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In addition to the enforcement efforts, others at the Commission have taken two other major steps to address this issue.First, there are the recently adopted rules relating to executive compensation disclosure which specifically address options.From my perspective, the collective efforts by the SEC are a model way of addressing an issue — proceeding from various perspectives to come up with practical and wide-ranging solutions. I'd like to address this on two fronts — first, I'll discuss how we got to our efforts at the Commission and then I'd like to step even further back and talk about some of my impressions on how we ended up with the option issues we are confronting.First, on the SEC front, our investigations are born of a conscious effort to proactively think about where problems might be, to methodically inquire whether there actually are problems, and then to pursue the best ways to address any problems that exist.At that time, in the eighties and nineties, stock options, often in the money, were granted to employees in the hope that a highly-motivated employee pool would put the company in a better position to resist in hostile takeover battles.Over time, shareholders objected to the fact that the options were granted in the money and eventually many companies developed stock option plans in which grants could only be made at the money — that is, at the closing price of the stock on the day of the grant.In the past few years, we brought two other cases involving option issues in the context of allegations relating to broader financial frauds — one in 2003 involving Peregrine and one in 2004 involving Symbol Technologies.We do not expect to bring 100 enforcement cases regarding stock options — we are focusing on the worst conduct. To be a little less enforcement-centric, I would also like to talk about where the Commission as a whole is on stock option matters.

A company could legitimately choose to make highly attractive in the money grants, so long it convinced its shareholders that such grants were necessary and desirable and also complied with all of the proper accounting and tax rules.In this regard, we identified stock options grants as a potential trouble spot several years ago — well ahead of the curve.We examined the academic literature that quantified the potential issues.On the other hand, companies could make in the money grants.While they offended corporate shareholders, had to be expensed by the corporation, and had less favorable tax consequences, they had other advantages.Meanwhile other legal and regulatory developments occurred that created distinctions between in the money and at the money options.

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