Compliance February 7, 2005

Pension Fund "Pillager" Draws Nine-Year Sentence

February 7, 2005 (PLANSPONSOR.com) - Daniel S. Geiger, 53, was sentenced to a nine-year sentence last week for taking $6.7 million from the pension funds of now-defunct Standard-Coosa-Thatcher Yarns Inc.
Reported by

>Federal Judge Curtis Collier on Friday afternoon said he was giving a sentence higher than the normal range “to deter other people who would abuse trust like this.”

>The jury also ordered Geiger to forfeit his personal residence, which prosecutors said was bought with $590,000 in pension funds. He also was ordered to forfeit equipment, several vehicles, and a monetary judgment of $781,000.  

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>The company’s former owner and president, Kenneth H. Combs Jr., pleaded guilty in the case to 31 counts of mail fraud, embezzlement, graft, conspiracy to launder money, and money laundering before his suicide just prior to his April 2004 sentencing.   A third man in the indictment, British investor Roderick B. Askew, remains a fugitive, according to the AP.  

>Combs had been indicted in November 2002 on criminal counts involving multiple schemes to recklessly invest the assets of the pension plan. Combs received more than $155,400 in kickbacks from the reckless investments, and also converted pension assets for his personal use.   The two pension plans, which covered 771 participants, lost $11,670,491 as a result of the improper investments.

>Prosecutors have said Geiger bribed Combs, who also was fiduciary of the employee retirement plan, with kickbacks of pension money loaned to or invested in Geiger’s company, USA Mining in California.  

>Prosecutor Gary Humble said Geiger and Kenneth S. Combs had “pillaged” the trust fund, and that there had been testimony in Geiger’s lengthy trial about his getting $669,000 in cash, $71,000 for limousines, $275,000 for chartered planes, and $51,000 for hotels from the pension fund proceeds, according to the Chattanoogan.

>Geiger was convicted after a trial that lasted over two weeks and included some 40 witnesses – mainly defense – of three counts of wire fraud, three counts of kickbacks from an employee pension fund, one count of conspiracy to commit money laundering, and six counts of money laundering.   The prosecutor said the federal Pension Benefit Guaranty Corporation had stepped in to help the SCT pensioners, but he said not all were made whole, including one who lost $100,000.  

>Geiger must begin making restitution at 10% of his earnings when he gets out of prison.   He asked that he be allowed out for 60 days to gather up money to begin the restitution, but the judge rejected that idea.  

Administration February 6, 2005

Buck: Early Option Expensing Equals Higher EPS

June 26, 2003 (PLANSPONSOR.com) - High technology companies biting the voluntary stock option expense bullet may be able to dodge the cannon fire of lower earnings per share (EPS) readings expected after such guidelines are made mandatory.
Reported by

Technology companies forced to adopt stock option expensing guidelines in 2004 will experience a median decrease in fiscal year 2003 EPS of approximately 20 times greater than companies that voluntarily adopt these guidelines before a December 2003 deadline, according to Buck Consultants study “Options Expensing: By Choice or Mandate? A Critical Question of Timing for High-Tech Companies.”

Many companies, though, are not eager to hop on the option expensing bandwagon, as many believe investors may have concluded such action now amounts to little more than public relations smoke-and-mirrors, designed to create the appearance of good corporate governance practices.   Further, companies are now taking a “wait and see” approach on what new regulations may lie ahead and simply, many companies are simply faced with a lack of reliable, uniform means to arrive at the value of their options (See  Fewer Companies Volunteer Stock Option Expenses ). 

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“Taking a `wait-and-see’ approach seemed prudent a few months ago, but it is now regarded as a high-risk strategy,” said Ted Buyniski, a principal in Buck’s compensation practice and co-author of the study. “Not taking action on this matter before the end of this year is the least viable option. Whether a company agrees with stock option expensing or not, it is critically important for it to come to an immediate understanding of the impact it will have on their 2003 financials.”

FASB Actions

All of this has come to a head since late April, when the Financial Accounting Standards Board (FASB) unanimously agreed that companies should be required to treat stock option grants as expenses, and said a new rule could be in place by next year(See FASB Says Yes to Option Expensing). Support for option expensing has come from retail investors incited by a raft of recent accounting debacles (See Investors Voice Support For Option Expensing).

However, technology companies contend the expensing of stock options will cut into their bottom line.   NASDAQ, the primary stock exchange for technology companies, has said expensing stock options could hurt small companies that do not have earnings but need to attract qualified employees as the companies in particular rely on stock options as a form of compensation.  Currently, these companies utilize the intrinsic value method to account for the value of the options.  Under this method, options are accounted for by taking the difference between the market price of the stock and the exercise price at which the employee may buy that stock.

“It is important to note that this impact to EPS is not restricted to high-tech companies – any company extensively using stock options will be significantly affected,” said Anna-Lisa Espinoza, a principal in Buck’s compensation practice and the study’s co-author. “Companies should analyze the impact on their own financials of prospective versus retroactive accounting methods. With that information, they can consider the alternatives: voluntarily adopt Statement of Financial Accounting Standards 123 while the prospective accounting method is still on the table; explore alternative incentive strategies to stock options; or even continue the fight against any form of option expensing.”

Buck’s study was completed in May 2003 and focused on 28 companies in the high-tech sector.   Interested parties may contact Brett Harsen at (508) 460-8092 or email at harsen.bj@buckconsultants.com about obtaining a copy.

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