|
Almost every day, the backdated options scandal gets larger
as it is revealed that more and more companies are either
under investigation by the SEC and/or a U.S. Attorney, or
the companies are conducting their own internal investigation.
Conservatively, over 50 companies are under investigation.
The problem isn’t confined to one geographic area, nor is it
confined to one industry sector.
Two points are very clear. First, Sarbanes-Oxley isn’t a
cure-all for all forms of corporate fraud. Many of the alleged
abuses took place well after Sarbanes-Oxley was adopted.
Second, and more troubling, once again, it appears that
outside corporate directors – the individuals who are supposed
to protect the interests of shareholders - didn’t do their jobs.
Were the outside directors not paying attention? Did they fail
to establish internal controls? Or did they think that no one
would notice? Who knows what happened in each case,
but the absence of outside director leadership in this area
at so many companies is troubling. One would have thought
that with executive pay under increasing scrutiny, the outside
directors at every company would review very carefully all
matters related to executive compensation.
Below are just a few examples of the problem.
Dallas-based Affiliated Computer Services, Inc. (NYSE: ACS)
provides business process and information technology
outsourcing solutions to commercial and government clients.
On May 11, 2006, the Company disclosed that it will record
a $40 million non-cash charge based on the preliminary
results of its internal review, covering option grants for
around 24 million shares that were issued following its initial
public offering in 1994 through the end of last year. The
Company also has received a grand jury subpoena from the
U.S. District Court for the Southern District of New York
requesting that the Company produce documents relating
to its granting of stock options from 1998 through the present.
California-based Power Integrations, Inc.(NASDAQ: POWI)
engages in the design, development, manufacture, and
marketing of analog integrated circuits for use primarily in
alternating current to direct current and direct current to direct
current power conversion. On March 13, 2006, Power
Integrations announced a delay in the filing of its Form 10-K
for fiscal year 2005 to allow for the completion of an ongoing
internal investigation of company practices related to
stock-option grants to officers and directors. On April 25, 2006,
the Company indicated it was spending several million dollars
on an internal investigation regarding stock-option grants to
officers and directors. Federal prosecutors have issued a grand
jury subpoena to the Company for documents relating to its
granting of stock options from 1995 to the present and the
SEC is investigating the Company’s stock options practices.
Boston-based American Tower Corporation (NYSE: AMT)
and its subsidiaries engage in the ownership, operation, and
development of wireless and broadcast communications sites
in the United States, Mexico, and Brazil. On May 19, 2006,
the Company disclosed an internal investigation of its stock
option practices and that the SEC had initiated an inquiry.
On May 23, 2006, the Company disclosed that it received
a subpoena from the US Attorney of the Eastern District of
New York.
McAfee, Inc. (NYSE: MFE) engages in developing, marketing,
distributing, and supporting computer security solutions to
prevent intrusions on networks and protect computer systems
from various threats and attacks worldwide. On May 16, 2006,
a study released by the Center for Financial Research and
Analysis found that McAfee was one of the 17 companies with
the highest risk of having backdated options. On May 30, 2006,
the Company disclosed that it fired its General Counsel because
the internal investigation into how the Company granted stock
options in the past uncovered an “improper” episode involving
the executive dating from 2000.
Again, these are just some details regarding four companies.
Bear in mind that well over 50 companies are the subject of
some sort of investigation related to backdating options.
Other affected companies include the following:
Altera Corp. (NASDAQ: ALTR)
Caremark Rx Inc. (NYSE: CMX)
CNET Networks (NASDAQ: CNET)
F5 Networks Inc. (NASDAQ: FFIV)
Marvell Technology Group Ltd. (NYSE: MFE)
SafeNet Inc. (NASDAQ: SFNT)
In many of these cases, the executives were unjustly enriched
by receiving backdated options while the shareholders were the
losers as their stocks plummeted when these practices were
revealed. Fortunately, in a number of instances, shareholders
have stepped forward to address this situation through
shareholder litigation, and presumably this trend will continue.
If outside directors aren’t doing their jobs, then shareholders
should be ready to step in.
If you are a shareholder affected by the backdated option
scandal or any of the situations listed below, you may wish to
contact us at info@securitiessleuth.com or 877.511.4717 to
discuss your options.
Herley Industries (NASDAQ: HRLY) On June 6, 2006, the
Company disclosed that the U.S. Attorney’s office in the E.D.
of Pennsylvania indicted the Company and its chairman on
charges of fraud. Investors who purchased between
October 1, 2001 and June 14, 2006, are affected.
Vonage Holdings Corp. (NYSE: VG)
Allegedly, the Company violated securities laws in connection
with its IPO. Among other things, it appears that the Company
may have violated securities laws by failing to include a
prospectus with an offer to sell. On May 24, 2006 the Company
offered 31,250,000 shares at $17 per share. The stock closed
at $11.98 on June 2, 2006.
Xerium Technologies, Inc. (NYSE: XRM) It has been alleged that
the Prospectus and Registration Statement issued in connection
with the Company's IPO contained untrue statements of material
facts and omitted to state other facts necessary to make the
statements made not misleading. Specifically, among other
things, the Prospectus purported to warn about the potential
negative impact of its “Cost Reduction Programs” but failed to
disclose that the Company's business was then being negatively
impacted by the Cost Reduction Programs and the loss of business
associated therewith. Investors who purchased Xerium pursuant
and/or traceable to the Company's IPO on or about May 16, 2005
through November 15, 2005, are affected.
CSK Auto Corporation (NYSE: CAO) On March 26, 2006, the
Company indicated that it need to conduct a thorough review
of certain accounting errors and irregularities discovered in the
course of its ongoing assessment of internal control over financial
reporting and an internal audit. Investors who purchased CAO
between September 2, 2004 and March 24, 2006, are affected.
Now with respect to settled cases. If you are an affected investor –
you purchased any of these stocks during the relevant class
period, you may wish to contact the claims administrator to
obtain additional information. Remember, if you don’t submit
your claim form, you won’t receive your share of any
settlement.
Whitehall Jewellers (JWL)
Class Period: November 19, 2001 to December 10, 2003
Claims Deadline: August 14, 2006
Claims Administrator: Gilardi
Safety-Kleen Corp. (SK) (bonds)
Class Period: April 17, 1998 to March 5, 2000
Claims Deadline: June 5, 2006
Claims Administrator: Garden City
Information regarding other recent settled cases, including the
cases listed below can be found at www.securitiessleuth.com.
ARM Financial Group, Inc. (ARMGQ)
Network Engines, Inc. (NENG)
Boston Chicken, Inc. (BOST)
Surebeam Corp. (SURE)
Salton, Inc. (SFP)
Bristol-Myers Squibb (BMY)
Royal Ahold N.V. (AHO)
Information regarding these settled cases can be found at www.securitiessleuth.com.
Again you should contact the claims administrator (rather than us).
However, if you are an affected investor in any of the companies
under investigation, you many wish to contact us so that you
can consider your options.
Likewise, if you happen to be aware of corporate restatements
or other financial fraud -- especially if you're a victim --
you're encouraged to contribute to the Sleuth by giving your
own tip-offs at www.securitiessleuth.com or by e-mailing
info@securitiessleuth.com. You can also call Mark McNair
at 877-511-4717. If you have a friend or colleague you
think would benefit from The Sleuth, please pass along
this issue and ask them to sign up at
www.cartville.com/app/join.asp?MerchantID=47994.
Warmest regards,
Mark McNair
|
