Cultural pundits have argued for years that we're transforming into a country of victims, in which every affront is now considered a cause for legal action.
That attitude has seeped into the financial marketplace, where a single poor earnings report or surprising negative announcement seems to be sufficient justification for a class action lawsuit. For example, Daktronics
None of this comes as any big shock. Investors were just trying to recoup in the courtroom the money they couldn't win in the stock market. But often, corporations spend as much money fighting a lawsuit as they would to settle it. And the idea that some trial attorneys have been gaming the system really shouldn't surprise anyone.
Heads I win, tails … ?
Yet there's a large constituency within the financial system that bears just about zero risk in its investing. Stock options have been a particularly ripe playground for those who want to change the system from one that forces executives to work toward success, to one where huge pay packages are guaranteed. The backdating scandal was merely the first rung on the ladder, in which executives changed the dates on previously granted options to ensure that they would be in the money.
The next step was repricing those option. Many companies are seeking to change the prices of already-granted options that have now slipped underwater. Advanced Micro Devices
This isn't a new practice. Back in 2001, many tech firms, including Apple
Do-over on taxes
The latest scheme to guarantee rewards gives option holders the chance to avoid the taxes normally due when those options are exercised. Squirreled away in the huge Wall Street bailout bill was a little provision that eliminates those taxes, at a cost of $2.3 billion.
A report in the Wall Street Journal notes how a Cisco Systems
In response, the employee mobilized a bipartisan coalition of legislators to exempt him and other similarly situated individuals from having to pay the tax. While part of the problem is the hated alternative minimum tax, it's ironic that those with millions in options wealth get relief, while ordinary taxpayers across the country continue to suffer.
As investors, we must all remain aware of the risk of insiders trying to make off with profits that are due to shareholders. There's nothing wrong with rewarding executives who do good work -- as long as we hold them accountable, both legally and financially, when they fail.