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Volatility is especially significant: 29% of companies with high volatility appear to have manipulated grant dates, compared to 13% of those with low volatility.

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To add to public suspicion, Brocade's downfall coincided with the year when Reyes made a staggering $556 million, most of which came from selling his options.But criminalizing this business practice is not the answer." He continued, "There is little doubt that the combination of regulation, civil liability and markets can solve—indeed, probably already has solved—any problems here.Dozens of companies are under investigation by the Securities and Exchange Commission for backdating stock options. Alternatively, a company could hit a low without actually backdating its options by granting awards just before a major (positive) earnings announcement, a practice known as "spring-loading." A more extreme and more clearly illegal practice was to say that an award was exercised on a date other than its actual exercise date.In 2000, Brocade reported earnings of $67.9 million.After Reyes departed, the company reported a $951-million loss.He continued, "Additionally, the amounts of under-reported stock option compensation expenses alleged in this case did not have any impact on the company's financials or on the value of the stock." Marmaro defends Brocade and Reyes, saying that neither breached federal securities laws with the deliberate intent to misstate the company's financials and mislead shareholders.

Responding to allegations of criminal conduct, Marmaro asserts that "there were some paper problems in the company's HR department" that resulted in backdating—nothing more.

Attorney's Office in Northern California has launched a series of investigations and in July issued criminal and securities fraud charges against two top executives at Brocade Communications. National concern about the practice has been spurred by a series of articles in the Wall Street Journal. Companies found to have practiced this could be forced to restate their earnings.

District Attorney's Office has also issued several subpoenas in launching a criminal probe. The typical practice was to record a felicitously timed prior date as the grant date, such as the point when the stock had been at its lowest in recent months, instead of the date when the award was actually granted.

Nejat Seyhun of the University of Michigan for the newspaper showed that that options granting practices between 20 often failed to comply with the Sarbanes-Oxley requirement that grants of awards to executives be reported within two days of board approval (T"he Dating Game: Do Managers Designate Option Grant Dates to Increase Their Compensation? Prior research at Erik Lie at the University of Iowa found a pattern of probable options backdating in a number of companies prior to 2002.

Recording the exercise as having occurred on an earlier date when the stock price was lower would minimize the executive's income tax liability, but constitutes tax fraud.

Furthermore, Marmaro criticizes the DOJ and the SEC for scapegoating the innocent because of "some perceived need to show quick action in response to the stock option issues being discussed in the media." In the midst of ongoing investigations, Linda Thomsen, chief of enforcement at the SEC, stated at Thursday's conference that it is not a question of whether Reyes profited from backdated options himself. Ryan said at the joint news conference, "It is integral to the public trust in our financial markets that books and records are maintained honestly and that the true financial condition of public companies is disclosed accurately." In wake of this groundbreaking case, lawyers, executives, and accountants are trying to differentiate between criminal conduct and innocent accounting errors.