Stock backdating illegal

Reyes, the founder and CEO of San Jose, Calif.-based Brocade Communications Systems Inc., a maker of storage-area network switches, and Stephanie Jensen, the company's former vice president of human resources, have pleaded not guilty to fraud charges filed by the U. Further, Reyes and Jensen are accused of backdating job-offer letters so certain employees, whose option grants were based upon the date they received a job offer, would wind up with more valuable options than would otherwise have been the case.An attorney for Jensen, however, has asserted that Reyes, if called to testify on this issue, can disprove the allegation that Jensen "knowingly and intentionally caused Brocade's financial statements to be materially false or misleading." Alleged backdating aside, with the federal entities and shareholder groups focusing intensely on stock-option programs, "HR executives are going to have to be much more attentive to risks," says Jonathan M.The good news is that a set of relatively straightforward actions outlined below can be the "ounce of prevention" far outweighing the "pound of cure" after problems have started.Estimates cited by the Wall Street Journal and other financial publications suggest more than 200 probes into options backdating are under way by the Securities and Exchange Commission, the Federal Bureau of Investigation and other regulatory and investigative units -- and that number is expected to grow.Ray, the head of human resources at KB Home -- formerly Kaufman & Broad, the giant Los Angeles-based home builder.

Indeed, one motivation for backdating options has been to artificially create a lower exercise price to create value in an option contract when the market price of the stock has gone south or has simply languished, instead of rising.In some cases, HR leaders have been alleged to be right in the thick of it.Perhaps the most widely reported one involves Gary A.A recent high-profile spring-loading case involving Tyson Foods Inc.resulted in a Delaware court judge criticizing a company director's behavior as not "acting loyally and in good faith as a fiduciary."And a corollary practice, "bullet-dodging" -- delaying an options grant until just after the announcement of corporate bad news -- has also come under scrutiny, though no prominent legal cases involving it have yet arisen."There is no doubt in my mind that 'timed options' represent the next big wave in corporate-governance reform," Jay Eisenhofer, an attorney with Grant & Eisenhofer, a Wilmington, Del.-based law firm representing institutional investors, told the Reuters news agency recently.

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Rosenthal, a Philadelphia employment attorney specializing in executive compensation.

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