Options backdating which companies are at risk
But the most prevalent kind of D&O claim activity arising from these practices, however, has been shareholder derivative actions.The practice of backdating--in and of itself--is not illegal or actionable.As the current wave of stock option backdating investigations and shareholder derivative lawsuits sweeps through the D&O industry, this is a good time to step back, consider what is at stake in these cases, and anticipate some of the D&O coverage issues that will implicated by settlements of these cases.D&O coverage may be sought for SEC investigations relating to option backdating practices, as well as for the few shareholder securities class action lawsuits filed to date.Backdating and its variants constitute failure to disclose compensation, which violates generally accepted accounting principles and the Sarbanes-Oxley Act.
It is likely improper for a corporation to take a deduction for compensation paid as a result of backdating, where such backdating was not disclosed and was not tied to performance goals.
With respect to both, there are pending parallel criminal actions as well.
As most of you know, the Comverse criminal case has had a certain amount of drama surrounding former CEO Kobi Alexander, who was first a fugitive from justice, and later was located after he took up residence in Namibia, where he is presently fighting extradition to the United States.
Of course, related acts may be illegal, such as tax evasion facilitated by exercise backdating.
Nevertheless, where stock option manipulation has occurred, a corporation and its directors and officers may be liable for violations of securities, tax and accounting rules.