Silicon Valley Stock options and rigged prices: FIRMS FEAR THAT MORE COULD BE CAUGHT UP IN SCANDAL

The San Jose Mercury News reports:

One thing appears certain as investigations broaden into whether Silicon Valley executives rigged prices on stock options: There's no end in sight.

McAfee fired its top lawyer Tuesday. Altera followed by warning it might spend millions of dollars this quarter dealing with federal inquiries. And by week's end, Citigroup had joined other Wall Street firms in warning investors that more tech companies could be swept up in the scandal.

No company has been formally charged, and investigators for the Securities and Exchange Commission and U.S. Attorneys from San Francisco to New York could clear companies of wrongdoing.

But there's no question Silicon Valley firms and their advisers are worried.

``I will confess, like a lot of people, when it first came out we thought it would blow over,'' said James E. Kim, a compensation consultant with Frederic W. Cook in San Francisco. ``But I am amazed at the life it has taken. It's going to turn out to be probably the biggest problem of the year.''

At the root of the controversy are stock options, Silicon Valley's favored currency that has minted hundreds of millionaires. The fear is that the during the tech boom, volatile stock prices and greedy executives created an environment ripe for abuse.

Options typically give the holder the right to buy company stock at the price on the day they were granted, so they become valuable only if the stock rises. Federal investigators, along with analysts and companies themselves, are now examining patterns that suggest some companies improperly picked dates when the stock prices were lower -- giving option recipients a head start to paper profits.

Companies may be allowed to issue stock options priced below the market as long as they subtract the costs of those options from corporate profits and disclose them to shareholders. If companies backdated options, they could be forced to restate their financial results and pay tax penalties. Executives also could face fraud charges.

You haven't heard the last of this story.It's safe to predict NASDAQ at 5000 isn't coming anytime soon.