The American Spectator

Washington Prowler

Patches Kennedy

By The Prowler on 3.29.05 @ 12:07AM

(Page 2 of 2)

While a number of SEC senior staff were taking vacation time last week for Easter break, career SEC policy staff were hard at work preparing what is called a "bulletin" to U.S. companies informing them that they will have some leeway in measuring the value of employee stock options in financial reports. The bulletin was seen as the SEC's response to new Financial Accounting Standards Board rules that require companies to recognize stock options as an expense.

The valuation of stock options has been a dicey issue for some time within both the corporate and regulatory world. On several occasions in the past few years, Congress has attempted to address the issue, but legislation has stalled.

During the tech boom of the late '90s, stock options were key financial inducements to employees, and many companies, particularly in the tech arena, have been fighting the expense categorization policy, as have Republicans in the House and Senate. One of the main concerns companies have, not fully addressed in the SEC bulletin, which may be released as early as this week, is that the rules could make them targets of investor or employee class-action lawsuits or SEC investigations if their initial valuation estimates in quarterly and year-end reports are incorrect.

In the past few weeks, Congress had attempted to pass a bill that would have blocked the FASB policy change, but according to both Capitol Hill and SEC sources, career SEC staffers with ties to Democratic political appointees on the commission were furiously developing the bulletin, gambling that Congress would not be able to pass legislation before its spring recess, and that with few people paying attention during the Congressional recess, they would be able to release the bulletin with little notice or complaints from Republicans. The SEC staff's gamble paid off.

As a result, with no input from SEC Commissioners, the staff is releasing a bulletin on the stock option issue that essentially stands as SEC policy that is enforceable. Companies that failed to account for the SEC bulletin policy would expose themselves to potential SEC investigations and possible fines.

"This is policy making by staff, not by the commissioners, and it's outrageous," says a House Committee on Government Reform staffer. "Donaldson appears to be out to lunch on a lot of these issues, letting career staff just do what it wants. Perhaps it's time for a change."

There have been rumblings that the White House has been looking to push Donaldson out of the chairman's chair, if Donaldson didn't leave of his own volition. But Donaldson has consistently told associates that he has no intention of leaving.

"At some point we have to look at Donaldson's behavior, or lack of action, and wonder what the hell is happening over there," says the House staffer. "This is a guy who consistently votes and works with the Democrats, and works against Republicans up here. It's only going to get worse."

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