Law360, New York (April 6, 2009, AM EDT) -- The U. Securities and Exchange Commission has settled its civil suit against two of the former executives allegedly responsible for backdating stock options at Brocade Communications Systems Inc.On Monday, the SEC entered consent judgments against Brocade Chief Financial Officer Antonio Canova and Stephanie Jensen, the former president of human resources at the data storage networking company, ending litigation over their role in the backdating scandal.Coverage includes UK and European Union policy, enforcement, and litigation involving banks, asset management firms, and other financial services organizations.
However, since Sarbanes-Oxley, grants must be filed electronically within two business days of an issue or grant.
This means that corporations will have less time to backdate their grants or pull any other behind-the-scenes trickery.
If the company is punished for its actions, its value is likely to drop substantially, putting a major dent in shareholders' portfolios.
A Real-Life Example A perfect example of what can happen to companies that don't play by the rules can be found in a review of Brocade Communications.
But ultimately, it can prove to be quite costly to shareholders.
(To learn more, see .) Cost to Shareholders The biggest problem for most public companies will be the bad press they receive after an accusation (of backdating) is levied, and the resulting drop in investor confidence.
Among the agencies that could be knocking on the door are the Justice Department (for lying to investors, which is a crime), and the IRS for filing false tax returns.
Clearly, for those who own shares in companies that don't play by the rules, options backdating poses serious risks.
In a worst-case scenario, bad press and restatements may be the least of a company's worries.