"Like other forms of corporate fraud, the Department of Justice takes stock option backdating seriously, and we will continue to use our best efforts to uncover criminal conduct where it occurs," said Deputy Attorney General Paul McNulty.
Stock option backdating

Some Bay Area companies have announced that they've been contacted by the U.S. Attorney's office in Northern California. Typically the contact comes in the form of a grand jury subpoena. They include:

Altera
Applied Micro Circuits
Asyst Technologies
CNET Networks
Equinix
Foundry Networks
Intuit
Linear Technology
Marvell Technology Group
Maxim Integrated Products
Openwave Systems
Power Integrations
Redback Networks
VeriSign
Zoran

Source: Wall Street Journal database

The IRS, too, "will follow up on every company and the relevant executives for each case where it is determined that abuses have occurred," said IRS Commissioner Mark Everson.

Currently, more than 100 companies, largely from the technology sector, are under investigation by the SEC for possible fraudulent reporting of stock option grants to their top executives, said Linda Thomsen, director of the SEC's enforcement division. So far, the Justice Department and the SEC have filed civil and criminal charges against former top executives from two technology companies: Brocade Communications Systems and Comverse Technology. Two former Brocade executives pleaded not guilty to those charges last week.

Stock option backdating refers to the practice of retroactively changing the date of a stock option grant to make it appear it was granted on a date when its value was lower, thereby multiplying the payoff when the options are exercised. While not necessarily illegal, the practice could run afoul of tax laws, securities regulations and fraud statutes if concealed from shareholders.

Senate committee leaders voiced disgust at the allegedly fraudulent practices and urged the enforcement officials to advise them if changes in the law are necessary.

"It is behavior that ignores the concept of an 'honest day's pay' and replaces it with a phrase that we hear all too often today, 'I'll get mine,'" said Sen. Chuck Grassley, the Iowa Republican who serves as committee chairman.

Montana Sen. Max Baucus, the committee's Democratic co-chairman, said the stock option scandal is indicative of a broader problem--overpaid executives. "It is high time that we tried to close the loopholes (in tax laws)," he said.

The senators indicated they were weighing a number of legislative options, including changes to--or even a repeal of--a section of the tax code that puts a $1 million cap on the amount of employee compensation that firms can deduct from their income taxes. The measure, enacted in 1993, had been intended to stave off "excessive" executive pay, "but it really hasn't worked," said Grassley, who said he voted against the bill containing that provision. "Companies have found ways to get around it, and frankly it has more holes in it than Swiss cheese."

The federal officials said they didn't see the need for additional congressional action right now. New SEC rules that go into effect next year, for instance, would require more detailed reports of executives' compensation and a broader discussion and analysis of a company's compensation practices, and are designed to foster increased transparency, Thomsen said.

"These issues cannot be reformed by Congress," said the IRS' Everson. "They're going to have to be reformed by American business."

"As a strategy, the U.S. may not renew trade preferences... so as to pressure countries in the region to sign free trade agreements," said Romy Calderon, an economist at the non-profit Latin American Association of Development Financial Institutions (ALIDE), in Lima, Peru.

Preferences will be reviewed because the Bush administration has not had success promoting the Free Trade Agreement of the Americas (FTAA), a program that would turn all of the Americas into a free trade zone, Calderon told OneWorld. "The U.S. sees this as an alternative way to advance the FTAA little by little," he said.

In mid-August, U.S. trade representative Susan Schwab announced the administration-mandated review of its trade preferences program. Schwab said the purpose of the review was to determine which countries needed preferences most.

Countries with upper-middle-income economies based on the
World Bank's classifications--which in Latin America include only Argentina, Brazil, and Venezuela--would be less likely to get renewals than poorer countries, Schwab said.

Altogether, the 133 countries covered by the GSP exported $26.7 billion worth of goods to the U.S. market duty free in 2005, accounting for just over 1 percent of all goods and services imported by the United States. Existing preferences are set to expire January 1, 2007, unless Congress renews them first.

U.S. officials have cast the review as an effort to ensure tariff preferences don't go to rich countries while ignoring poor ones; but it also serves a more strategic function in Latin America, according to Ariela Ruiz Caro, a Peruvian economist and a regional trade analyst working with the International Relations Center (IRC), a non-profit social justice group based in New Mexico.

"The U.S. government's announcement that it will review the possibility of limiting, suspending, or withdrawing trade preferences under the General System of Preferences to three Latin American countries--Argentina, Brazil, and Venezuela--is political pressure to make these nations participate in the model of regional integration proposed by the United States," said Caro.

