalent of the subprime mortgage issue: stuff that took years to build up unnoticed, and will take a lot longer to work down than anyone wants to endure. Unfortunately, we’ll have to live with both for a lot longer.