Human Capital & Careers

DOJ Subpoenas Barnes & Noble

The U.S. Attorney is looking into stock option practices at the nation's largest bookseller.
Marie LeoneAugust 29, 2006

Officials at bookseller Barnes & Noble announced that the company received a subpoena from the U.S. Attorney for the Southern District of New York asking for documents related to its stock option practices. Barnes & Noble intends to cooperate fully in responding to the subpoena, noted a regulatory filing released by the company Tuesday morning.

As previously announced, an internal review of the bookseller’s stock option practices is already being conducted by a special committee of the Barnes & Noble board and independent legal counsel. The Securities and Exchange Commission is also conducting an informal inquiry into the company’s stock options practices, with which officials say they are cooperating fully.

About 45 companies have received subpoenas from the Department of Justice, according to Bloomberg, which also reports that about 108 companies that have disclosed internal or federal probes of their stock option grants. Most, if not all, of the companies currently under scrutiny are being reviewed for the practice of backdating options.

Backdating involves using hindsight to assign a stock-option contract an earlier date than its actual grant date. By pushing the date into the past, to a time when the underlying stock traded at a lower price than it did the day the grant was issued, the option holder is, in effect, being given the promise of cash, or what is called an “in-the-money” options grant. Such grants need to be expensed. Some companies, however, accounted for them as at-the-money grants, which under old accounting rules, did not need to be expensed. (Under FAS 123R, all options need to be expensed.)

Based on one academic study, the number of companies that backdated options before FAS 123R was issued may be as high as 2,000.

A Fortune 500 company, Barnes & Noble is reportedly the nation’s largest retail bookseller, operating 799 stores in 50 states. The company also owns B. Dalton Booksellers, Barnes and Noble Superstores,, Sterling Publishing, Calendar Club, and other publishing related businesses.

Barnes & Noble’s stock dropped about 0.2 percent to $35.19 in morning trading on news of the subpoena. The stock closed at 35.27 the previous day.