Back-Dating Options And 401k Plans: Do Employees Have A Right To Sue?
If you’re an employee with a 401k plan that has in it shares in the company you work for, and the executives of your company back-date their stock options -- thereby decreasing the value of your company’s shares and the value of your 401k plan -- do you have a right to sue for violations of the Employee Retirement Income Security Act (“ERISA”)? Apparently you do, and many employees in this identical situation have done so.
Backdating takes place when executives change the award date of previously granted stock options in shares of their own company so that their securities are worth more -- sometimes tens of millions of dollars more. For example, Monster Worldwide has at last put an end to a prolonged stock-option-backdating scandal that cost the company tens of millions of dollars and resulted in the criminal convictions of two former senior officials. The New York based company agreed to pay $4.3 million to a group of employees who held Monster stock in their 401(k) plans. These employees sued alleging violations of ERISA and contending they had bought shares in their 401k plans while their bosses -- Monster Worldwide executives -- made false disclosures about Monster's financial condition and illegally lined their pockets with back-dated stock option grants.
This boardroom version of creative writing took place at dozens of companies, including at Grand Theft Auto publisher Take-Two Interactive Software, Comverse Technology and Cablevision Systems, as well as many other companies based in Silicon Valley.
The practice seems to have been especially pervasive at Monster, where backdating options apparently went on for nearly a decade before being uncovered in 2006. The Securities and Exchange Commission (“SEC”) filed civil fraud charges against the company's former chief executive, president, general counsel and controller. In fact, Monster's former president, James Treacy, was convicted on criminal fraud charges and was sentenced to two years in prison. And Monster's former general counsel, Myron Olesnykckyj, pleaded guilty to criminal fraud charges in 2007 and is scheduled to be sentenced in February, 2010.
If you are an employee with a 401k plan that has in it shares of your own company, and know or believe that executives in your company have back-dated their stock options, please contact us to discuss your legal options.