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BACKDATING AND BOARD MEMBER GOSSIP

October 23, 2006

A new study seems to imply that the practice of backdating options spread like a flea-borne disease from company to company on the backs of corporate directors. Many of the companies also use the same law firm. Footnoted.org picks up the story:

Of the 120 [companies tied to option backdating] so far, the study found that over 40% have at least one director who sat on a board at two companies involved in options backdating. Six directors sat on the boards of three of the implicated companies. The bottom line is that options backdating seems to have spread via word-of-mouth from one director to the other.

The study also found that at the center of that circle — the monkey in the middle — seems to have been Silicon Valley power lawyer Larry Sonsini and other principals and partners at the law firm of Wilson Sonsini Goodrich & Rosati (WSGR). Though the report notes that there’s no evidence to suggest that WSGR invented options backdating or that WSGR attorneys did anything illegal, it does point to a number of odd coincidences.

Interesting. I figured some sort of country-club gossip grapevine helped spread the backdating craze, but it never would have occured to me to try to connect the dots this way.

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