Backdating employee stock options tax implications

03-Feb-2017 12:37

With respect to both, there are pending parallel criminal actions as well.

As most of you know, the Comverse criminal case has had a certain amount of drama surrounding former CEO Kobi Alexander, who was first a fugitive from justice, and later was located after he took up residence in Namibia, where he is presently fighting extradition to the United States.

On July 11 the IRS released an internal Industry Director Directive memorandum dated June 15, 2007 (the "Directive"), which designates transactions involving backdated stock options as a "Tier I Issue" for IRS agents.

Tier I Issues are considered matters of "high strategic importance," The Directive has important implications for both companies and individuals.

The first involves the actual timing of option grants and the second involves the procedures for pricing stock options.

The Securities and Exchange Commission and the Department of Justice have initiated several investigations into situations where significant option grants were made and priced at times when the stock’s fair market value (and, so, the exercise price of the options) was low relative to the stock’s value at other times during the period during which the grants were made.

That, of course, is what is meant by abusive "backdating" in today's parlance.

In settling with the SEC, the former Comverse CFO consented to, among other sanctions, a permanent injunction against violation of the securities laws, a permanent bar against serving as a corporate officer or director, and payment of .4 million in disgorgement and pre-judgment interest.My views are my own and do not necessarily reflect the views of the Commission or any other member of the staff. In addition to our investigations, there is substantial criminal interest in options matters from United States Attorneys' Offices nationwide.In recent months, the SEC has brought two enforcement actions — one relating to Brocade and another involving Comverse.November 2006 As we have been reminded recently, it is important that companies with stock option and other equity based compensation plans implement and adhere to grant procedures.This is a good time to review your option grant procedures and controls.

In settling with the SEC, the former Comverse CFO consented to, among other sanctions, a permanent injunction against violation of the securities laws, a permanent bar against serving as a corporate officer or director, and payment of .4 million in disgorgement and pre-judgment interest.

My views are my own and do not necessarily reflect the views of the Commission or any other member of the staff. In addition to our investigations, there is substantial criminal interest in options matters from United States Attorneys' Offices nationwide.

In recent months, the SEC has brought two enforcement actions — one relating to Brocade and another involving Comverse.

November 2006 As we have been reminded recently, it is important that companies with stock option and other equity based compensation plans implement and adhere to grant procedures.

This is a good time to review your option grant procedures and controls.

Furthermore, the Directive states the special requirements apply regardless of whether the issue arises from error or was the result of deliberate actions.