IRS joins stock options backdating task force

By Jason Bennert, Bay City News Service

September 6, 2006

SAN FRANCISCO (BCN) - Federal prosecutors announced Thursday that the Internal Revenue Service has joined a growing investigation into the alleged practice of some Silicon Valley companies to backdate the stock options they offered executives and key employees.

U.S. Attorney Kevin Ryan formed a stock options backdating task force in July to investigate the practice. Two former executives of San Jose-based Brocade Communications have already been indicted in connection with an alleged backdating scheme.

"We will investigate whether individuals and companies may have deliberately backdated stock options with the intent to defraud,'' Ryan said.

"Falsification or backdating of financial documents may call the integrity of companies' financial statements into question, can constitute fraud on the company, shareholders, and the market, and may give rise to tax violations.''

Backdating is a practice whereby companies grant stock options to executives and key employees that vest on a date prior to the date the options were granted in order to maximize the amount of profit received from the options. A number of prominent Silicon Valley companies, including Apple Computer, have been linked to alleged stock options backdating in recent months.

"With the recent discoveries of significant fraudulent misconduct in connection with backdating of stock options, IRS-CI will work to help ensure both the companies and executives involved in such illegal activity are in compliance with the tax laws and where we can assist our law enforcement partners and the U. S. Attorneys Office in enforcing the money laundering statutes,'' IRS Criminal Investigation Special Agent in Charge Roger Wirth said.

The backdating task force currently includes more than 13 agents and prosecutors, according to the U.S. Attorney's office.

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