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• W296032505 abstract "CASE DESCRIPTION Stock option backdating involves granting stock options at a later date than shown on record to avoid taxes and recording expense. In recent years, stock option backdating schemes have been widely reported by the media. However, the regulatory, governance, and ethical ramifications of backdating have been largely overlooked in textbooks and classroom discussions in business schools. The primary subject matter of the case is to illustrate how internal control and corporate governance related weaknesses allowed the executives of a public company to perpetrate a fraudulent backdating scheme for several years. Secondary issues relate to accounting, regulatory, and financial reporting violations caused by backdating. These violations had serious repercussions. The top company executives lost their jobs, had to pay hefty fines, and even served jail time. The company had to restate their financial statements and pay back taxes with interest and penalty. It was delisted from NASDAQ and barred from paying stock-based compensation. The lesson students learn from this case is that a seemingly minor white collar crime has serious repercussions. The case has a difficulty level of four and is appropriate for senior level undergraduate students and first year MBA students. At the intermediate level, the case can be used in financial accounting, auditing, or fraud related courses. It can also be used in business ethics or corporate governance related courses at the undergraduate or graduate level. The case requires instructors to devote one class of 75 minutes or one-half of a three hour class. The preparation time outside class for students is estimated at three hours. CASE SYNOPSIS Many companies, including well known companies such as Apple and Microsoft, have been the subject of SEC investigations in connection with the stock option backdating scheme (Henry 2006). As a result of these investigations, SEC has filed lawsuits against more than 100 companies. Comverse Technology, Inc. (CTI) is one of the high profile defendants. It is a New York based company that makes software products, systems, and related services for multimedia communication and information processing applications. Like any other technology company, CTI liberally used stock options to recruit and retain key employees. However, its top executives also ran a secret option backdating scheme for several years. This case can be used to accomplish several learning objectives. First, students learn the role of stock options in aligning the interests of managers and shareholders. They also realize how accounting standards and tax codes have contributed to the tremendous growth of stock options and even encouraged backdating practices. Second, the elaborate backdating scheme orchestrated by CTI managers for pecuniary gains raises serious ethical concerns that lead to lively and sometimes heated discussions in classroom. The case can be used as a stepping stone to emphasize the importance of sound corporate governance structure and how good governance practices and effective internal controls can be used proactively to prevent this kind of fraud. This puts spotlight on the board of directors' fiduciary duty towards shareholders. The deterrence value of some of the requirements of the Sarbanes-Oxley Act (SOX), the most prominent corporate governance reform law passed in the last decade, is also relevant to this discussion. Finally, the lesson learned from the case is that though backdating is perfectly legal, hiding it has serious accounting, regulatory, and tax ramifications. In CTI's case, the heavy price paid by top management and the company vividly illustrates to students the importance of operating a business within legal boundaries. COMVERSE TECHNOLOGY INC Background The case is based on CTI's proxy statements for the 1995-2005 period and the lawsuit, Securities and Exchange Commission v. Jacob (Kobi) Alexander, David Kreinberg, and William F. …" @default.
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• W296032505 date "2011-01-01" @default.
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• W296032505 title "Stock Option Backdating at Comverse Technology: Ethical, Regulatory, and Governance Issues" @default.
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