Accounting & Tax

Options Probes Eye Two More Targets

American Tower and Nyfix are the latest companies under scrutiny by federal authorities looking into corporate stock-option practices.
Stephen TaubMay 19, 2006

On Friday, American Tower — an owner and operator of wireless and broadcast communications sites in the United States, Mexico, and Brazil — disclosed that the Securities and Exchange Commission has opened an informal inquiry and is requesting documents related to its stock options.

The company, which intends to cooperate fully, added that its board has created a special committee of independent directors to conduct an internal review of prior stock-option practices and related accounting. As a result, it may need to correct historical determinations of noncash stock-based compensation expense and, if the corrections are material, may need to issue a restatement. The company added, however, that it does not expect the review to result in material changes to historical revenues or nonoption-related operating expenses or to have a material impact on cash flow from operations.

Also on Friday, Nyfix — a provider of electronic-trading infrastructure and services to brokerages and institutional investors — announced that earlier in the week it received a grand jury subpoena from the U.S. Attorney’s Office for the Southern District of New York. The subpoena calls for the production of all documents related to the granting of stock options going back to 2000, stated the company, which added that it intends to cooperate fully.

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A day earlier, at least five other companies — Vitesse Semiconductor, Caremark Rx, SafeNet, Affiliated Computer Services, and UnitedHealth Group — disclosed that they had received subpoenas; all originated from the same U.S. Attorney’s office.

Vitesse and Caremark are also the subject of SEC inquiries into their stock-option practices.

The SEC has been looking into the timing of stock-option grants at a number of companies, specifically to determine whether the grants had been backdated to a point shortly before the company announced good news, so option holders could capitalize on a lower market value. Although the practice has often been criticized, Reuters has observed that it is not prohibited under SEC regulations if it is disclosed in regulatory filings and allowed by the company’s own policies, and provided that the accounting is proper.

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