Tuesday, October 10, 2006

George Allen's Undisclosed Stock Options Were Worth Up to $1.1 Million

You might think with George Allen exposed as a thick-tongued, dull- and ugly-witted racist on videotape that anyone, particularly Ronald Reagan's Secretary of the Navy, Jim Webb, would be creaming Allen in conservative Virginia's polls. That's not the case.

Earlier in the campaign, Allen had about a 16-point lead over Webb, but now the candidates are in a statistical dead heat. If Allen's supporters haven't left him yet, it's hard to imagine that this news would have any effect:
George Allen failed to disclose these stock options for the last five years on Senate disclosure forms or with the SEC:
Stock options that Senator George Allen described as worthless were worth as much as $1.1 million at one point, according to a review of Senate disclosure forms and U.S. Securities and Exchange Commission filings.

The records appear to contradict remarks he made to the Associated Press. ``I got paid in stock options which were worthless,'' AP quoted him as saying.

Allen served as a board member of Chantilly, Virginia-based Xybernaut Corp. from 1998 until December 2000 and was awarded options on 110,000 shares during that period. His Senate financial disclosure form for 1999, required for candidates as well as officeholders, doesn't report that he owned the options.

The stock options issue didn't arise during a televised debate last night between Allen, a 54-year-old Republican, and Democratic nominee Jim Webb, 60. Nevertheless, Mark Rozell, a professor of public policy at George Mason University in Arlington, Virginia, said the issue poses a problem for Allen, who polls show is in a close race with Webb.

``In an election season in which congressional ethics and morality are at the top of public discussion, Allen may now be seen by much of the public as part of a larger problem afflicting his party,'' Rozell said.

Allen left Xybernaut at the end of 2000 after he was elected to the Senate. The company makes portable computers that can be strapped to the body for military or civilian uses.

SEC records showed that Allen owned 60,000 options at the end of 1999, worth $38,200. For 2000 and 2001, he filed amendments to his annual disclosures stating that he owned Xybernaut options.

60,000 Options

In March 2000, Allen held 60,000 options when Xybernaut shares closed at an all-time high of $23.75. That would have made the options worth $1.1 million, less commissions and fees, had Allen exercised them.

At that time, Allen could have paid $5.47 and $1.56 respectively for two groups of options, sold them and pocketed the difference. He was awarded another 50,000 options in October 2000.

Greg Walden, an attorney at Patton Boggs LLP in Washington who represents Allen, said the options with Xybernaut expired 90 days after Allen left the board in December 2000.

Walden said Allen never exercised the options. They became worthless as the share price fell. The company went bankrupt in 2005.

A filing by Allen, which Xybernaut forwarded to the SEC in February 2001, shows that he had the right to exercise all the options at the end of 2000. The options were to begin to expire in 2008. Allen also reported owning the options on his 2002 and 2003 Senate financial disclosures, long after Walden said they had expired.

Chief Executive

Xybernaut Chief Executive Perry Nolen referred reporters to Allen's Senate office. ``I've helped them by providing information to them. So it should be accurate,'' Nolen said.

The company, which now has a market capitalization of less than $1 million, raised $173 million from investors since first going public 10 years ago. It never had a profitable quarter.

By the end of 2000, Xybernaut's share price had plummeted to $1.69, and Allen's options were worth just $1,300.

In 2001, Allen's first year in the U.S. Senate, the company's share price recovered to $5.46 on May 25, which would have valued 110,000 options at $71,500 before commissions and other brokerage fees. Some of the options exceeded their strike price as recently as July 2004.

Allen wrote a letter to the U.S. Army on Xybernaut's behalf in December 2001, AP reported, citing John Reid, Allen's spokesman, who told AP he wouldn't disclose the contents of the letter. In September 2003 the U.S. Defense Department announced $2.13 million in contracts to buy the company's wearable computers.

Accounting Rule Change

In the Senate, Allen opposed an accounting rule change that requires companies to list options as an expense on their financial reports. Allen co-sponsored a measure to block the rule change and in a hearing that year linked the awarding of stock options to increasing the security of U.S. troops in Iraq.

He said stock options make investments in technology companies more attractive, leading to innovations that helped make ``it safer for our men and women in uniform.''

Allen's double-digit lead in the race was eroded following a comment he made about one of Webb's Indian-American campaign workers and media reports alleging he made racial slurs against blacks while a student at the University of Virginia in the 1970s. He has denied making racial slurs.

Larry Sabato, with UVA's Center for Politics, said a couple of weeks ago that he thought Virginia wasn't as red as people think. He thought in the last few years it's more purple, and that the stories about Allen's racism would definitely hurt his chances in November.

After the candidates debated on Monday, Sabato predicted that Allen will win the race; that is unless a big Democratic wave of voters hit the polls. "We could debate winners and losers, but in the end, if there were losers it was probably the voters of Virginia.”

And everyone else.

Technorati Tags: , , , , , , , , , ,

No comments: