Congress investigates the timing of options

Senator says rigged stock awards `ripped off' shareholders

September 07, 2006|Associated Press

WASHINGTON -- The government is aggressively investigating the suspicious timing of stock options granted to top executives at scores of companies, federal officials said yesterday.

Shareholders and employees have been ``ripped off by senior executives who rigged stock option programs . . . to further enrich themselves," the chair man of the Senate Finance Committee said at a hearing.

The tax-writing committee, led by GOP Senator Charles Grassley of Iowa, is considering reducing or eliminating a deduction that encourages companies to award executives with stock options. This kind of compensation is linked to a company's stock prices .

Companies are required to pay taxes on compensation that exceeds $1 million a year . There is an exception for pay tied to a company's financial performance; all of this can be deducted. This requirement has led companies to dole out stock options.

Securities and Exchange Commission chairman Christopher Cox told the Senate Banking Committee that this rule ``deserves pride of place in the Museum of Unintended Consequences." He said the $1 million threshold was ``an unworkable price control."

At least 79 public companies, including UnitedHealth Group Inc., The Home Depot Inc., personal-finance software maker Intuit Inc., and Barnes & Noble Inc., are under scrutiny by the Justice Department, the SEC, or both for possible fraudulent reporting of stock option grants.

The Internal Revenue Service is conducting its own investigation for possible tax-law violations .

Cox and SEC enforcement director Linda Thomsen said the agency is investigating more than 100 companies.