Friday, July 28, 2006

Nevada's gaming companies probably won't become ensnared in Wall Street's
latest scandal involving stock options because of the heavy and transparent
regulation they are subjected to by state regulators, industry officials and
experts speaking on background said. Executives for major gaming companies
all declined to comment about the possibility of their companies coming
under scrutiny for possible backdating or spring-loading of stock option
grants, but the head of the state's Gaming Control Board said his agency is
not aware of any such practices in the gaming industry. The executive
director of a nonprofit research organization agreed that the industry's
argument makes intuitive sense, but noted there is no data to corroborate
it. With 10,000 publicly traded companies in the United States and only a
few dozen under active investigation so far, the apparent innocence of
gaming firms could be a statistical coincidence, said Corey Rosen of the
National Center for Employee Ownership.

The Securities and Exchange Commission is examining whether companies have
timed granting stock options to good and bad corporate news to help boost
executives' compensation. Most of its interest has been aimed at the
technology industry, which generally uses stock options more heavily to
compensate its executives and employees than other industries.

Dennis Neilander, chairman of the Nevada Gaming Control Board, said state
regulators are not aware of any federal investigations into gaming
companies' stock option practices.

To date, Nevada officials have not been notified by the SEC or the U.S.
Department of Justice of any such on-going investigations, Neilander said.

In some instances, the SEC would contact Nevada regulators and ask for their
assistance with such an investigation, he said.

State gaming regulators also would be notified whenever the SEC was ready to
wrap up a criminal or civil investigation involving gaming licensees, he
said.

Any conviction or plea agreement involving stock option grants would be
grounds for revoking the license of a gaming operator, Neilander said.

A fraud conviction involving options grants also could result in lengthy
prison terms and multimillion-dollar fines, gaming officials said.

The recent federal investigations have centered on companies that have
backdated their options to periods when their companies' stock prices were
low and likely to increase.

But an SEC spokesman also confirmed that the agency has been looking into
possible instances of so-called spring-loading, when companies schedule an
option grant ahead of expected good news or delay it until after it
discloses business setbacks that are likely to send shares lower.

There are also cases of bear options, when companies issue options after
they know bad news is about to come out, confident in the knowledge stock
prices will subsequently increase.

Amid allegations of financial abuses involving backdated stock options, the
SEC issued new rules Wednesday, requiring public companies to publish
additional information detailing their top executives' total compensation.

They will also be required to show the values of any options at the time
they are granted.

SEC Chairman Christopher Cox said in a statement that options are a
legitimate form of compensation but stressed that investors need a clear
picture of executives' pay.

Cox has said in public statements his agency is very interested in both
kinds of options abuse, but he acknowledged that it could be difficult to
prove an improper connection between the timing of news and option grants.

In both cases, the idea is to increase the value of the option to the
recipient in a way that is not evident to the board of directors,
shareholders, workers or the public.

Sarbanes-Oxley, the corporate law enacted in the wake of Enron and other
financial scandals, was supposed to clean up this kind of conduct.

But Rosen said corporate finance is following the map of campaign finance.

"The law only added incentives to find other ways around (standards of
ethical conduct)," he said.

"The problem is we'll fix this, or some people will think it's fixed, and
(companies) will just find another way around it," Rosen said.

Rosen said so far this year, about 60 companies have been tagged in
investigations by the SEC or federal prosecutors for their options grants.

He said most of these are high-tech companies, a industry in which stock
options are favored as way to motivate executives and reward them for a
company's success.

The investigations have sparked a flurry of shareholder lawsuits, but none
yet in Nevada, gaming officials said.