A company that was allegedly providing Cablevision Systems with independent advice on executive compensation has been charged with taking backdated stock options from an employee stock plan.
Compensation consultants Lyons, Benenson & Co. of New York sat in on meetings in which grants of backdated options were approved by Cablevision's board of directors; received backdated stock options itself; and received them from a stock-option plan designed for employees of the Bethpage, N.Y.-based cable operator, according to a class action suit filed Monday in state court on behalf of Cablevision shareholders.
If the allegations are true, the actions would compromise the standing of advisers who are brought in to provide impartial, unfettered counsel on how to appropriately pay the top executives of a corporation, stock-option experts said last week.
“That is a major, major conflict of interest,” said John Rende, a financial markets consultant in Greenbrae, Calif. “It's very, very unusual.”
The grants to Lyons Benenson were identified in a suit filed against directors and former directors of Cablevision Systems, for their roles in the backdating of stock options granted since 1997 to company executives. The company first disclosed in August that the Securities and Exchange Commission was investigating its stock options grants; and in September, Cablevision itself revealed that a stock option award that had been accounted for as going to an employee had been awarded to a “former compensation consultant.”
Also receiving a grant of options was Marc Lustgarten, a deceased confidant of CEO James Dolan and former Cablevision executive.
The award came after Lustgarten's death and was improperly backdated to make it appear they'd been issued while he was alive, Cablevision said.
At the time, Cablevision said it adjusted its net income downward by $89 million for 1997 to the present, as a result of its probe into the options.
Cablevision also said then that a compensation consultant had improperly been awarded stock options as payment, but that the award had been cancelled in 2003. The company didn't identify the compensation consultant who, it said, “directly participated in the options-dating process.”
Stuart Grant, of plaintiffs' law firm Grant & Eisenhofer, said he didn't believe any prior lawsuits have targeted compensation consultants, as well as companies accused of backdating stock options.
The complaint consolidates previous lawsuits filed in New York State Supreme Court in Nassau County.
Lead plaintiffs are the Teachers' Retirement System of Louisiana, the Teamsters Local 456 Annuity Fund and two individual shareholders, according to the complaint.
The teachers' group owns about 25,000 Cablevision shares, according to Grant; and the Teamsters' Fund, 7,470, according to the complaint.
There are about 300 million shares of Cablevision stock outstanding, all told, according to online financial data services.
In a statement, Cablevision said: “As we said months ago, when these lawsuits were originally filed, the company will have no comment.”
A person who answered the phone at the Lyons Benenson headquarters in New York City said no one in the office was authorized to speak to the press about its alleged involvement in consulting on stock-option grants or receiving options from a company it was advising.
“It's clearly unethical,” said Erik Lie, a senior advisor on stock options with The Brattle Group, a Washington, D.C., consultancy that provides expert testimony on finance, economics and regulation. “I'm not sure it's illegal.”
