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Conflicts of Interest Are, Ya Know, Interesting

This morning, The Wall Street Journal has a story about the stock-option scandal that's hounding technology-outsourcing Affiliated Computer Services Inc., a subject about which we've written a few times. ACS is mentioned at length as part of a larger pattern of conflict-of-interest issues arising as other companies across the country look into how their execs profited mightily after they were granted stock options just before those stocks experienced a sharp increase in value. It's a practice called backdating, and though it's not necessarily illegal, it's problem enough that the Securities and Exchange Commission and the Department of Justice, among others, are investigating how ACS' bigwigs got rich by backdating their grants. Since the Journal's a subscription-only read, here are a few of the highlights of its story about how ACS is investigating ACS, which, ya know, seems like kind of a bad idea:

"At Affiliated Computer Services Inc., a technology outsourcer in Dallas, the board is probing a pattern of unusually well-timed options grants to former Chief Executive Jeffrey Rich and others. The grants allowed Mr. Rich to earn millions of dollars in profits. His grants often were dated just ahead of steep rises in the company's stock. A March analysis by The Wall Street Journal found that the likelihood of such propitious grant dates occurring by chance was approximately one in 300 billion. The grants are under scrutiny by federal authorities as well.

Whereas many companies mounting an internal probe ask a small committee of independent directors to oversee it, ACS has put its entire seven-member board in charge of the process, assisted by outside legal counsel. So the oversight group includes board Chairman Darwin Deason. Mr. Deason both received some of the options in question and had a role in their timing, the company has said. ACS says its four member audit committee also is monitoring the situation.

Of the six other directors overseeing the probe, two received some of the well-timed options in question. Two others, who are outside, independent directors, were on the compensation committee that approved grants. The remaining two directors, also independent, are men with whom Mr. Deason has had various past ties."

There's more information regarding a failed savings-and-loan in which Deason was involved with one of the men mentioned above, J. Livingston Kosberg. The two also were involved in an ACS spin-off that filed for bankruptcy in Dallas federal court in 2001 and a lawsuit over its demise, which resulted in a cash settlement--with Deason himself paying out $3 million, though he denied he "looted" the company as had been alleged in the suit. Could this thing get more interesting? In a word, probably. --Robert Wilonsky

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