Forrester Research issued stock options with incorrect strike prices between 1997 and 2003, the company said on Wednesday. The findings were released after an audit committee investigation determined that exercise prices were different — and usually lower than — the market value of the underlying stock on the day the options were finalized. The company is unsure whether it will have to restate its financial reports to adjust for the improper dating, but the discovery of the problem may delay the release of the company’s annual report, which is due March 16.
The audit committee blamed the backdated options on poor controls and documentation, noting that the finance and human resources departments were equally responsible for the errors. CFO and Treasurer Warren Hadley resigned last December after the firm announced that initial findings of the internal investigation had uncovered irregularities with respect to an option grant for 5,000 shares made to Hadley in 1999. Forrester said the executive who led the human resources department also is no longer with the company.
The audit committee also pointed out that Forrester’s chief executive officer, George F. Colony (who took over as acting CFO after Hadley’s departure), and two current directors, were involved in approving stock option grants during the period in question. However, the committee “found no evidence to suggest that any of them were aware of improper practices with respect to stock options.”
Two law firms, Ropes & Gray LLP and Skadden, Arps, Slate, Meagher & Flom LLP, assisted Forrester with the investigation, which remains open. Corporate investigation specialist, the Huron Consulting Group, has been hired to help Forrester determine the correct options dates. Until the measurement dates are confirmed, and the attendant financial statement corrections are made, Forrester said it will be unable to determine if the accounting adjustments are material. The preliminary results also remain subject to review by the company’s independent public accounting firm.