Candid Talk About Stock Options

Who Says Crime Doesn't Pay?

Who Says Crime Doesn't Pay?
In the annals of white-collar crime, the recent rash of "backdating" executive stock options deserves its own fat chapter.

By 2006, more than 100 top companies or their CEOs were under investigation by the SEC and U.S. Department of Justice for changing the grant dates on options back to time when the shares were at a significantly lower price. Despite the high number, the Wall Street Journal recently reported that most companies that improperly backdated options were never even caught.

And what of those that were? Here's a look at some of the most sensational cases. --Kara Ohngren

Jacob "Kobi" Alexander
Former CEO
Comverse Technology
Charges: In 2007, Alexander was indicted on 35 counts of conspiracy, securities fraud and money laundering in connection with backdating stock options.

Case status: Alexander was declared a fugitive in 2006 when he failed to return from a family holiday in Israel to face questioning. He then fled to Namibia, where he bought a $450,000 home at a golf resort and enrolled his children in school. The extradition battle is ongoing.

Bruce Karatz
Former chairman/CEO
KB Home
Charges: Karatz was indicted in March on 20 counts, which include charges of fraud and making false statements regarding the backdating of stock options from 1999 to 2006. Over a three-year period ending in 2005, Karatz earned more than $232 million.

Case status: Karatz has been forced to pay $20 million to KB Home and the federal government. He faces up to 415 years in prison if convicted on all counts.

Greg Reyes
Former CEO
Brocade Communications
Charges:
In 2007, Reyes was convicted on 10 criminal counts of conspiracy and fraud. He was accused of intentionally changing the grant dates for hundreds of stock option awards without disclosing the move to investors.

Case Status: Reyes was sentenced to 21 months in prison and a $15 million fine. But in August, a U.S. court overturned his conviction and ordered a new trial, citing misconduct by prosecutors.

Henry Samueli
Co-founder
Broadcom Corp.

Charges: In June 2008, the billionaire and owner of the Anaheim Ducks hockey team pleaded guilty to a felony charge of lying to SEC regulators about his role in manipulating stock options.

Case status: At press time, Samueli was awaiting sentencing. Meanwhile, Broadcom settled a shareholders' lawsuit in September, agreeing to pay $118 million without admitting wrongdoing, plus an additional $11.5 million in legal fees and expenses.

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This article was originally published in the November 2009 print edition of Entrepreneur with the headline: Candid Talk About Stock Options.

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