Risk & Compliance

Not All Backdaters May Be Charged: SEC

Commission will consider "how bad is the conduct and how good is the evidence" at the companies under investigation, says a senior official; ''I do...
Stephen TaubFebruary 12, 2007

The Securities and Exchange Commission will pick its spots when deciding which companies should be the targets of backdating actions, a senior official stated on Saturday.

During a panel discussion at the annual SEC Speaks conference in Washington, D.C., associate director of enforcement Antonia Chion told the audience, “I don’t believe we’re going to be bringing 130 cases,” according to Reuters. Rather, Chion reportedly added, the commission will consider “how bad is the conduct and how good is the evidence” at the 100-plus companies whose options practices are under scrutiny.

According to Reuters, Chion told the audience that the first thing SEC investigators look at is how long the misconduct took place and the number of instances of backdating, as well as “the quantitative materiality of the compensation charges and if the company’s restating.”

In addition to documents, e-mails, and witness testimony, Chion reportedly added that the SEC examines circumstantial evidence that may demonstrate a clear pattern of options being granted at historic low prices.

She also told the audience the companies receive strong consideration for cooperating and for conducting internal probes. “We really do look at what is quality of the investigation and the breadth and the scope of how it’s been handled,” Chion said, according to Reuters. She would not discuss what level penalties might be expected, the wire service noted.

Though the SEC and the Department of Justice have started slowly in filing charges of backdating, regulators have signaled that the pace will quicken. Last week the SEC filed civil charges against two former finance executives of Engineered Support Systems. And on Friday, noted Reuters, chairman Christopher Cox told conference attendees that the commission would have more news on settlements very soon.