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SEC, Department of Justice, and IRS Investigations/Proceedings.
One of the most immediate issues facing many companies is the possibility of civil and criminal investigations initiated by the SEC, the Department of Justice, and/or the Internal Revenue Service.
If an investigation reveals material errors related to option grants, liability may arise under the financial reporting, books and records, and internal control provisions of the Securities Exchange Act of 1934 (Exchange Act Sections 13(a) and 13(b) and the SEC rules promulgated thereunder).
Such misconduct could also expose a company and the officers and directors involved to further violations of the anti-fraud provisions of the Securities Act of 1933 and the Exchange Act (Securities Act Section 17(a), Exchange Act Section 10(b), and Rule 10b-5).
A number of companies under investigation have already announced that they will be restating historical financial statements.The charges allege that the company routinely backdated stock option grants without recording necessary compensation expenses as required by GAAP.