No charges in Costco stock-options investigation
Federal prosecutors have closed a two-year investigation of backdated stock options at Costco Wholesale Corp. without filing charges.
By GENE JOHNSON
AP Legal Affairs Writer
SEATTLE —
Federal prosecutors have closed a two-year investigation of backdated stock options at Costco Wholesale Corp. without filing charges.
In announcing the decision Thursday, U.S. Attorney Jeff Sullivan in Seattle noted that Costco reported the wrongful conduct on its own, executives who benefited from the stock options reimbursed the company and voluntarily skipped bonuses, and Costco agreed to improve its ethics program by hiring a new chief compliance officer.
From 1996 to 2003, Costco issued stock options to employees, including executives, but some were backdated to make them more valuable. The company failed to account for the true expense of the options in financial reports.
Costco, based in suburban Issaquah, reported the matter to the Securities and Exchange Commission in 2006. It’s one of more than 200 companies nationally that have disclosed federal or internal investigations into their stock options practices.
“I am pleased that Costco will significantly enhance its compliance and ethics program to assure its shareholders, and the investing public, that similar accounting errors will not reoccur,” Sullivan said.
At the time it disclosed the practice, Costco said an in-house review had turned up no evidence of fraud, but there were “imprecisions” in the practice.
Costco Chief Executive James Sinegal and Chief Financial Officer Richard Galanti gave up bonuses and stock-option-related benefits totaling more than $1.2 million as penance.
“We have cooperated with the U.S. attorney’s investigation and have notified them of Costco’s commitment to enhancing its compliance program,” Sinegal said Thursday in a news release.
The company still faces a lawsuit brought by a shareholder last year, which alleges that company insiders and executives were “unjustly enriched at the expense of and detriment of Costco” for several years through backdated stock options. That lawsuit is on hold pending a ruling in a similar case by the state Supreme Court.
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