RealMoney Radio: The Backdating Blues

Several companies have been caught up in the scandal involving the backdating of options, said Aaron Task on Jim Cramer's "RealMoney" radio show Wednesday. Task, co-executive editor of TheStreet.com, is filling in for Cramer this week.

To list a few, Task said Rambus (RMBS) is down more than 10% on this news, Applied Micro Circuits (AMCC) and CNET Networks (CNET) have been hit hard, and Foundry Networks (FDRY), which has also been involved in this as well, has still been performing admirably.

In addition, Citigroup recently downgraded two other semiconductor companies that are in the middle of investigations, Xilinx (XLNX) and Altera (ALTR), Task said.

"Executive pay tied to the backdating of options is shaping up as the big scandal of 2006," Task said, while referring back to Cramer's May 24 radio show.

It seems that a number of public companies are being investigated by the Justice Department, Cramer had said, adding that it is a much more serious matter than being quizzed by the Securities and Exchange Commission.

The SEC can fine market participants, or even ban them from the business, but it is always a civil-litigation matter, Cramer had said.

That's a huge contrast to the Justice Department, which can send violators to prison. "If the Justice Department calls, you need a criminal lawyer," he had said.

Some company executives are alleged to have backdated the strike price of their stock options to the lowest price level for the quarter. That way, the executives that were granted the options can bake in an instant profit, Cramer had said.

He had said that when he was granted stock options at TheStreet.com at $3.30 in the late 1990s, "immediately the stock fell, and I was out of the money."

But Cramer had said that he didn't go back to the company and ask it to reprice the options at a lower level. That's exactly what some executives seem to have been doing.

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