Tuesday, August 18, 2009

Backdating Chutzpah

"Some companies that backdated stock options have tried to undo the practice to preserve tax deductions valued at millions of dollars. ... In the backdating scandal in 2007, companies changed the dates of stock-option grants in order to boost the potential profits that could be reaped on the options. ... Since then, some of the companies found to have backdated options have argued to the IRS that they should be able to undo the effect of the backdating. Their aim was to preserve tax deductions for options granted to chief executives and other top employees. ... The IRS rejected both proposals. 'Subsequent actions intended to retroactively reprice an option cannot change the fact that the option was issued at a discount,' the agency said in its ruling", Laura Saunders at the WSJ, 28 July 2009, link: http://online.wsj.com/article/SB124874707089185655.html.

Not only is the IRS right on this, the SEC and DOJ are wrong. Why? The companies, executives, CPAs and attorneys involved in backdating should have been indicted. Tax evasion, securities fraud, foreign corrupt practices act violations, take your pick DOJ. Multiple count indictments could be drafted. Well?

6 comments:

Anonymous said...

IA... come on...

Don't stand in the way of "innovation" and "competiveness".. the geniuses who run these firms want it all... no restraints... giant salaries for their giant egos.

It's the same ethos that gives us off-shored jobs, massive layoffs, underfunded pension plans.

It's Me Me Me capitalism.

I wish Pres-O would address Andrew Hall's $100 million heist using government money to trade commodities for Citibank.

edgar said...

Hello I.A.,

Not only is the IRS right on this, the SEC and DOJ are wrong...

The SEC and DOJ are lapdogs.

Clint Athey said...

I'm surprised that you included the FCP Act. Were backdated (i.e. in the money) options granted to foreign persons for influence? Thanks

Independent Accountant said...

Clint:
The FCPA section I had in mind is the "books and records" section. It makes it a felony for a publicly-held US company to falsify its records. If an option is granted say, 1 August 2009, t would be a felony to write the grant up as if it took place 1 July 2009. Antedating is a no-no.

Clint Athey said...

OH, now I gotcha. That's why I read you! Thanks again.

Independent Accountant said...

Clint:
Believe it or not, under our concept of "dual sovereignity", a local California DA could take up most of these backdating cases as they were in the Silicon Valley. "Every person guilty of preparing any false or ante-dated book, paper, record, instrument in writing, or other matter or thing, with intent to produce it, or allow it to be produced for any fraudulent or deceitful purpose, as genuine or true, upon any trial, proceeding, or inquiry whatever, authorized by law, is guilty of felony", source, California Penal Code, section 134. Creating and using ante-dated documents is a no-no.