IRS Joins Forces With California In Options Backdating Crackdown

by Leroy Baker, Tax-News.com, New York

12 September 2006

The Internal Revenue Service has joined forces with California's local stock options backdating task force to investigate alleged backdating of stock options with intent to defraud in the Northern District of California.

Announcing the move, US Attorney Kevin V. Ryan stated that the task force, formed in July 2006, is now composed of members of the US Attorney’s Office, the FBI, and IRS-Criminal Investigation in the Northern District of California.

"It is integral to the public trust in our financial markets that books and records are maintained honestly, and that the true financial condition of public companies is disclosed accurately," Ryan noted in a statement.

"Falsification or backdating of financial documents may call the integrity of companies’ financial statements into question, can constitute fraud on the company, shareholders, and the market, and may give rise to tax violations. We will evaluate the facts of each case, and we will bring criminal charges when appropriate," he added.

The US Senate has increased pressure on the law enforcement authorities to clamp down on fraudulent backdating of stock options, which seemingly remains prevalent despite tougher corporate governance rules in the wake of the Enron debacle.

Roger L. Wirth, the IRS Criminal Investigation Special Agent in charge of the Californian investigation, commented:

"With the recent discoveries of significant fraudulent misconduct in connection with backdating of stock options, IRS-CI will work to help ensure both the companies and executives involved in such illegal activity are in compliance with the tax laws."

"This task force is another example where by combining our resources together as a law enforcement community, we can have the greatest impact in stopping these criminal activities and hold the perpetrators accountable for their illegal actions."

However, following at a recent Finance Committee hearing on executive compensation involving the IRS, the SEC and the Justice Department, committee chairman Chuck Grassley indicated that the US needs tougher tax laws to stop executives bending the rules.

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