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Thread: Pension funds suing dozens of companies

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    Featured Member Vamp's Avatar
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    Default Pension funds suing dozens of companies

    WASHINGTON (AP) — Pension funds in the United States, Europe and Australia are suing dozens of companies over the timing of stock options grants to their top executives, an attorney for a firm that is filing the suits said Tuesday.
    The pension funds, which hold shares in the companies and include several union-employee funds in the United States, are using a prominent law firm specializing in class-action suits against public companies to bring their cases.

    In expanding investigations, at least 39 companies are under scrutiny by the Securities and Exchange Commission or federal prosecutors for possible manipulation of the timing of options grants so that executives could reap a profit.

    Pension funds "are completely beside themselves and outraged over the self-dealing that has gone on," said Darren Robbins, a partner in Lerach Coughlin Stoia Geller Rudman & Robbins.

    The suits say company directors failed in their role as watchdogs. The aim is "to recover the monies that were diverted from the corporate till," Robbins said.

    http://www.usatoday.com/money/compan...ons-suit_x.htm

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    God/dess Deogol's Avatar
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    Default Re: Pension funds suing dozens of companies

    These guys can't go around paying themselves 200x to 400x the average workers pay and think they could get away with it?

    As a stock holder, I can say I have felt robbed. Company going down the drain, CEO pays the C suite "retention funds" as they bleed the company dry, stock mellows, no dividends - and they retire with porsche's and big homes in Florida.

    Social investing is going to take a whole new meaning in the not-near but pretty close future.

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    Default Re: Pension funds suing dozens of companies

    I don't know if you have ever read any of Warren Buffett's remarks about corporate option schemes and bonus plans for execs. It is quite eye opening.

    He is of the belief that they are mainly recorded badly in company accounts to hide their true value and they are simply a cost when not recorded as such. In other words, he isn't a fan.

    If Buffett does not like these schemes, maybe we shouldn't either.

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    Default Re: Pension funds suing dozens of companies

    ^^^ agreed. Also, while it was seldom discussed, promising to pay important employees with stock options rather than with high salaries was a 'tool' commonly used throughout the dot-com / tech industry as a means of portraying companies as being significantly more profitable than they actually were. However, it wasn't until after the dot-com bomb led to some serious forensic accounting that the sleight of hand of stock options, as well as the financial liabilities they created for the companies and other stockholders which didn't show up on the company's current balance sheet, was finally publicized and addressed via a change in GAAP accounting rules.

    However, I do get a bit of a chuckle from today's media and many people who are now objecting to the well publicized salaries and huge bonuses of say oil company executives. Dot-com / tech company executives had been paying themselves similar amounts for years via stock option 'profits' ... but without today's 'transparent' corporate GAAP accounting and media coverage ! In order to establish the true 'cost' of stock options and stock issuance, it is necessary to track down a plethora of information regarding the employee's actual exercise price versus the issue price, regarding the impact that 'dilution' of company share value had on the theoretical value of the shares held by previous investors had the additional stock shares not been issued and the options not been granted to certain employees etc. Today it's much easier for the media to pick up on and publicize a 10 million dollar bonus paid to an oil company exec than it was to piece together the 'additional income' a tech company executive actually received by cashing in free or discounted company stock options provided by the company's board.
    ~
    Last edited by Melonie; 06-14-2006 at 07:02 AM.

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    Default Re: Pension funds suing dozens of companies

    Beginning in 1993 corporations could take tax deductions on only $1 million of an executive's salary. So instead of paying CEOs more they just gave them stock options to save corporation money.

    I believe the reason this is happening is because of deregulation during the 1980s and 1990s. With less oversight into business affairs many companies and executives did as they pleased.

    Pension funds are now scared. Because of all the mishandling of money to keep these corporations afloat, pensions are becoming a thing of the past.

    These types of corporate scandels not only milk the stockholders and the workers, but also the econmy itself. If I had my way these people would be locked up for life. Then again if i had my way we would have the regulations that we had in the past to insure this doesnt happen.

    As far as Warren Buffet, I have never read anything he has written about anything. He is successful. But I doubt he became successful just following someone else's lead. I try to stay to the facts and make my own judgements about what is happening.

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    Default Re: Pension funds suing dozens of companies

    Quote Originally Posted by Vamp
    As far as Warren Buffet, I have never read anything he has written about anything. He is successful. But I doubt he became successful just following someone else's lead. I try to stay to the facts and make my own judgements about what is happening.
    He might not follow him, but Benjamin Graham is well known as his mentor.

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    Default Re: Pension funds suing dozens of companies

    This promising a pension, sometimes as a contractual obligation - and then reniging on it - it walks the line of fraud.

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    Default Re: Pension funds suing dozens of companies

    ^^^ perhaps true, but I suspect that any attempt to prosecute would be met with a 'Force Majeure' defense based on the increased gov't mandated costs for everything from employer SSI to comp/unemployment insurance premiums to osha/EPA compliance to Sarbanes/Oxley accounting costs which were enacted between the time the pension promises were made (at the time of hiring) and today !

    There's an old adage which applies in this situation - 'you can't get blood out of a stone'. If there's not enough profit margin for US companies to afford to continue paying pension benefits while still paying current worker salaries and current stockholder dividends, then forcing the pension issue is a 'no win' situation. The US railroad industry or the US consumer electronics industry probably represent the two extremes of possible outcomes if the pension issue is pushed too hard.

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    Featured Member Vamp's Avatar
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    Default Re: Pension funds suing dozens of companies

    This lawsuit proves that it is not always because companies can't make a profit as reasons to dip into the pension funds.

    I quote the article
    "At issue in most of the cases so far is whether executives manipulated option grants by backdating them to a point where the company's stock was at or near a low point, boosting the value of those awards.

    Stock options are generally issued with an exercise price equal to the current market price, and therefore have no immediate value. By choosing an earlier date when the stock was lower, the options are instantly worth the difference between the strike price and current price.

    While stock options are used as an incentive for executives to boost a company's performance and stock price, improper backdating can mean that executives reap bigger profits with no relation to their individual performance."

    This is just all out and out greed. In some cases blatent fraud.They are manipulating stock options for their own personal profit. Any arguement about the cost of operation is null also considering these are very successful companies in the lawsuit.

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