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CNet Subpoenaed on Option Grants

Updated from June 27

CNet Networks (CNET - Get Report) is facing increased scrutiny for allegedly backdating stock options, the company reported on Tuesday.

The online publisher has received a grand jury subpoena from the U.S. Attorney for the Northern District of California asking for documents relating to its past options grants, the company disclosed on Tuesday in a document filed with the Securities and Exchange Commission. The company said it plans to "cooperate fully" with the request, which potentially could lead to criminal charges against the company or its executives.

CNet is already the subject of an SEC inquiry about its options-granting practices.

The company announced last month that it had formed a committee of its board to examine its past options grants. The move followed a report by the Center for Financial Research and Analysis that found that on four occasions between 1998 and 2001 the company granted options with exercise prices that matched or were close to a 40-day low for its stock price.

CNet is only one of more than 50 primarily technology companies that have come under scrutiny from regulatory officials for allegedly backdating options. As with CNET, the companies targeted by regulators are accused of having granted options to insiders at share prices that were known after the fact to be short-term lows.

The practice of backdating options wasn't necessarily illegal. But companies that backdated options could have run afoul of the law in how they accounted for such grants and how or whether they disclosed them to investors.

Shares of CNet slipped in after-hours exchanges immediately following the announcement; they were recently down 23 cents, or 2.8%, to $8.14 on Wednesday.
Troy Wolverton worked at CNet from 1999 to 2002. While he received options from the company during that time period that potentially were affected by backdating, they all expired unexercised and underwater after he left the company.

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