Abstract
In recent weeks, U.S. government agencies have made inquiries of at least 22 companies on the integrity of past stock option grants, including six companies rated by Moody's. The inquiries concern whether the companies backdated awards, providing undisclosed benefit to executives, and we anticipate that additional companies may face investigations. Moody's believes the controversy raises questions at the rated issuers among this group on: Leadership going forward, with the possibility of executive resignations (as has occurred at some non-rated issuers). Quality of corporate governance and financial controls, and aggressiveness of corporate culture. Potential for reputational damage. The controversy also poses some financial risk in the potential for fines and shareholder litigation, although we believe the probability of material restatements affecting our view of current financial health of the companies is minimal.
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