Stock Options Backdating

​As far back as 2004, University of Iowa Professor Erik Lie studied companies' grant dates for executives (which are disclosed in SEC filings) and found that at several companies, option grants almost always occurred on days when the stock price was much lower than normal, and in some cases, grants occurred on the day with the lowest stock price for the entire fiscal year.

In 2006, using Lie's data from several studies, The Wall Street Journal calculated that the probability that these grant dates were continuously selected by chance was extremely low, in some cases odds of 1 in 6 billion. They were able to conclude that some form of backdating must be occurring, listing six companies by name in a March 2006 article. The SEC is now investigating more than 100 companies.

The Senate Finance Committee held a hearing on September 6, 2006 titled "Executive Compensation: Backdating to the Future/Oversight of current issues regarding executive compensation including backdating of stock options; and tax treatment of executive compensation, retirement and benefits."

Orrick is actively involved in the representation of several companies and individuals facing options backdating issues. Selected examples include the representation of:

The special committee of a semiconductor company conducting an internal investigation concurrently with an SEC investigation and a U.S. Attorney's Office ("USAO") investigation in the Northern District of California ("N.D. Cal.").

The special committee of an application software company conducting an internal investigation concurrently with an SEC investigation and a USAO investigation in the N.D. Cal.

The special committee of an information technology services company conducting an internal investigation concurrently with an SEC investigation and a USAO investigation in the Eastern District of New York("E.D.N.Y.").

An application software company, its senior officers and board members in an SEC investigation.

A biotechnology company in an SEC investigation.

An application software company in an SEC inquiry.

A semiconductor company in an SEC investigation.

Former president of a semiconductor equipment manufacturer conducting an internal investigation concurrently with an SEC investigation, and USAO investigations in both the N.D. Cal. and E.D.N.Y.

Former founder and CEO of a semiconductor equipment manufacturer conducting an internal investigation concurrent with a USAO investigation in the N.D. Cal.

Former CFO of an application software company conducting an internal investigation concurrently with an SEC investigation and a USAO investigation in the E.D.N.Y.

Group of current and former executives and employees of a communications equipment manufacturer in an SEC investigation and criminal case against former executives in the N.D. Cal.

Former general counsel of a semiconductor equipment manufacturer in an SEC investigation, and USAO investigations in both the E.D.N.Y. and N.D. Cal.

Former general counsel of a networking platform company in an SEC investigation and USAO investigation in the E.D.N.Y.

Current general counsel of an Internet information company in an SEC investigation and a USAO investigation in the N.D. Cal.

Former general counsel of a system software company in an SEC investigation and USAO investigation in the N.D. Cal.

Chair of compensation committee for an application software company in an internal investigation.

Former general counsel of a semiconductor company in internal and SEC investigations.

Audit committee of a software company conducting an internal investigation.

Former chief financial officer of an electronics manufacturer conducting an internal investigation.