Labor Seeks Accountability on Options
The AFL-CIO, one of the largest shareholders in public companies, wants to learn about the role big accounting firms may have played in the burgeoning stock options affair.
In letters made public Monday, the labor federation asked the Big Four accounting firms -- Ernst & Young, PricewaterhouseCoopers, KPMG and Deloitte & Touche -- to provide information on their potential involvement as auditors for companies now under federal investigation for possible rigging of option grants to boost their value to recipients.
“Given the potential damage to shareholders due to options backdating, I am concerned about what role [name of accounting firm] may or may not have had in the backdating,” AFL-CIO Secretary-Treasurer Richard Trumka said in letters to the chief executives of the four firms, which were dated Friday. “I urge you to describe what steps are being taken to determine [name of firm]’s involvement in stock option backdating where it has occurred.”
In backdating, options are issued retroactively to coincide with low points in a company’s share price, a practice that can fatten profits for recipients when they sell their shares at higher market prices. Backdating options can be legal as long as the practice is disclosed to investors and properly approved by the company’s board.
Spokesmen for PricewaterhouseCoopers and KPMG had no immediate comment on the AFL-CIO request. Ernst & Young and Deloitte & Touche didn’t immediately return telephone calls seeking comment.
Last week, government officials said they wanted to know what roles corporate directors as well as outside attorneys, accounting firms and compensation consultants might have played in helping executives manipulate the timing of option grants to enrich themselves and their colleagues.
More than 100 public companies, many in the technology sector, are under scrutiny by the Securities and Exchange Commission in the affair. The Justice Department is probing scores of companies for possible criminal violations. And the Internal Revenue Service is looking at possible tax-law violations.
On Monday, semiconductor maker Nvidia Corp. and software maker Wind River Systems Inc. warned that they would miss regulatory deadlines for filing their most recent quarterly financial reports, joining a long list of tardy tech companies scrambling to clean up their stock options issues.
The delay will expose Nvidia and Wind River to the risk of being dropped from trading on the Nasdaq Stock Market. But that process takes several months, giving the companies time to comply with the SEC’s reporting rules before getting bounced.
