SEC's Cox says backdating cases progressing

By Joseph A. Giannone

WASHINGTON (Reuters) - The U.S. Securities and Exchange Commission is moving ahead with investigations into more than 130 companies for alleged manipulation of stock-option grant dates, and more charges will be filed, Chairman Christopher Cox told Reuters on Monday.

The inquiries that began nine months ago have so far resulted in SEC civil charges against former executives at two high-technology companies: Brocade Communications Systems Inc. (BRCD.O: Quote, Profile, Research, Stock Buzz) and Comverse Technology Inc. CMVT.O.

Cox, speaking at the Reuters Regulation Summit in Washington, said the dearth of lawsuits does not reflect legal roadblocks, but rather scheduling and seasonal issues.

"We've had a holiday stretch," Cox said. "I think you can expect a normal progression from investigative phase to the filing of public charges in a number of these cases."

The SEC, Justice Department and the Internal Revenue Service have been investigating options practices such as backdating, where grant dates are changed to boost their value to top executives. The practice is illegal if it is poorly disclosed or improperly accounted for by the company.

Cox said the precise number of companies under SEC investigation changes almost daily, as cases are added and dropped. At this stage, though, he said the Commission has seen enough cases to see common patterns.

"We've certainly seen enough now to have a good idea of what's possible," he said.

The total number of companies under scrutiny by federal officials, plus those that have started internal inquiries, is rapidly approaching 200, based on company disclosures.

Some critics have charged that the options issue has been overblown by the media and shareholder activists, but Cox said the investigations are being taken seriously at the SEC.

"Clearly the SEC doesn't think (this is overblown), which is why we have focused enforcement resources on the problem," Cox said. "What we do expect is that through swift and aggressive action, we can put an end to this problem."

Last month a study by three academics concluded that as many as 1,400 corporate directors at 460 companies also profited from backdated stock options from 1996 to 2005. The study, based on a database analysis involving 6,000 companies.

"Nobody in any public company in America, unless they don't own a television, can now think that the backdating practices that we are focused on are legitimate," said Cox.