Backdating options sec
Even though Sorin neither admitted or denied the allegations against him, the allegations provide an interesting context to assess the op-ed authors’ assertion that backdating is no more than a mere scrivener’s error.By contrast to the benign picture the op-ed authors conjure, Sorin was alleged to have personally benefited; he was alledged to have falsified documents, both at Comverse and at Ulticom; and Comverse investors were alleged to have been deceived because income was overstated by the understatement of expense.Sorin is also alleged to have facilitated a similar backdating scheme at Ulticom, a Comverse subsidiary, by creating false company records.In settling the fraud charges, Sorin neither admitted or denied the allegations.Using these elements as a framework to assess potential culpability, it seems to me that the op-ed authors’ theme that backdating is essentially innocent gets weaker the more a particular set of circumstances involves personal benefit, document falsification, and the greater the impact the activity had on the company’s reported financial condition.
For example, a January 11, 2007 article entitled “Apple Chief Benefited From Options Dating, Records Indicate” (here, registration required) presents a perspective that the options he was granted in December 2001 and that were backdated to October 2001 personally benefited him when he later traded the options for registered shares he subsequently sold at a profit.
But as the allegations against Sorin suggest, there may be cases where these allegations of personal benefit and deception are present and where the shareholder harm was great.
Whether any particular case involved culpable behavior depends on what actually happened, and this is where the distinction between the different kinds of options grant activity matters most.
But just as the op-ed authors argue that prosecutors ought not to conflate books and records violations with securities fraud, so too should distinctions be carefully drawn about the specific kind of activity involved, because different activities will involve different degrees of the elements that potentially could support allegations of culpability: self-benefiting activity, deceit, and shareholder harm.
As the Comverse allegations illustrate, there are going to be at least some cases where these elements arguably support allegations of criminality.
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But while not every company executive whose name has been associated with the backdating story is criminally culpable, neither is every one of them completely innocent, as the authors of the op-ed piece seem to come close to suggesting.