Alien's Creepy IPO Ride

There's no doubt that Alien Tech's financials weren't as polished as most investors would have liked. The company operated at a loss for the past three years, and in 2005 incurred its biggest loss yet, primarily due to stock-based compensation hits that the company took during the year. The success of Alien Tech's business is also largely dependent on its two main users: WalMart and the Department of Defense.

But another warning sign emerged shortly after Alien Tech filed for the IPO. A few months after Eulau joined the company, Rambus disclosed that it is one of more than 80 tech companies caught up in the stock options-backdating scandal. Worse, Eulau served as Rambus' CFO from July 2001 to March 2006, the period of time that is the focus of the investigation.

Stock-options backdating has become corporate America's latest accounting problem. The scandal centers on how some companies priced the options they granted to their executives over the years.

Normally, an employee stock option grants the right to buy a company's stock at a price equal to the market price of the stock on the day the options were granted. But when it comes to backdating, some companies allegedly went back in time to set the prices for their options at or near 52-week lows. The effect of backdating is to lower the strike price to make the options more profitable.

Rambus is undergoing an internal audit to review the extent of the backdating. Last month, Rambus said it would restate financial reports dating back at least three years due to discrepancies in its stock option-accounting practices. The company also is facing a number of lawsuits over its options policies

As with every IPO, Alien had a dense "Risk Factors" section in its prospectus in which the company outlined, among other things, the risk of Eulau's employment at the firm. As part of the management team, Eulau was a recipient of many option grants. In the risks section, it noted that Eulau has been named as a defendant "in multiple shareholder derivative actions ... relating to Rambus's stock option practices." The prospectus went on to warn that "Eulau could cease to serve as our chief financial officer if he becomes subject to an order preventing him from serving as an officer of a public company.''