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CalPERS Asks ACS to Investigate Stock Option Issues
6/12/2006 Source of Title Reprinted with permission

The California Public Employees' Retirement System (CalPERS) has asked Affiliated Computer Services of Dallas, Texas and 24 other companies to respond to questions about published media allegations of stock option backdating practices for top executives.

The U.S. Securities and Exchange Commission is investigating the practice, which allows executives to backdate stock purchase options to secure the lowest possible market price, thereby maximizing their potential profits regardless of performance.

CalPERS asked the companies to independently investigate media reports of employee stock option backdating and disclose all findings publicly. It further requests development and public disclosure in financial and proxy statements of any new Board of Directors’ policies for determining option grant dates.

"Stock-option backdating potentially threatens the credibility, governance and performance of companies," said Russell Read, the chief-investment-officer of CalPERS. "We hope the SEC will continue to investigate because it imperils the creation and sustainability of long-term value for shareowners."

The other companies that have asked to investigate their practices are: Altera Corporation, American Tower, Analog Devices, Brooks Automation, Caremark, Comverse Technology, F5 Networks Inc., Jabil Circuit Inc., KLA-Tencor Corp., Maxim Integrated Products, McAfee, Meade Instruments, Medarex Inc., Nvidia Corp., Openwave Systems, Power Integrations Inc., RSA Security, Safenet Inc., Semtech Corp., Sepracor Inc., Sycamore Networks, Trident Microsystems, UnitedHealth Group, and Vitesse Semiconductor.

"These allegations raise concerns about a lack of oversight by the Board of Directors, weak internal controls, weak internal and external audit practices, and poor accounting – as well as the possibility of civil and criminal penalties against these companies," said Christianna Wood, the senior investment officer for Global Equity and author of the letters.

CalPERS asked the companies to adopt strong audit policies with board-approved directives on executive compensation; to refrain from using company resources to cover any tax or legal liability for executives implicated for wrongdoing in options backdating; to commit to having shareowners annually ratify external auditors; and, to take steps to make sure that board, committee, and individual director evaluations include substantial and meaningful oversight by individual directors and the Board of Directors as a whole.


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