Skip to main content

A new study suggests that the options backdating scandal was spread by "word of mouth" by executives who held seats on boards of multiple companies.

The business watchdog group The Corporate Library found that of the 120 companies under investigation (as of the end of September) for their options granting practices, 51 of them have directors who sit on boards of other companies accused of similar misdeeds.

"Director interlocking relationships are fast becoming what appear to be the most important characteristic and indicator of backdating problems," the study says.

The 51 companies include a total of 49 multi-board directors, 43 of whom sit on two boards and six who sit on three implicated companies' boards. Those six directors were overseeing


( CMVT) as well as two of its subsidiaries,

Verint Systems

(VRNT) - Get Verint Systems Inc. Report



( ULCM).

Comverse CEO Kobi Alexander was indicted on fraud charges in August stemming from options backdating at his company, and was recently

apprehended in Namibia after fleeing the U.S.

Others have noticed connections between implicated companies and having directors-in-common. Albert Lin, an analyst with American Technology Research

noted in August that

Juniper Networks'

TheStreet Recommends

(JNPR) - Get Juniper Networks, Inc. (JNPR) Report

CEO Scott Kriens, which is

under investigation for options backdating, is a member of its corporate governance committee on


(VRSN) - Get VeriSign, Inc. Report

board. VeriSign is undergoing an options probe as well.

In addition, former



CEO Greg Reyes, who was

charged with securities fraud related to options backdating, served on VeriSign's compensation committee. He resigned from VeriSign's board several weeks later.

Silicon Valley law firm Wilson, Sonsini, Goodrich & Rosati is also mentioned in the study, which notes that the firm has strong ties to many of the companies implicated for backdating options, though "there is no evidence to support the notion that option backdating was a WSGR invention."

The study did find that "in addition to representing either the company or underwriter in... many high-tech IPOs, WSGR partners have gone on the serve as either corporate secretary or as a non-executive directors at many of these same companies."

WSGR also provided the firms with legal services, and some were investors in the companies themselves.

While none of these WSGR relationships are illegal, "the very existence of these multiple relationships, and what they say about the boards involved, could have an effect on the potential for damage now faced by these companies and individuals involved," the report says.

The study does not "prove definitively" that directors linked by the options scandal helped the practice flourish, but, the study says, "the theories behind social networking would support such a theory very strongly."