Risk & Compliance

SEC Clears CNet

The Internet publisher emerges unscathed from an SEC backdating investigation, but the fate of its former CEO, CFO, and general counsel remains unc...
Stephen TaubSeptember 5, 2007

Just one month after a Securities and Exchange Commission investigation into its stock option practices appeared to grow more serious, CNet Networks Inc. announced Wednesday that it is now in the clear. According to the company, the SEC has ended its investigation into the company’s historical stock option granting practices and has not recommended any enforcement actions against the company.

The Internet publisher did not provide any other details in its regulatory filing, nor did it say whether or not the SEC continues to investigate any of the company’s former executives. The company has said in the past that its former CEO, CFO and general counsel all bore some responsibility for backdating-related deficiencies.

CNet is one of scores of companies that have been caught up in the backdating scandal. The company first announced that the SEC had launched an informal inquiry into the company’s options grants in May 2006. That inquiry appeared to be gathering steam last month when, on August 2, CNet said the SEC issued a formal order of investigation and served subpoenas on several former officers of the company in connection with its inquiry into the company’s stock option grants. The company did not name the subpoenaed executives.

In late June 2006, CNet also received a grand jury document subpoena from the United States Attorney for the Northern District of California requesting records pertaining to the granting of stock options.

In July 2006, the company said it would restate its financial statements to correct errors related to accounting for stock-based compensation from at least 2003.

In October 2006, co-founder Shelby Bonnie resigned as chairman and CEO. The announcement came at the same time the company announced that a special committee concluded “there were deficiencies with the process by which options were granted” at CNET, including in some instances the backdating of option grants, during the period from the company’s IPO in 1996 through at least 2003.

The company added at the time that these deficiencies had resulted in accounting errors that led to the earlier restatement. It also noted that a number of executives, including Bonnie, the former CFO, and the recently resigned general counsel and senior vice president of human resources, “bear varying degrees of responsibility for these deficiencies.”

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