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SEC looks at American Tower, RSA on options(Boston Globe, The (KRT) Via Thomson Dialog NewsEdge) May 20--American Tower, a Boston operator of wireless facilities, says its intends to cooperate fully with federal regulators. American Tower Corp. of Boston and RSA Security Inc. of Bedford yesterday said federal regulators are probing their grants of stock options to executives, joining a growing list of companies caught up in a rapidly expanding federal investigation of options practices. On Thursday, Chelmsford software maker Brooks Automation Inc. said two of its directors resigned following questions about its options practices from the Securities and Exchange Commission, first disclosed on May 12. Nationwide, at least nine other companies face scrutiny including Vitesse Semiconductor Corp., Caremark RX Inc., and UnitedHealth Group Inc. None of the companies have described the specific interests of the SEC, which also declined to comment. No formal charges have been filed. But specialists and academic studies lately have warned of potential abuses of stock option awards that could amount to insider trading, by providing executives with large blocks of stock at unfairly low prices. "I think this is the biggest public company scandal of the past decade, in terms of being widespread," said Gregory P. Taxin, chief executive of Glass, Lewis, a California firm that monitors companies for institutional shareholders. "You've got more than a handful of companies where executives and boards were rigging the game, and ensuring that they were getting very profitable grants of stock at the direct and immediate expect of shareholders," Taxin said. UnitedHealth and other companies have also said they received subpoenas about their options practices from the Justice Department, where a spokeswoman declined to comment. Stock options technically are rights to buy a company's shares at a discount. They are meant to give executives an incentive to improve a company's stock price. Taxin and others say violations can occur in the timing of such awards. Companies can award options just before disclosing good news that boosts its stock on Wall Street -- and the value of the options just granted. Another problem can be "backdating" options to match them to the company's lowest share price, again boosting the amount executives earn because it lowers the price they have to pay for the stock when they exercise their options. Both American Tower, a Boston operator of wireless facilities, and RSA, a Bedford Internet security company, said they intend to cooperate fully with the SEC. Both companies said they believe the agency's interest may have been sparked by a report issued on Tuesday by the Center for Financial Research & Analysis, a Rockville, Md., services firm that identified them among a group of companies most likely to have backdated options. The firm surveyed 100 companies with the highest ratio of total stock compensation as a percentage of their average revenue for the six years ended in December 2002, just after new accounting rules came into effect. Of those, 17 companies including American Tower and RSA had three or more option grants that appeared unusual compared to stock prices just before or after the grant date, according to center's research director Marc Siegel. While he noted the firm isn't accusing any companies of having backdated options, the study was meant to point out some that "had a higher risk profile for options backdating," he said. American Tower chief executive James Taiclet said yesterday the company's directors created a special committee to review its historic option practices shortly after hearing of the Rockville company's report, and before it was contacted by the SEC, and noted the company's previous financial statements had been audited. "I hope that demonstrates the commitment we have to disclosure," he said, adding that: "We feel out in front of this issue." On Thursday Brooks Automation said two board members who also sat on its compensation committee, Amin J. Khoury and Roger D. Emerick, resigned. The two were the only directors whose tenure began before 2001, and both will give back their current options and restricted stock awards. Both hope current managers will not be "distracted by questions concerning events occurring in this earlier period," Brooks said in a statement May 18. In an interview the firm's general counsel Tom Grilk reiterated it expects to have to restate results prior to 2005, but declined to discuss why pending the SEC inquiry. UnitedHealth shares fell 1.9 percent in New York Stock Exchange composite trading yesterday, after a 3.4 percent decline Thursday. Caremark shares declined 6.8 percent, American Tower fell 2.3 percent, and RSA Security fell 12.3 percent. Vitesse fired chief executive Louis Tomasetta and two other executives May 17 and expanded its stock-option probe to include how revenue is recorded. Caremark, the second-biggest US manager of drug benefits, received a grand jury subpoena and said the SEC is informally probing the firm. Robert Mead, a Caremark spokesman with Brunswick Group, declined to comment on whether the subpoena dealt with how stock options were dated. Material from Bloomberg News was used in this report. |