FUTURE BUREAUCRAT

(cont. from section 1)

So what is backdating? Why is it a problem? Where is the illegal conduct?

Let’s start at the bottom again. The most common conduct alleged in backdating options involves companies or individuals setting the date (and therefore the exercise price) of an option grant at some arbitrary point in the past when the company’s shares were trading at a discount. Backdating is essentially cherry-picking the price the option recipient will pay in order to maximize his or her profit when the options are exercised. Continue Reading »

Do you understand the options backdating “scandal”?  What is it exactly?  Why are so many companies in trouble?

Let’s start at the bottom. What are employee stock options? Employee stock options are the right (but not the obligation) to purchase shares in the company’s stock for a specified price and for a specified period of time. Do not confuse employee options with options on equities, indexes and futures like those traded on open markets. Generally, employee options are a benefit that companies offer to their employees, officers or directors in addition to their normal compensation, and are not transferrable. (unless you work for Google) The price is usually determined by the closing price in the market on the day the option is granted. Options will often have a 5-10 year period during which the employee is required to “exercise” the option, or purchase the underlying share. During this time, if the employee decides to exercise his or her options the employee will always pay the “exercise price”, or the share price determined on the day the option was granted, even if the shares have increased or decreased in value. If the employee does not exercise the option in the time permitted, the option will expire.

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It looks like there are some attorneys considering the ethical consequences of Charles Stimson’s comments. The San Francisco Chronicle had a piece on Friday discussing whether his call for a boycott of law firms representing Guantanamo detainees violated the California rules of professional responsibility.

The consensus? Close call, but there is a good argument for a violation. We’ll see if the California Bar pursues disciplinary proceedings.

Disclosure: I’m a member of the bar, and I currently work at a large law firm. So I’m wondering what the bar should do with comments like these from Charles D. Stimson, deputy assistant secretary of defense for detainee affairs.

Stimson went on a radio program Thursday and called on Corporate America to rethink their use of large law firms like Cleary Gottlieb and Shearman & Sterling, whose lawyers are representing Guantanamo detainees pro bono.

Stimson can’t have anything against the idea of pro bono work. In fact, because Stimson is a lawyer, the bar may require him to devote time to pro bono work every year, depending on what state he is barred in. Continue Reading »

Check out this interesting post by the Times of London’s Baghdad correspondent, Ned Parker, in which he reviews the appeal process of the Iraqi Special Tribunal following the conviction of Saddam Hussein. It was obvious to casual readers of the news that the Iraqi government rushed to impose the death penalty. However, it may not have been obvious how inadequate the appellate process was. Continue Reading »