Investigations of Stock Options Widen
Pension fund managers made new demands for information about improperly awarded stock options Monday as disclosures by Monster Worldwide Inc. and Broadcom Corp. brought the tally of companies that acknowledged being under investigation to 45.
Equinix Inc., Cyberonics Inc. and Applied Micro Circuits Corp. also announced probes Monday. The Council of Institutional Investors, following the California Public Employees’ Retirement System and the AFL-CIO, has asked 1,500 U.S. companies to say whether they, too, were under investigation.
“If there is any silver lining, companies are at least recognizing that options backdating is a very grave corporate governance issue,” said Brandon Rees, assistant director in the Washington investment office of the AFL-CIO. The labor group’s member unions sponsor pension plans with $400 billion in assets.
Companies in at least four countries have disclosed federal or internal inquiries into options grants. Investigators are looking at whether grants were illegally backdated or manipulated to coincide with low stock prices, which would make the options more valuable to executives who received them. Fifteen people have resigned or been fired, and more than 60 lawsuits are pending at more than 20 companies.
The widening probe prompted another demand Monday from pension fund investors for better disclosure, this time from the Council of Institutional Investors. The Washington-based Council, which says it represents more than 140 U.S. pension funds with $3 trillion in assets, wants U.S. companies to tell investors if they are under federal investigation or conducting their own reviews of option grants.
Ann Yerger, the group’s director, said that “except in extraordinary circumstances, stock options should be granted at the same time each year,” which would prevent companies from matching option grants with temporarily low prices.
Last week, the AFL-CIO and the California Public Employees’ Retirement System, the nation’s biggest pension fund, asked companies to start investigations on whether they improperly awarded stock options to top executives.
Monster, the New York-based operator of the Monster.com job-listing service, said a committee of independent directors is looking into its stock-options grants, and later added that it received a subpoena from the U.S. attorney in Manhattan. Monster said it would cooperate in the federal probe. The company’s shares fell $3.40 to $38.60.
Broadcom, a maker of computer chips for cable set-top boxes, drew an informal probe by the Securities and Exchange Commission into its options, the company said.
The Irvine-based company also said shareholders sued late last month over allegedly improper options grants. Broadcom shares rose 26 cents, to $29.59.
Cyberonics, a Houston-based maker of medical devices that was cited for possible backdating by an analyst last week, said the SEC informed the company Friday that it was conducting an inquiry into the company’s options awards. Cyberonics shares fell 90 cents to $21.79.
Equinix, which provides data centers for Internet companies, said the SEC started an informal inquiry into its option grants. Shares in the Foster City, Calif.-based company fell $3.78 to $52.38.
San Diego-based Applied Micro, a maker of chips for networking gear, said the SEC started an investigation. Its shares slipped 6 cents, to $2.78.