If countries agree to one-on-one talks with the United States, they are likely to be forced to accept far less favorable trading conditions than if they negotiate as a group, Caro added.

The announcement to review trade preferences is also designed to punish developing countries that collectively rejected the FTAA proposal earlier this year, as well as those who stood against U.S. proposals at the presidential summit of the Americas held in Mar del Plata, Argentina in November 2005, Caro said in a recent paper on the IRC's Web site.

Latin American countries largely opposed the Bush administration's free trade agenda at that summit, according to the Washington, DC-based women's rights group MADRE, because "the U.S.-driven economic processes of the past two decades [has] worsened poverty, income inequality, displacement, and cultural and environmental destruction."

Free trade agreements threaten food security and public health, the group said, adding that they can often undermine democracy, increase militarization, and lock countries into supporting U.S. foreign policy like the war in Iraq.

At least one U.S. legislator has said countries that opposed U.S. proposals in recent World Trade Organization (WTO) talks, which were suspended in July, should not receive the GSP trading privileges in the future.

"Countries that don't want to give us access to their markets in the WTO negotiations, why should we continue to give them preferential treatment?" asked Senate Finance Committee Chairman Charles Grassley, an Iowa Republican, after the WTO negotiations collapsed.

Grassley's committee would have jurisdiction over any legislation to extend the GSP program.

Leaders like Venezuela's Hugo Chavez and Argentina's Nestor Kirchner, who have been pushing regional integration models like the South American trading block known as Mercosur, are also upset about the U.S. announcement that trade preferences may be revoked.

The potential suspension of U.S. trade preferences is "reminiscent of the old theories of the Roman Empire toward countries that didn't agree with its policies," Kirchner said in August, while Chavez has repeatedly warned other South American countries that signing deals with the U.S. would threaten regional ties.

At least partially, it appears the U.S. threat of removing trade preferences is accomplishing what economists like Caro and Calderon say the Bush administration wants.

Both Colombia and Panama have expressed eagerness to complete trade deals with the U.S. before preferences lapse, and Peru and Chile are optimistic their free trade agreements, which would also extend preferences, will be approved by U.S. lawmakers before December 31.

If larger countries like Brazil and Argentina sign bilateral deals with the United States, smaller nations in the region would likely be pushed into similar agreements, according to the IRC's Caro.

In Uruguay and Paraguay, trade negotiations with the U.S. are ongoing. Talks between the U.S. and Ecuador stopped, however, after the Ecuadorian government ended a contract with California-based Occidental Petroleum to operate an oil field.

Last weekend saw a 48-hour record of almost 1,500 arrivals and opinion polls show the issue has now become the leading concern of Spanish voters as Madrid redoubled diplomatic efforts to win the support of EU partners to boost maritime surveillance of the west African coastline under the aegis of Frontex, the EU borders agency.

On Tuesday, the Spanish government said Spain, France and Italy will unveil a common strategy to rein in illegal immigration at an October 20 EU summit in Finland.

In the meantime First Deputy Prime Minister Maria Teresa Fernandez de la Vega and Foreign Minister Miguel Angel Moratinos met visiting European Commissioner for Development and Humanitarian Aid, Louis Michel.

No details of their discussions had emerged by Wednesday evening.

However, a foreign ministry source revealed separately that Spain had agreed to finance an information campaign in Senegal, from where many of the immigrants hail, to try to persuade them not to head for Europe in search of a new life away from their poverty-stricken homeland.

Spain last month obtained Senegal's agreement in principal to cooperate on trying to stem the flow of migrants and the source described the publicity offensive as a "joint initiative" between Dakar and Madrid, while telling AFP that the campaign was still in a preliminary phase.

De la Vega said last week that later this month Spain would host a meeting of foreign and interior ministers from the eight nations controlling Europe's southern borders to discuss the issue.

The head of the Canaries regional government, Adan Martin, Tuesday told an extraordinary session of the regional parliament that "the dam is about to burst."

With rescue services estimating that some 550 people may have died in unsuccessful attempts to reach the island chain, Martin criticised successive governments and EU lawmakers for their failure to resolve a problem which has overwhelmed the Canaries.

"How many more victims, how many pictures of exhausted bodies?" asked Martin.

De la Vega, who last week also criticised the slow progress towards an effective strategy to combat the rising tide of arrivals, insisted Monday that Spain was ready to get tough and send immigrants home.