Stock Option Scandal: Fun for Everyone!

You try finding a local white collar defense lawyer who hasn’t gotten a call about the backdating of stock options. We sure had a hard time doing so this week, given that the hot new — well, not so new, to be honest — corporate crime scandal now looks increasingly local, with at least a half-dozen Silicon Valley companies being looked at by the SEC, DoJ or WSJ for falsifying the dates on stock option grants to confer maximum benefits to executives.

Since the Wall Street Journal earlier this year did an ingenious analysis that determined the likelihood that dozens of executives received options on the most profitable day possible to be roughly the same as Barry Bonds being fueled by flax seed oil, local companies have been in a tizzy to investigate whether they had similar problems — and if so, to sacrifice the appropriate individuals as a means of warding off the justice department.

Yet defense lawyers — who generally don’t want to talk about this case on the record, given that no one’s yet indicted — say that while many companies and executives will probably face civil charges from the SEC, it’s not clear whether the government will be able to work up a criminal case.

Not that that’s tempering prosecutors’ enthusiasm: while the U.S. Attorney’s Office for the Southern District of New York seems to have backed off its pursuit of Silicon Valley companies over the past week, lawyers with knowledge of the situation say there’s still some tension between San Francisco federal prosecutors and their counterparts in Brooklyn, who have subpoenaed local companies and seem rather unconcerned about stepping on others’ turf — indeed, one local company, KLA-Tencor, has been subpoenaed by both San Francisco and Brooklyn prosecutors.

In the meantime, the local defense bar is continuing to field calls, and to wonder whether they’ll be fending off criminal charges, civil complaints, or just a load of nosy reporters.

Justin Scheck


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