Execs falling in options probes http://www.insidebayarea.com/ci_5249134?source=rss By Marcy Gordon, Associated Press Article Last Updated: 02/17/2007 06:58:12 AM PST WASHINGTON â Government action against stock-option backdating violations appeared to gain momentum this week with guilty pleas from two of the seven company executives slapped with criminal charges in the probes that began last year. There are those who believe, however, that the pace remains sluggish for the largest corporate fiasco of 2006. The founder of the company that brought the graphic "Grand Theft Auto" video games into popular currency became the first CEO to succumb to prosecution in the scandal over suspect timing of stock option awards to executives at scores of U.S. public companies. Ryan A. Brant, the former chief executive of Take-Two Interactive Software Inc., pleaded guilty on Wednesday. The next day, a former top executive of the company that runs another popular feature of American culture, the Monster job search Web site, admitted that he illegally backdated millions of dollars in stock option grants. They were the sixth and seventh executives to be criminally charged in the wave of government investigations. The inquiries appear to be accelerating as prosecutors home in on cases at companies culled from the 130 or so under investigation by the Justice Department and the Securities and Exchange Commission. Yet the pace of enforcement actions in corporate America's biggest fiasco of 2006 still is lagging, in the view of some critics and observers. The complexities of pursuing the companies and executives, with both civil Advertisement and criminal authorities involved, and a potential diversity of views on how stringent punishment should be, can make the process daunting. "I think everyone's a little gun-shy at this point about doing something out of step withwhat the other regulator wants to do," said James Cox, a professor at Duke University who specializes in securities law. He was referring to the efforts of the Justice Department and the SEC, which are working together on the options cases. Lynn Turner, a former chief accountant of the SEC, says the agency's enforcement effort likely has been slowed by insufficient resources in a nearly flat budget. SEC Chairman Christopher Cox has said the agency's options investigations are proceeding vigorously, unhampered by budget restraints, and that it is working closely and cooperatively with the Justice Department in pursuing cases. Manhattan District Attorney Robert Morgenthau â known as an aggressive prosecutor â jumped into the mix to secure Brant's guilty plea, to state charges of falsifying business records related to company stock options. The first CEO to be convicted in the options scandal, he will avoid prison with a sentence of five years probation. Brant also agreed, in a related settlement with the SEC, to pay $6.2 million in civil fines and restitution of allegedly ill-gotten gains. Myron Olesnyckyj, the former general counsel of Monster Worldwide Inc., pleaded to securities fraud and conspiracy to commit securities fraud â in this case in federal court â charges that carry potential penalties of up to 25 years in prison and fines of more than $5.2 million. He promised to cooperate, which can earn him leniency. Stock options, prized perks for executives and employees favored by high-tech companies, allow the recipients to buy shares of their company's stock in the future at a set price. If the stock rises before the options are exercised, the employee can buy the stock at the predetermined, lower price, then sell it at the higher, current price â and pocket the difference. Options can be made more lucrative by backdating their exercise price to a historically low point in the stock's value. Backdating options can be legal if disclosed properly to investors and approved by the company's board or shareholders. But unauthorized compensation from options is deemed illegal and can bring fraud charges if documents are falsified in a backdating scheme or information is concealed from the board. Companies where those violations occurred are presumably among the prosecutors' targets for close scrutiny. If companies backdate options without accounting for the move, it can cause overstated profits and underpaid taxes. Cox, the SEC chairman, recently said the options scandal "appears to be a pandemic of crooked accounting." In its wake, more than $5 billion in company earnings has been erased by restatements and more than 60 senior officers and directors â including 18 chief executives â have been swept from their jobs. Several prominent chief executives have been ensnared, including Steve Jobs of iPod maker Apple Inc., who received a stock option award that drew the attention of prosecutors examining the company's backdating practices, UnitedHealth Group Inc.'s William McGuire, and two well-known Silicon Valley CEOs: George Samenuk of McAfee Inc. and Shelby Bonnie of CNet Networks Inc.