Human Capital & Careers

Cox: Backdating Charges Imminent

SEC Chairman Christopher Cox is ready to bring civil charges against a company accused of backdating stock options.
Stephen TaubJuly 17, 2006

Securities and Exchange Commission Chairman Christopher Cox told reporters on Monday that the regulator will bring the first civil charges “very soon” in the stock options timing scandal, according to Reuters.

Cox acknowledged that there are also criminal investigations being conducted by other federal regulators, but reportedly stressed, “I can only speak to the civil charges for which we are responsible, but I think, very soon.”

That said, Cox asserted that criminal charges may be warranted in some cases, noted Dow Jones. He reportedly said that forging documents and lying to corporate directors and shareholders about option grants “can form the basis of criminal as well as civil charges.”

More than 60 companies have disclosed that they are either being investigated by government authorities, are being sued by investors, or have launched internal probes involving the practice of backdating options grants to days when the company’s stock traded at a lower price, said a report in The New York Times,. “Each day, of course, we learn more,” Cox told reporters, said Reuters. “But for some time now it’s been abundantly clear that these were not episodic instances. But rather there were widespread problems, certainly during the 1990s.”

A new academic study, released earlier on Monday, concluded that 2,000 companies have used backdated stock options to sweeten their top executives’ pay packages. The study, cited by the New York Times, was authored by Erik Lie, a finance professor at the Tippie College of Business at the University of Iowa, and Randall Heron, of the Kelley School of Business at Indiana University.

The SEC is expected to soon provide guidance to companies about how to handle stock options as part of a broader set of rules aimed at improving the disclosure of executive pay, added Reuters.