It is all the more worrying for the suite

The Securities & Exchange Commission (SEC) and the American justice seem determined to hit hard in stock options backdating scandal. Friday, the Constable of the financial markets and the Attorney of a California Federal Court have indeed indicted, civil and criminal, three executives of the society of California communications systems Brocade. And this is only a beginning. While they risk years of prison, the SEC has provided that there are other, indicating that 80 companies were in his sights. "The federal authorities put all their weight in this case," assured Christopher Cox, the Chairman of the SEC. Decidedly, stock options are struggling to get out of the controversy: the question of the obligation to register the distribution of this type of remuneration in the accounts of companies results a question at the end of the 1990s is barely settled from this year.

First victims of this new case, Gregory Reyes, CEO of Brocade, its chief financial officer and Director of human resources are accused of having, between 2000 and 2004, tampered with documents to maximize the value of the stock that they were distributing. Their technique was to match the day of the granting of stock options with the day when the underlying stock price was the lowest for a given period. A melding entitles the holder to subscribe to an action in a specific course: more is low, the more likely of value. In some cases, the direction of Brocade antidatait even documents to provide just hired executives already carry stock of capital gains. This allowed him to recruit staff of high level at a time where Silicon Valley off this type of skills.

"A terrific signal."

The problem is that American companies are required to announce the exact date of these allocations of stock options. Their deadline for this was shortened to 40 days to 2 days in 2002 with the adoption of the Sarbanes-Oxley Act, which limited the abuse but was not eliminated.

Especially, if companies attribute already winning stock, they should and this for a long time passing it as an expense. If they do not, their results are false. Brocade met none of these two rules. Gregory Reyes is not itself directly enriched having recourse to this type of practice, he faces up to 20 years in prison. In this assault against Brocade, implementation review of the accomplices of Gregory Reyes struck many jurists. "This sends a frightening signal to all branches of business," said John Coffee, Professor of law at Columbia University.

It is all the more worrying for the suite. A study of Eric Lie, the University of Iowa, and Randall Heron, of the University of Indiana, two professors who put the matter to the day, 2.270 considers the number of companies having probably backdated from stock options. "Even if not there are only 1,000, it is too so that justice can punish all," notes John Coffee. Professor therefore expects a compromise between the authorities and businesses near that were found at the end of the 1970s, when the justice found that hundreds of U.S. companies paid "questionable payments" to authorities abroad for markets.