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January 28, 2007

Backdating: White noise, 'mostly say hooray for our side' or distraction?

"She blinded me with science," sang Thomas Dolby (above) back in 1983, and I don't know about you but me, I'm being buried under the blizzard of news about the mushrooming stock option backdating scandals involving (so far) hundreds of companies both large and small.

Is backdating a crime or not?

Depends on what the meaning of "crime" is.

Which in turn depends on which dictionary – or person — you consult.

On the one hand (somewhat predictably) you find on the January 10, 2007 Wall Street Journal's editorial page stuff like, "Question whether backdating is really the crime of the century, or merely a business curiosity blown way out of proportion by poorly reasoned coverage."

And, "Here and there... the intellectual fallacies that have permeated the coverage are gradually poked away."

And, "All that backdating comes down to is a nonmaterial accounting irregularity... involving a defective judgment about whether 'in the money' options needed to undergo expensing."

Richard Marmaro and Ryan Weinstein, attorneys representing the former CEO and chairman of Brocade Communications in connection with his stock option issues, wrote in the January 10, 2007 Wall Street Journal, "Indeed, much of what is pejoratively called 'backdating' was actually undertaken in good faith."

So maybe it's just a technicality, then?

Well, Ben Stein, in the January 7, 2007 New York Times, didn't see it that way.

He described backdating as "Sort of like getting to pick lottery numbers after the winning numbers are drawn — and your stockholders supply the prize money."

He continued, "The options were awarded in a highly unethical way and then condoned — if I may use that term — in a way that would make John Dillinger blush."

It all depends on what you think the meaning of "is" — or crime — is.

January 28, 2007 at 12:01 PM | Permalink


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