The US government is aggressively investigating the suspicious timing of stock options granted to top executives at scores of companies, officials said.
Shareholders and employees have been "ripped off by senior executives who rigged stock option programs ... to further enrich themselves," the chairman of the Senate Finance Committee said at a hearing on Wednesday.
The tax-writing committee, led by Republican Senator Charles Grassley, is considering reducing or eliminating a deduction that encourages companies to award executives with stock options. This kind of compensation is linked to a company's stock prices and by, extension, performance.
The Securities and Exchange Commission (SEC) chairman expressed support for the idea.
Companies are required to pay taxes on compensation that exceeds US$1 million a year received by each executive. There is an exception for pay tied to a company's financial performance; all of this can be deducted. This requirement has led companies to dole out stock options.
SEC chief Christopher Cox told the Senate Banking Committee that this rule "deserves pride of place in the Museum of Unintended Consequences." He said the US$1 million threshold was "an unworkable price control."
At least 79 public companies, including UnitedHealth Group Inc, The Home Depot Inc, personal-finance software maker Intuit Inc and Barnes & Noble Inc, have publicly said that they are under scrutiny by the Justice Department or the SEC, or both, for possible fraudulent reporting of stock option grants.
The Internal Revenue Service is conducting its own investigation for possible tax-law violations in option grants.
"We will apply our resources to this area with full rigor," IRS Commissioner Mark Everson said in testimony at the hearing.
Cox and the SEC's enforcement director, Linda Thomsen said the agency is investigating more than 100 companies. The number may include companies that haven't disclosed that they are under investigation.
This summer, the Justice Department and the SEC charged former officials of two technology companies, Brocade Communications Systems Inc and Comverse Technology Inc.
With only two cases brought so far, the government is sending a message that "most don't have to worry about it," Lynn Turner, a former SEC chief accountant, said at the Banking Committee hearing.
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