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Is being brazen the best defense?
July 21, 2006

My colleagues at Electronic News have been covering the stock-option backdating scandal rocking high-tech and other businesses. Just go to the Electronic News homepage and type "backdating" into the search box for a look at some of the companies affected.

Now, the Wall Street Journal reports, federal authorities have issued their first civil and criminal securities-fraud charges related to the scandal. They accuse Gregory Reyes, the one-time CEO of Brocade Communications Systems, of backdating options he doled out to hundreds of employees, thereby concealing millions of dollars of compensation expenses from shareholders.

Brocade has posted a statement here. The gist: "Brocade has taken a number of steps to strengthen disclosure controls and procedures…. No executive officers involved in the historical stock option granting practices remain employed with Brocade."

How is it that so many executives (the Securities and Exchange Commission is investigating more than 80 companies) could have thought their practices would escape notice? Maybe they didn't. Columnist Holman W. Jenkins Jr. has been making a tortured case in the Wall Street Journal op-ed pages that backdating is, or may be, perfectly all right. His latest attempt is here.

You have to pay to read it, and I can't recommend it if you don't already have a subscription. His conclusion: "The systematic way many companies adopted a lowest price from a prior period does not betoken an obvious attempt to cover their tracks as if they believed at the time they were doing something improper."

My translation: being brazen is the best defense.

Posted by Rick Nelson on July 21, 2006 | Comments (0)