Stock Options Update: Indictments and IRS Investigations

Pillsbury Winthrop Shaw Pittman LLP is representing some of the companies being investigated by the SEC and defending derivative and class action cases. We have been engaged by audit and special committees to review their procedures, to investigate the circumstances under which stock options were granted and, if necessary, to recommend remediation. We are also representing officers and directors individually.

To respond to client needs and to coordinate the investigations, the firm organized a task force which has the skill, background and geographic coverage to handle this rapidly expanding issue. San Francisco partner Jeffrey S. Ross, co-leader of Pillsbury’s Corporate Investigations and White Collar Defense Team, is heading the task force.

Pillsbury has all of the legal resources necessary to address these cutting-edge issues. We have deep experience in all relevant areas including executive compensation, corporate and securities regulation, tax, corporate and government investigations, and white-collar criminal defense. Our offices in Silicon Valley, San Francisco and New York, are conveniently located near the majority of companies being investigated. Since the investigations and litigation are nationwide, we are well situated to handle matters across the country. The members of our task force have decades of practical experience working in these areas and include former SEC enforcement attorneys and Assistant U.S. Attorneys who now advise audit committees, special committees and boards of directors.

As recently noted in the Wall Street Journal, roughly 30% of all public companies that granted options between 1996 and 2005 may have issued a grant that was backdated or otherwise manipulated. If you have questions or concerns about stock option grants, we suggest that you contact the Pillsbury lawyers with whom you work regularly to discuss your company’s response. You can also contact the lawyers identified below to address specific questions.

• If you have received a subpoena from a governmental agency or have been named in a lawsuit, we have partners experienced in corporate investigations to assist you. On the East Coast, please contact Mark R. Hellerer or Jeffrey R. Zuckerman. Please call or email Jeffrey S. Ross and Clifford C. Hyatt for advice on the West Coast.

• Every company that granted options to its employees since 1995 should review its past and current practices to determine if they have any exposure in this area. Our Executive Compensation Team can advise you about the consequences of past actions. Our East Coast contingent is lead by Susan P. Serota, while on the West Coast, Cindy V. Schlaefer, is experienced in the design and implementation of executive compensation plans.

• The tax treatment of stock options impacts both the issuer as well as the recipient of the grant. Time is of the essence as corrective action may be required by December 31, 2006 to avoid tax penalties. Lawrence L. Hoenig can help you understand these important tax implications.

• Privately held companies must also attend to this issue. While these companies may not be investigated by the SEC or the Department of Justice, they may have significant tax, accounting and other issues that require attention. Our executive compensation and tax attorneys are available to advise you.

• Finally, individuals who are or were officers or directors of public and private companies may be at risk of being named in a lawsuit or being exposed to tax penalties based on their option grants.

We have posted Client Alerts on our Web site that address these issues, and we will continue to update you on these topics as issues arise.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.