The Securities and Exchange Commission is investigating more than 100 companies suspected of manipulating options awards so that executives got a substantially bigger payout when they exercised them. Specifically, the firms allegedly backdated the options to a low point in their stock’s price.
Lower options/purchase price = potentially larger gain when sold.
Yes, we all could make a killing in the stock market if we had such precise 20-20 hindsight.
Charges have been filed against executives of two companies so far, SEC chief Christopher Cox this week told a Senate Banking Committee hearing on the issue. But more charges are on the way, he said.
As you might remember from one of my earlier postings, I’m no fan of options. I don’t believe they are that good of a benefit. This latest scandal is just another mark in my anti-options column.
And while you might be smiling, thinking at least it’s the fat cats who are going to get whacked this time, don’t get too smug. Employees much lower on the corporate organizational chart might also find themselves under scrutiny.
According to a story in the San Jose Mercury News, reprinted on the SmartPros site, the while the IRS acknowledges that corporations and top executives will be the primary targets, rank-and-file workers who also benefited from the lower pricings aren’t off the hook, even if they played no role in the options rigging scheme.
"Where there might have been unwitting victims — we’ll call them victims by mischief — there may still be tax adjustments," Bruce Ungar, an IRS deputy commissioner whose division focuses on business, told the San Jose newspaper. "It’s our responsibility to enforce the law. We would take into account their role, but at the end of the day that would have to be dealt with."
Cutting options’ corporate tax advantage: The Senate Finance Committee hearing is part of that chamber’s examination into ending or reducing a tax break that encourages companies to reward executives with options.
You can find more on the Senate hearing, including a list of witnesses, a Joint Committee on Taxation report on executive compensation, blogger comments on the topic and links to news stories at TaxProf.
