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    or each company, $500M revenue $79.5M Assuming 50 companies Completely go over the end to end process $3.975B

    Assuming remaining companies Remaining companies only go over steps 1 & 3 $1.75 B

    The other part of the economic impact stems from losses in market capitalization. If you estimate currently (42 companies) lost over $63 Billion in Market capitalization (United Healthcare itself accounted for over 30% of this num

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    I had a discussion with Erik Lie about the experiences with Stock Options Backdating (SOBD) and the economic impact of his work. According to Erik, at least 15% of the stock options grants between 1996 to August, 2002,were backdated. Some were within 30 days of the grant date, others more egregious. The number of companies though he said that were going to come clean would be far less than 15%. Here is what we came up with.

    First the assumptions:

    1. # of companies that actually are investigated or asked by the SEC (currenty June 03 is 42) by June 2006 = 100

    2. # of companies that will complete the 3 step process of preliminary investigation, comprehensive audit and finally restatement of results (approximately at 30-50%) = 40

    3. Approximate amount of time spent performing the initial investigation = 4-6 weeks.

    4. Approximate time spent doing comprehensive audit = 20-32 weeks

    5. Costs in back taxes, delisting, restatement, defending lawsuits & fines = 30% of cumulative value of option grants

    6. Size of company assumed on average: $500M in revenues, 2500 employees, 25+ grants under inquiry

    7. Grant value net = $15M per incident

    If you want to do your own analysis (how much will this cost my company), feel free to use some of these estimations.

    # Expense Item Description Cost

    1 Initial Investigation Typically done by Board & Audit team $1.5 M   2 Communication expenses Economic impact of communication loss to company $4M   3 Audit fees Formal investigation fees for auditors $30M   4 Restatement costs Includes delisting, cost of documentation,  $9 M   5 Taxes and fines Back taxes owed to IRS, Fines by SEC $15 M   6 Legal fees Defending lawsuits on backdating $20M  Subtotal For each company, $500M revenue $79.5M  Assuming 50 companies  Completely go over the end to end process $3.975B

    Assuming remaining companies Remaining companies only go over steps 1 & 3 $1.75 B

    The other part of the economic impact stems from losses in market capitalization. If you estimate currently (42 companies) lost over $63 Billion in Market capitalization (United Healthcare itself accounted for over 30% of this numb
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    e assumptions:

    1. # of companies that actually are investigated or asked by the SEC (currenty June 03 is 42) by June 2006 = 100

    2. # of companies that will complete the 3 step process of preliminary investigation, comprehensive audit and finally restatement of results (approximately at 30-50%) = 40

    3. Approximate amount of time spent performing the initial investigation = 4-6 weeks.

    4. Approximate time spent doing comprehensive audit = 20-32 weeks

    5. Costs in back taxes, delisting, restatement, defending lawsuits & fines = 30% of cumulative value of option grants

    6. Size of company assumed on average: $500M in revenues, 2500 employees, 25+ grants under inquiry

    7. Grant value net = $15M per incident

    If you want to do your own analysis (how much will this cost my company), feel free to use some of these estimations.

    # Expense Item Description Cost

    1 Initial Investigation Typically done by Board & Audit team $1.5 M   2 Communication expenses Economic impact of communication loss to company $4M   3 Audit fees Formal investigation fees for auditors $30M   4 Restatement costs Includes delisting, cost of documentation,  $9 M   5 Taxes and fines Back taxes owed to IRS, Fines by SEC $15 M   6 Legal fees Defending lawsuits on backdating $20M  Subtotal For each company, $500M revenue $79.5M  Assuming 50 companies  Completely go over the end to end process $3.975B

    Assuming remaining companies Remaining companies only go over steps 1 & 3 $1.75 B

    The other part of the economic impact stems from losses in market capitalization. If you estimate currently (42 companies) lost over $63 Billion in Market capitalization (United Healthcare itself accounted for over 30% of this num
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    omprehensive audit = 20-32 weeks

    5. Costs in back taxes, delisting, restatement, defending lawsuits & fines = 30% of cumulative value of option grants

    6. Size of company assumed on average: $500M in revenues, 2500 employees, 25+ grants under inquiry

    7. Grant value net = $15M per incident

    If you want to do your own analysis (how much will this cost my company), feel free to use some of these estimations.

    # Expense Item Description Cost

    1 Initial Investigation Typically done by Board & Audit team $1.5 M   2 Communication expenses Economic impact of communication loss to company $4M   3 Audit fees Formal investigation fees for auditors $30M   4 Restatement costs Includes delisting, cost of documentation,  $9 M   5 Taxes and fines Back taxes owed to IRS, Fines by SEC $15 M   6 Legal fees Defending lawsuits on backdating $20M  Subtotal For each company, $500M revenue $79.5M  Assuming 50 companies  Completely go over the end to end process $3.975B

    Assuming remaining companies Remaining companies only go over steps 1 & 3 $1.75 B

    The other part of the economic impact stems from losses in market capitalization. If you estimate currently (42 companies) lost over $63 Billion in Market capitalization (United Healthcare itself accounted for over 30% of this num
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    ense Item Description Cost

    1 Initial Investigation Typically done by Board & Audit team $1.5 M   2 Communication expenses Economic impact of communication loss to company $4M   3 Audit fees Formal investigation fees for auditors $30M   4 Restatement costs Includes delisting, cost of documentation,  $9 M   5 Taxes and fines Back taxes owed to IRS, Fines by SEC $15 M   6 Legal fees Defending lawsuits on backdating $20M  Subtotal For each company, $500M revenue $79.5M  Assuming 50 companies  Completely go over the end to end process $3.975B

    Assuming remaining companies Remaining companies only go over steps 1 & 3 $1.75 B

    The other part of the economic impact stems from losses in market capitalization. If you estimate currently (42 companies) lost over $63 Billion in Market capitalization (United Healthcare itself accounted for over 30% of this num
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    or each company, $500M revenue $79.5M Assuming 50 companies Completely go over the end to end process $3.975B

    Assuming remaining companies Remaining companies only go over steps 1 & 3 $1.75 B

    The other part of the economic impact stems from losses in market capitalization. If you estimate currently (42 companies) lost over $63 Billion in Market capitalization (United Healthcare itself accounted for over 30% of this number) over the last 9 months. Assume that will be 50% less (since the bad news is out) for the remaining 50+ companies. The impact is another $31B. We also did a detailed analysis on this portion of the impact. Total Impact of Stock Option Backdating ~ $100 Billion.

    For each company approximately = $50 to $100 Million in expenses.

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