MoFo: Apologist for Backdaters

Morrison & Foerster would just like a little more nuance from the media. The firm invited a gaggle of journalists to its San Francisco offices on Thursday to explain the finer point on this backdating-stock-options issue that’s the new hot business scandal.

The media, Litigator Jordan Eth said, has painted a picture of corporate greed with strokes that are much too broad.

Eth said that there are probably a handful of companies that doctored documents and hid things from company books and officials. But, nuances more important than malevolent “backdating” have gone unnoticed.

Backdating is the act of altering the timing of stock grants to match a low stock price so that executives rake in more money when the options mature and they sell high. Stories in the Wall Street Journal have noted funny cases in which lucky, lucky recipients’ option dates perfectly coincide with the stock’s lowest recent close.

Sometimes that’s “purely accidental,” corporate attorney William Sherman said, adding that by lumping all the companies in one bag “you’re catching the dolphins in the tuna net.”

In some cases, Eth said, the irregularities might be somewhat accidental — the result of employees who “may not have fully appreciated the legal or accounting implications of granting options as a form of compensation.”

Or, it can be a “housekeeping” issue, a matter of “sloppy documentation.” The employees may have thought they were doing everything right, but the paperwork wasn’t done at the right time.

And in some cases, an option may have been granted just days or weeks before the stock made a steep upswing. When executives see it as their duty to grant options when it is of greatest benefit to company shareholders and executives, asked Sherman. “Is that just good management?” There’s nothing wrong with that, he added, so long as the moves are accounted for in the books.

And it’s an unforgiving press that’s making a scandal of the apparent irregularities. MoFo attorney Craig Martin, who represents clients in SEC enforcement and other matters, said that he believed much of the SEC’s scrutiny has been spurred by media coverage. “They read the papers,” he said. But self-disclosure and the impact of whistle blowers also are triggers of investigations and inquiries, he allowed.

What’s the firm’s stake in correcting this runaway story? Well, names weren’t named, but client interest has spiked. MoFo attorneys said that they have taken on “substantially more than 10” stock-option related investigations, but fewer than 50 in the past year.

— Petra Pasternak