While 144 different companies have been named as nominal defendants in options backdating related derivative lawsuits (see The D & O Diary’s running tally of options backdating related lawsuits here), a new lawsuit filed in federal court in Houston on Thursday will be of particular interest to The D & O Diary’s readers, both because of the company involved and because of one of the individual defendants involved. According to a February 2, 2007 Houston Chronicle article (here), HCC Insurance Holdings has been sued as a nominal defendant in a shareholders derivative lawsuit, along with twenty of its former present and former directors and officers. The suit alleges that the defendants backdated stock option grants and caused the company to file false and misleading statements with the SEC between 1995 and 2006; diverted “hundreds of millions of dollars of corporate assets” to HCC senior executives; and subjected HCC to potential liability from regulators.

Among the individual defendants is Marvin Bush, President George W. Bush’s youngest brother. Bush was an HCC director from 1999 to 2002, until he became an advisory director. Bush is alleged to have sold 93,000 HCC shares for $2.2 million while supposedly in possession of material nonpublic information.

The lawsuit follows the company’s November 17, 2006 release (here) of the results of its internal investigation, in which it reported that “the company used incorrect measurement dates for certain stock option grants covering a significant number of employees,” from 1995 to 2006. HCC’s internal investigation was conducted by the Skadden Arps law firm. In connection with the release of the internal investigation report, company founder and CEO Stephen Way resigned. The company has also said that it is cooperating with an informal SEC investigation.

Penalties Debate Stalling Options Enforcement Cases?: Even though the SEC reportedly is investigating over 100 companies, it has charged only a handful of individuals at two technology companies – Brocade Communications Systems and Comverse Technology. According to a January 31, 2007 Blooomberg.com article entitled “SEC’s Cox Stalls Options Crackdown By Delaying Vote” (here), the SEC’s probe of over 100 companies in connection with the options backdating scandal has stalled while SEC Chairman Christopher Cox determines how to penalize the companies involved. According to the article, Brocade has been waiting since July 2006 for approval of a proposed $7 million settlement. The Commission apparently is split along party lines on whether companies should be penalized, with the two republicans opposing fines as harmful to shareholders and the two democrats supporting the practice as a deterrent and as a means to recover ill-gotten gains. Later news accounts (here) reported Cox’s denial that the decision is stalled.

Will Outside Directors Become Involved in Options Backdating Charges?: Since three outside directors received Wells Notices in connection with the Mercury Interactive stock options investigation (refer here), there has been a unanswered question surrounding the stock options scandal: to what extent will outside directors get dragged into enforcement actions and claims involving options backdating? In a January 23, 2007 speech (here), SEC Commissioner Roel C. Campos added fuel to the speculative fire when he stated, in connection with his comments on the SEC’s options backdating investigation, that so far “we have charged only officers” but that “if the specific facts are present, it wouldn’t surprise me to see charges brought against outside directors.”

Welcome Back: The D & O Diary is delighted to see the Lies, Damned Lies blog back on the blogging circuit again after a brief hiatus. Apparently the current active phase will be brief, as Adam Savett, the blog’s author, will soon be reinvigorating the dormant Securities Litigation Watch blog. In the meantime, Adam has put the Lies, Damned Lies blog up for “adoption.” (here). The D & O Diary will be interested to see how this anticipated double brain transplant works out.

Now This: The D & O Diary was surprised to learn from Wikipedia (here) that Marvin Bush is a 1979 graduate of the University of Virginia, founded by Thomas Jefferson and also the alma mater of The D & O Diary’s author (B.A. 1978). According to Wikipedia, Bush was a member of the St. Elmo Hall fraternity, known at the time for its preppy athletes. Although we overlapped for three years at UVa, I did not know Bush; my fraternity down the street from Bush’s drew from a different demographic and enjoyed a somewhat different reputation. Readers may be interested to know that Katie Couric was also at UVa at the same time. I don’t believe that Katie attended too many parties at my fraternity…