Summary
Barnes & Noble acknowledges that it is the subject of civil and criminal investigations of possible stock option backdating violations by the U.S. Securities and Exchange Commission (“SEC”) and U.S. Attorney for the Southern District of New York (“DOJ”), respectively. Any stock analysts that follow Barnes & Noble must hope for the best but prepare for the worst!
Analysis
As a former Assistant Chief Accountant with the SEC’s Division of Corporation Finance in Washington, D.C., I can attest to the fact that the civil and criminal implications of the SEC and DOJ investigations, respectively, on Barnes & Noble could be significant. In this regard, I would refer any interested parties to the consequences incurred to date by Brocade, Mercury and Comverse!
If found guilty of stock option backdating by the SEC, the SEC would likely impose civil sanctions on Barnes & Noble that may include, but not necessarily be limited to, fines and penalties, temporary or permanent suspensions and/or disbarments of complicit directors and/or executives (i.e. terminations), and mandated enhancements to corporate governance and internal controls. Any related settlement with the SEC will also be accompanied by the entering into of a cease and desist order whereby any subsequent violations of the federal securities laws could result in even more severe civil, and possibly criminal, sanctions against Barnes & Noble.
If found guilty of stock option backdating by the DOJ, the DOJ would seek criminal sanctions on Barnes & Noble that may include incremental fines and penalties. The DOJ would also likely pursue criminal prosecutions of any complicit directors and/or executives, which if successful would result in their immediate terminations.
As such, any stock analysts that follow Barnes & Noble must prospectively monitor the situation closely…hoping for the best yet preparing for the worst!
