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May 30, 2006
Stock Options under Scrutiny

Several companies have disclosed that they have launched internal probes of their stock-option practices and have received requests for information from the Securities and Exchange Commission and federal prosecutors, the San Francisco Chronicle reports.

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Specifically, federal investigators and company investigators are looking into whether the companies intentionally "backdated" stock options, the newspaper notes.

Under a typical stock-option program, the price of the stock to the employee is the price of the company's stock at the time the employer granted the stock options. By backdating stock options, a company would be able to set the price of the options to a point when the stock price was low so that the stock options are more lucrative when individuals exercise them.

"If a company is granting options today when its stock is at $20, but it says, 'We'll put a price of $15 on it and say we granted it a month ago,' that's stealing," Fred Whittlesey, a principal at Compensation Venture Group, a tells the newspaper. "It's stealing from the company and from the shareholders."

Juniper Networks, Inc. disclosed last week that the United States Attorney for the Eastern District of New York has sent the company a request for information on its stock-option grants. CNET Networks, Inc. said that it received a notice informing the company that the Securities and Exchange Commission is conducting an informal inquiry into its stock-option grants.

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