Thursday, August 31, 2006

Options Backdating Notes from Around the Web

SEC Options Backdating Investigations List: Directorship.com has posted on its website a hotlinked list of companies (here) that have been contacted by the SEC, revealed a probe by the SEC, or have been subpoenaed by a U.S. attorney, in connection with the options timing investigations. The Wall Street Journal’s Options Scorecard list of companies involved in the options backdating investigation (here) is more complete, in that the Journal’s list also includes companies that have announced their own internal investigations. But the Directorship.com list zeroes in on the companies that have SEC or U.S. Attorney’s office inquiries and investigations, and is hotlinked to provide information about the authorities’ investigations.

The D & O Diary is also maintaining a list (here) of companies that have been sued in civil lawsuits involving options timing issues. The D & O Diary’s list was most recently updated on August 31, 2006, to include the new shareholders’ derivative lawsuit that has been filed against Family Dollar(here). The addition of the Family Dollar lawsuit brings the number of companies sued in shareholders’ derivative lawsuits (of which The D & O Diary is aware) to 60. The number of companies sued in securities class action lawsuits currently stands at 15.

Why so Many Options Backdating Derivative Suits? The D & O Diary has previously speculated (here) that the reason so few of the companies involved with the options backdating investigation have been sued in securities fraud class action is that for many of the companies, their announcement of options timing issues was not accompanied by the kind of stock price drop that would support a securities fraud lawsuit. But that still doesn’t explain why plaintiffs’ lawyers are so interested in filing shareholders derivative lawsuits, especially because the cases usually settle with the companies agreeing to a few corporate therapeutics and the payment of modest plaintiffs’ attorneys’ fees.

An August 31, 2006 article in the International Herald Tribune entitled "In the Hunt for Heftier Awards, Lawyers Seek Backdating Suits," (here) takes a look at the reasons why plaintiffs’ lawyers might be more interested in the derivative suits, even though the payday for the plaintiffs’ lawyers would probably be lower in a derivative suit than a securities fraud class action lawsuit. The article quotes Columbia University Professor John Coffee that "You can often bribe the plaintiffs attorney with a non-pecuniary settlement coupled with high attorney fees." The article also reports that the amount of derivative settlements has increased in recent months. Full disclosure: I was interviewed in connection with the article.

Welcome: The D & O Diary extends a hearty welcome to a great new weblog that Directorship.com has launched, the Corporate Governance News blog (here). The CGN has numerous posts throughout the day with items from around the web relating to corporate governance issues. Even though CGN has only been live a short time, The D & O Diary has already found it an indispensable resource for keeping track of governance related news and information. The D & O Diary also notes that Janice Brand, who runs the CGN blog, has a really cool title : Online Editor-in-Chief. However, the D & O Diary is still holding out for a preferred title: The Big Kahuna.

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