Posts Tagged ‘stock options backdating’

I recently came across this interesting August 20, 2008, article authored by Nicholas Rummell at FinancialWeek.com, discussing a report issued that same day by the Corporate Library finding that CEO compensation tended to increase rather than decrease following a securities class action against the company.  The report appears to focus on compensation decisions following the mere filing of the lawsuit, as opposed to its resolution.  Also, as the Financial Week article points out, the report does not take into account cases filed after the stock option backdating scandal broke.

It is difficult to draw any clear conclusions from the article without reading the report itself (which is available for purchase at the Corporate Library website), but the implication seems to be that the financial impact of securities class action lawsuits is being borne by shareholders rather than the executives.  It would be interesting to see if the same trend holds true after there has been a large payout due to a verdict or settlement.

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A Reuters.com article published today summarizes a NERA Economic Consulting study on litigation involving stock options backdating allegations.  The study found that settlements in shareholder class actions filed for alleged backdating have been lower than “comparable shareholder class action settlements” and that settlement amounts have been less than half on average of what the firm had previously predicted.  The article goes on to discuss possible reasons for the lower settlement amounts, including the possibility that the weakest cases were settled first and the possibility that difficulties in proving direct injuries resulting from backdating might limit settlement values.  Here is a link to the article:


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