The options backdating scandal may be entering a new phase. Shareholders, suing Cablevision over its options practices, have filed an amended complaint alleging that the media company’s outside compensation consultant, Lyons Benenson & Co., knowingly participated in the illegal backdating of options. Reportedly, this is one of the first cases that accuses a compensation firm of playing a direct role in the scandal.
The amended suit, filed by Grant & Eisenhofer on behalf of shareholders led by the Teachers Retirement System of Louisiana, alleges that Lyons Benenson attended compensation committee meetings during which backdated options were granted in violation of the company’s employee option plan, and that the consultant provided the committee with advice and documentation to facilitate the grants, according to a press release fired off by the law firm.
The document points out that Cablevision’s most recent quarterly filing supports the claim, stating that the company’s former compensation consultant had been “identified in the stock options review process as having directly participated in the options dating process.” 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, is being given the promise of cash, or what is called an “in-the-money” options grant.
“Just as shocking as the fact that these blatant violations occurred in the first place is that they took place under the watch of a supposedly independent compensation consultant,” said Stuart Grant, lead counsel to the plaintiffs’ group, in a statement. “As with the disclosure that the company had awarded options to its deceased vice chairman, the fact that a benefits consultant may have had a direct hand in the illegal backdating is another example of how Cablevision’s compensation practices reached some singular lows.”
In August, the cable giant said it plans to restate all of its financials dating back to 1997 stemming from a review of its stock options practices. The company added that a voluntary review of its past options granting practices determined that the date and exercise price assigned to a number of its stock option and stock appreciation rights (SAR) grants during the 1997-to-2002 period did not correspond to the actual grant date and the closing price of the company’s common stock on that day.