When Richard Nixon bugged the Democratic campaign headquarters at the Watergate complex, the irony was that it was completely unnecessary. He went on to win in an electoral landslide. Likewise, when decorating diva Martha Stewart sold her ImClone
And now yesterday, the former CFO of telecom-software maker Comverse Technology
While David Kreinberg, the fallen CFO, becomes the first executive to plead guilty in a backdating case, he and his cohorts at Comverse were actually not the first charged. That dubious distinction went to executives at Brocade Communications
The past few weeks have been a veritable perp walk of executives leaving the front office in the wake of backdating scandals. UnitedHealth's
Backdating is the practice of changing the date on which a stock option is granted so that the stock price is lower than it otherwise would have been. It serves as a way to give the executive an immediate profit on the options and undermines their purpose of aligning shareholder and management interests.
While there's a pretty diverse universe of companies that are accused of backdating, not all are facing the shareholder equivalent of the electric chair. Apple
According to prosecutors, Kreinberg and Alexander used fictitious names to generate stock options and then created a "secret slush fund" to evade the company's written plan on issuing them. Alexander then personally doled out the options, with Kreinberg's advice and consent, to the employees he favored. Compounding the scheme were the misleading statements made about the options in the company's public filings, including its proxy statements and annual reports. The general counsel, who was also in on the scheme, drafted and signed off on the reports.
And then there's the rub of why Comverse's backdating scandal is criminal and the revelations at Apple and Microsoft are greeted with a collective yawn. The difference is that the latter companies had no intention of misleading employees, shareholders, or regulators, nor were their actions exactly illegal. So long as a company didn't say one thing but do another, it seems as if it will simply have to restate its financial reports and have a finger shaken at it in admonishment. Comverse's CFO, on the other hand, will be cooling his heels for up to 15 years in Cell Block D.
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