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Outside Director Not Guilty of Securities Fraud for Issuing Backdated Stock Options Pre-Sarbanes-Oxley

The Securities and Exchange Commission (“SEC”) brought a civil action against a company’s outside director.?á The SEC charged the director with securities fraud for granting undisclosed backdated ?Ç£in-the-money?Ç¥ stock options from 1996 to 2002 to the CEO.?á The SEC claimed that option pricing statements in the company’s proxy statements and financial statement footnotes were materially false.?á The statements provided that all options had been and would continue to be granted at an exercise price equal to the fair-market price.?á To establish a violation of the antifraud provisions of the federal securities laws, the SEC had to prove that the director (1) made a material misstatement or omission in connection with the offer, sale, or purchase of a security by means of interstate commerce, (2) made the misrepresentation or misleading omission with scienter and (3) acted negligently.?á The district court concluded that the SEC had failed to prove the requisite elements… Continue Reading

August 2011
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