AFL-CIO Urges More Scrutiny of Options

Discussion in 'Wall St. News' started by archon, Aug 28, 2007.

  1. archon


    AFL-CIO Urges More Scrutiny of Options
    Associated Press 08.27.07, 6:01 PM ET

    WASHINGTON - Auditors should take a more active role in reviewing corporate stock-option grants to prevent future abuses such as backdating and spring-loading, the AFL-CIO said in a letter to Big Four accounting firms Deloitte & Touche, Ernst & Young, KPMG and PricewaterhouseCoopers.

    The AFL-CIO's Aug. 23 letter, released Monday, recommended that auditors confirm dates of stock option grants and quiz corporate executives and directors about the company's policies of granting stock and stock-option awards. It also urged auditors to pay close attention to potential red flags, such as inordinately large option grants to top executives, or grants made just before or after a big jump or decline in the stock price.

    "We are especially concerned because stock option abuses appear to have been endemic at U.S. corporations, touching some of the nation's largest companies such as UnitedHealth Group, Home Depot and Apple," the AFL-CIO wrote.

    The Securities and Exchange Commission, the Internal Revenue Service and the U.S. Justice Department are probing about 140 companies for abuses involving stock options, which give holders the right to buy shares in the future at a preset price, usually set on the day the options are granted.

    Backdating occurs when companies choose a date prior to the grant date, when the stock's price was low, boosting potential profits for option holders. The practice may be illegal if it isn't disclosed in tax accounting.

    Spring-loading is the practice of awarding stock options just ahead of good news expected to raise the company's stock price, or just after bad news that lowers the stock price. The AFL-CIO noted that the Delaware Chancery Court has ruled that timing stock option grants without shareholder consent violates Delaware corporate law, and said that "effectively invalidates" guidance on spring-loading given last year by the SEC to accountants.