It's Alive

The United States Attorney for the Southern District of New York announced today the indictment of James Treacy, former CEO of Monster Worldwide, Inc.("Monster") on charges of securities fraud and conspiracy in connection with an emploee stock option backdating scheme.  Also indicted was Anthony Bonica, Monster's former controller.

According to the indcitment, Treacy conspired with other former Monster senior executives to "systematically backdate stock option grants to Monster employees...in an effort to provide profitable options to employees without recording the required compensation expenses."

Here is how it works: The corporate officers in this case backdated stock options given to certain employees to reflect their issuance at a point prior to the actual issuance date. The backdated options reflected a price equal to the then fair market value of the stock. Because there was no difference between the stock option issuance price and fair marklet value, Monster didn't have to reflect any such difference as compensation to the employee to whom the option was granted. That fraud allows them to eliminate the expense of having given the option to the employee which makes their profit and loss statement look better; more income less expenses. Everyone's happy. The employee gets his stock, the company has no concomittent expense recording obligation. Oh, unless, of course, you abide the law and every governing accounting principle in existence.

John M. Hanamirian