Posted by Peter Lattman, WSJ Law Blog:
How will the SEC handle the more than 100 backdating investigations on its plate? This morning we have a clue. Brocade Communications Systems has agreed to pay a $7 million penalty to settle allegations over improper stock-options grants, making it the first company to pay a fine in connection with the backdating scandal. Here’s the story from the WSJ.
The settlement with the SEC paves the way for similar cases to be resolved. Analog Devices and Mercury Interactive previously announced preliminary settlements that include penalties. According to the WSJ, Brocade struck its deal with the SEC more than a year ago, but as the backdating scandal mushroomed to more than 100 companies, things got held up. (Click here for the WSJ.com’s essential backdating scorecard.)
The backdating probes spurred a lengthy debate among the five SEC commissioners about whether or not backdating warranted a penalty. Among the questions raised: Were shareholders hurt by either the backdating of options or by the deception about how executives were compensated? Were they hurt by the revelation of potential wrongdoing?
In general, levying penalties against companies involved in a financial fraud is a hot-button issue at the SEC. Republican commissioners, in general, have opposed them as a double hit to shareholders, who already have been penalized once by being defrauded. Others, including some Democrats, have argued that penalties serve as deterrents. Whaddya think?