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Last Updated: Friday, 25 August 2006, 21:44 GMT 22:44 UK
US sets hearing on stock options
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The SEC is set to testify at the hearing
The US Senate is to launch a hearing into stock options and executive compensation, the Senate's Finance Committee has said.

Workers from the Justice Department, Internal Revenue Service and Securities and Exchange Commission will testify at the hearing, set for 6 September.

More than 80 firms are investigating their option schemes internally or undergoing government investigations.

The inquiries focus on the backdating of stock options to boost their value.

Irregularities

Backdating stock options denotes the practice of allowing staff to buy shares at a previous - and lower - price.

This makes it look like the transaction occurred earlier than it did.

Subsequently, this allows for stock options to be bought at a cheaper price than the current value, thereby boosting profits.

While backdating is not illegal, it must be properly and clearly accounted for.

Federal investigators say they will prosecute if the backdated options breached accounting rules.

If stock options are not adequately accounted for this could lead to misleading profit figures or underpaid taxes.

During the dot.com boom in the late 1990s and early 2000s, stock options were often used as a way to financially entice - and retain - employees.

Stock options have also been a critical element in high-ranking executives' pay packages.

The announcement of the hearing comes soon after three former bosses of software company Comverse were charged with fraud for manipulating stock options.

Meanwhile, computer firm Apple Computer is conducting an international investigation into how stock options were granted to its workers.

The firm says it is likely to have to amend its financial results from 2002, after discovering stock option irregularities.




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