The impact of the options backdating scandal on shareholders updating the garmin gps
While not quantifiable in terms of dollars and cents, in some cases, the damage to the company's reputation could be irreparable.Another potential ticking time bomb, is that many of the companies that are caught bending the rules will probably be required to restate their historical financials to reflect the costs associated with previous options grants. In others, the costs may be in the tens or even hundreds of millions of dollars.In addition to Brocade, several other high profile companies have become embroiled in the backdating scandal as well.For example, in early November 2006, United Health reported that it would have to restate earnings for the last 11 years, and that the total amount of restatement (related to improperly booked options expenses) could approach, or even exceed, 0 million. While reports of past indiscretions are likely to continue to surface, the good news is that companies will be less likely to mislead investors in the future. Prior to 2002, when the legislation was adopted, an executive didn't have to disclose their stock option grants until the end of the fiscal year in which the transaction or grant took place.
A Real-Life Example A perfect example of what can happen to companies that don't play by the rules can be found in a review of Brocade Communications.
But, there are also some companies out there that have bent the rules by both hiding the backdating from investors, and also failing to book the grant(s) as an expense against earnings.
On the surface - at least compared to some of the other shenanigans executives have been accused of in the past - the options backdating scandal seems relatively innocuous.
It also approved requirements that mandate that companies outline the specifics of their compensation plans to their shareholders.
The Bottom Line Although more culprits in the options backdating scandal are likely to emerge, because standards such as Sarbanes-Oxley have been instituted, the assumption is that it will be more difficult for public companies and/or their executives to hide the details of equity compensation plans in the future.
In the worst cases of options backdating abuse, the stock exchange on which the offending company's stock trades and/or regulatory bodies such as the Securities and Exchange Commission (SEC) or National Association of Securities Dealers can levy substantial fines against the company for perpetrating fraud.