Filed at 5:39 p.m. ET
WASHINGTON (Reuters) - Some stock options backdating now
being investigated by the
Cynthia Glassman, a Republican who will leave the SEC next week after nearly 4-1/2 years as a commissioner, did not identify any companies the SEC is investigating, or when enforcement actions might be brought.
``What I will say about the backdating issue is some of the conduct appears to have been clearly illegal,'' Glassman said in what is expected to be her final public appearance as a commissioner.
She noted that companies' disclosure of options practices is one of the central issues in the widening probe and the SEC is ``looking into whether or not the conduct was appropriate.''
Glassman's comments were some of the strongest to date from officials investigating more than 50 companies to determine if their option granting practices violated the law.
Although the SEC and Justice Department have declined to confirm or deny any specific investigations, the probes have been disclosed in company filings and announcements. Companies that have said they are being investigated range from insurer UnitedHealth Group Inc. (UNH.N), which has warned it may have to restate earnings by up to $286 million, to technology companies such as Monster Worldwide Inc. (MNST.O).
At issue are concerns whether companies manipulated the grant dates of options to boost their value to executives who received them.
Backdating stock options is not illegal in all circumstances, but a company must properly disclose them and record immediate profits as a compensation expense. Attempts to hide backdating could result in fraud charges, experts say.
In another form of options manipulation known as spring- loading, a company sets a grant date and exercise price on a day shortly before the company intends to release news expected to boost the stock price. Spring-loading can involve insider trading violations, according to experts.
``Backdating ... can be illegal and might not always be illegal depending on the facts and circumstances,'' SEC Chairman Christopher Cox said last week. ``We're going to weigh each of these cases on those circumstances.''
But Senate Banking Committee Chairman Richard Shelby, whose committee oversees the SEC, has taken a harder line and called for punishing all backdating of stock options.
Financial industry experts are eagerly awaiting new SEC guidelines on the appropriate timing for companies to issue stock options. The SEC has promised to issue the guidelines, along with new rules for executive compensation, this summer.
Mitchell Mertz, a partner with the accounting firm Eisner LLP, predicted the SEC will come down hard when it begins taking enforcement actions in stock options cases.
``Compensation is really an area of concern now at the SEC. They're going to be tough,'' said Mertz, who is chairman of the SEC Practice Committee of the New York State Society of Public Accountants.
The people most at risk of being punished are executives, who personally profited by back dating options, Mertz said.
``These people got a windfall -- money they weren't entitled to,'' Mertz said. ``But the poor employee who worked at a factory didn't get this.''
In her appearance at an economists' meeting in Washington, Glassman also used the opportunity to criticize the SEC for adopting a pair of mutual and hedge fund oversight rules over her dissenting votes. Both were recently struck down in separate federal court rulings.
As the sole economist on the commission, Glassman has championed efforts to increase economic and cost-benefit analyses of the lawyer-dominated agency's work.
``I've had some help in this effort from the D.C. Circuit, which has twice rebuked the commission in the past year,'' she added.
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