June 13,2006

Grassley Urges Scrutiny of Executives’ Backdating of Stock Options for Personal Gain


To: Reporters and Editors
Re: Backdating of stock options
Da: Tuesday, June 13, 2006

There have been a number of recent stories in the newspapers, especially The Wall Street
Journal, about corporate executives backdating their stock options. Essentially, the reports say, the
executives are waiting until after the fact to pick a date for their stock options, then picking the low
point of the stock during the year to maximize their profit. The tax code governs certain aspects of
executive compensation and imposes a tax unless the pay (over $1 million) is performance-based
compensation. In response to the tax, there has been a big upswing in stock options to compensate
corporate executives. Sen. Chuck Grassley, chairman of the Committee on Finance, today convened
a hearing to explore various compliance concerns in the corporate tax arena and asked the Justice
Department’s witness to explain the agency’s investigation of the backdating of stock options.
Grassley made the following comment on the issue.

“It’s one thing for an executive to make big profits because he’s improved his company, but
it’s a whole different thing to make big profits because he’s playing fast and loose with the dating
of stock options. Outside the corporate suite, Americans don’t get to pick and choose their dream
stock price. The market dictates the price. It’s bothersome to think that after the corporate scandals
of recent years, some executives are still looking for ways to cook the books for personal gain. It’s
also troubling that boards of directors are apparently approving these deals without shareholder
approval. I hope the Justice Department and the Securities and Exchange Commission are taking
a hard look at this practice. I’ve asked the Justice Department to let me know whether the tax laws
on the books are adequate to rein in and prosecute stock option backdating. If the tax laws are
inadequate, I want to beef them up. I was glad Justice officials made it clear today in response to
my questions that executives can face possible prison time for backdating stock options. I expect the
Justice Department to fully enforce the law in all of these areas.”