Stock Options Backdating: A Flashback

Lora Bentley

For awhile there in 2006 and 2007, it seemed like I wrote about stock option backdating charges or settlements or investigations at least once a week, if not every other day. The posts usually read something like this:

[Tech publication] reported that [shareholder A] will be allowed to proceed with its "books and records" lawsuit against [Public company Y]. [A] will raise questions about stock option grants that were apparently made when prices for [Y's] stock were low. As an attorney for [A] puts it, "Something looks amiss."

Or perhaps this:

Late last week, former [public company] general counsel received the first prison sentence to be handed down in the stock option backdating scandal. He will start serving his 366-day term on [date] The sentence follows his conviction on one count of conspiracy to commit mail, wire and securities fraud.

Even Apple and Steve Jobs were not immune. Gradually, though, such events became rather commonplace, and other issues took precedence in terms of news coverage. Until last week. Last week, three high-profile stock options backdating cases were back in the news -- with some interesting developments.


First, a Mercury News piece at reports former Brocade human resources executive Stephanie Jensen has been sentenced to two months in prison for her role in the networking company's backdating practices. She was convicted on charges of conspiracy and falsifying corporate records, the story says. Jensen is the first Silicon Valley exec to serve prison time in connection with the backdating scandal.


Next came news that former KB Home CEO Bruce Karatz, who is on trial for backdating, is accusing prosecutors of misconduct. According to the Los Angeles Times:

In a motion filed this week in federal court in Los Angeles, Karatz's attorney said two former KB Home employees who once supported Karatz later changed their accounts after meeting with federal prosecutors and FBI agents..."Both firmly believed that the stock option grant practice was lawful and they were willing to say so...Once the prosecutors got ahold of them, that changed."


Last, and by all means the most bizarre story: Bloomberg reports former Broadcom CEO Henry Nicholas won't face federal narcotics charges. Prosecutors accused Nicholas of "spiking... customers' drinks with...ecstasy to gain a business advantage," but charges were withdrawn. The decision comes shortly after a federal judge dismissed backdating charges against Nicholas and former Broadcom CFO William Ruehle after finding prosecutors had intimidated witnesses.


It appears the Broadcom case inspired Karatz and his attorneys to make the prosecutorial misconduct argument.

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