Ethics Newsline®

SAN FRANCISCO
A sprawling investigation into accounting practices apparently resulted in the resignations of the leaders of two technology companies, according to press reports.

The Los Angeles Times reported that George Samenuk, the chairman of McAfee, Inc., a Santa Clara, Calif.-based software company, retired last week and the president of the company, Kevin Weiss, was fired over a stock-option issue.

And at the tech-information company CNET Networks, Inc., co-founder Shelby Bonnie resigned as chairman and CEO, the Times reported.

According to reports from USA Today and BusinessWeek, both companies intend to restate some of their financial results after being snared in a stock-option probe that has touched about 120 companies. None of the executives has been formally charged with any wrongdoing.

Over the weekend, backdating took down another high-powered executive, William McGuire, chairman and CEO of UnitedHealth Group, the nation’s second largest health insurer.

McGuire was forced to step down and return some of the $1.1 billion he holds in “harshly criticized stock options,” reported the New York Times. UnitedHealth also fired its general counsel and a board member, according to the paper.

The San Francisco Chronicle reported that the options backdating probe is being engineered by a federal task force operating out of San Francisco and focusing primarily on Silicon Valley, where stock options have long been “coin of the realm.”

The investigations center mostly on the backdating of stock options.

A stock option is an offer made by a company to allow someone to buy shares of stock in the future at a predetermined price. The initial price often is set as the market price of the stock on the day the option was granted, making the stock option an attractive commodity because stock prices in expanding firms, such as those in Silicon Valley, are usually expected to rise quickly. Because they promise great future value but involve little immediate outlay of money, stock options are a popular recruiting tool for cash-strapped startups.

But investigators are alleging that some companies have backdated the granting of options to times when prices were even lower. That action, in and of itself, is not illegal, but hiding the details of the arrangements and the income is.