Yesterday’s guilty plea by the former chief financial officer of Comverse Technology may help shed some light on the government’s view of criminal liability for backdating stock options. David Kreinberg is the first executive to plead guilty to backdating charges.
When the backdating scandal first broke, many observers assumed that the government would focus its attention on executives who engaged in secretive self-dealing by granting themselves in the money stock options dated to appear as if they had been granted at an earlier date. In other words, many assumed criminal liability would arise from executives who had inflated their own compensation and while hiding the real value of their options from shareholders.
And many companies who have disclosed their own backdating practices have gone out of the way to point out that the individuals approving the stock options did not directly benefit from the grants. The most prominent case of this is probably Apple, which said its CEO, Steve Jobs, "did not receive or otherwise benefit from any of the improperly granted stock options."
But that’s not what the government is focused on in the Comverse backdating investigation.
Prosecutors claim the three men backdated stock option grants so employees could buy shares at low prices and make the maximum profit, prosecutors said. Stock options typically give an employee the right to buy a specified number of company shares at the market price on the option grant date.
Which means that federal prosecutors are not restricting their view of criminal liability for backdating to self-dealing executives. They are going after the Comverse executives for creating backdated options intended to address what Kreinberg calls “employee retention and recruitment challenges.”
Uhm, Steve Jobs, call your lawyer.
Comverse Ex-CFO Names Jacob Alexander in Guilty Plea [Bloomberg]