What are backdating scandals
And despite concerns that auditors should have caught some of the backdating, corporate audit firms were named as defendants in just 13 cases.They have paid about $97 million of the total settlements costs so far.
The Big Number: 181 That’s the number of legal cases stemming from alleged stock-option backdating.The legal fallout from the stock-option backdating scandal that surfaced in 2006 is over, and the price tag was high, according to an analysis by Audit Analytics.A total of 181 lawsuits alleged that executives were overpaid through improperly timed stock-option awards at companies, including United Health Group and Broadcom A settlement in the final suit, involving fiber-optics supplier Finisar, was approved last month.The settlements cost companies and their executives, auditors and advisers a combined $7.3 billion, Audit Analytics said.The scandals also changed how stock options are granted, making them less popular as a form of compensation and pushing companies to become stricter about their procedures, according to Robin Ferracone, chief executive of compensation consultant Farient Advisors.“The process and paperwork behind this has gotten much more rigorous,” Ms. Backdating litigation was often consolidated into class actions or brought by shareholders on behalf of the company.
The Securities and Exchange Commission filed 32 of the cases, including one against William Mc Guire, the former CEO of United Health, that resulted in a $468 million settlement. Mc Guire didn’t admit or deny any wrongdoing in the settlement.
“If you filed a restatement that was obviously more apt to cause litigation,” said Donald Whalen, director of research at Audit Analytics.
Most of the cases were resolved without the companies admitting or denying wrongdoing.
Improper backdating occurred when stock-option grants to executives were timed to match yearly or quarterly lows in their company’s share price, but were often reported to shareholders at a higher exercise price.
That concealed the additional executive pay and overstated financial results.
Companies collectively took about $11.1 billion in restatement charges to earnings from the scandals, according to the analysis.