Options backdating investigation not making the SEC any friends

Tech companies are the primary focus of the SEC’s recently announced and currently ongoing investigation into options dating irregularities, which makes sense given their proclivity for awarding stock options as part of compensation packages with employees.

An article in BusinessWeek documents what tech company executives have recently termed a “witch hunt”:

Many executives are surprised by the breadth of the government’s probe, which has resulted in SEC investigations into 80 companies and criminal indictments against former executives at Brocade Communications and Comverse Technology.

I think that speaks to the rampant abuse we’re going to see coming out into the open as a result of the probe. The SEC wouldn’t investigate unless they were reasonably certain there was wrongdoing to be found.

One tech company executive, Daniel Warmenhoven of Network Appliance, is interviewed for the article. The exec spoke out publicly because the company has just performed a comprehensive review of their options practices and deemed themselves in the clear.

“I thought the SEC’s role was to build investor confidence. What they’re doing right now is destroying it, and I don’t see the purpose.”

Applying a statute of limitations to this sort of white collar crime (let’s call it what it is) would send an even worse message to investors and their brittle confidence than all this pesky investigating.

Improving compliance with regulations and GAAP will do more to inspire confidence in the markets than sweeping all this under the rug.