Washington State Department of Financial Institutions

News Release

Thursday, February 12, 2009


Lyn Peters, Director of Communications
PH (360) 902-8731 lpeters@dfi.wa.gov

Michael E. Stevenson, Director of Securities
PH (360) 902-8797 mstevenson@dfi.wa.gov


U.S. Attorney’s Office Closes Costco “Options Backdating” Investigation

Costco takes steps to enhance compliance program

OLYMPIA – The U.S. Attorney’s Office for the Western District of Washington closed a two-year investigation of Costco Wholesale Corporation that included allegations the company issued backdated stock options to employees, including executives.

The investigation determined that between 1996 and 2003, Costco issued stock options and some of the options were made effective as of a date on which Costco’s stock price was lower than the price on the date when the options were actually granted. As a result, Costco failed to properly account for these stock options on its books and records, including on financial statements filed with the Securities and Exchange Commission (SEC).

In 2006, Costco self-reported the violation to the SEC and recorded an accounting charge for these options. In addition, Chief Executive Officer James Sinegal and Chief Financial Officer Richard Galanti voluntarily chose to forego bonuses and stock option related benefits totaling in excess of $1.2 million.

Costco is implementing a number of measures to improve its compliance and ethics programs. Details are available at the U.S. Attorney’s Web site with the correlating press release.

“We are pleased that Costco took these matters seriously and implemented a more stringent process to ensure future compliance,” DFI Director of Securities Michael Stevenson said. “The investigation and the steps taken by Costco should present a clear message to other companies for a need to be ethical and compliant in financial practices.”

The case was investigated by the Federal Bureau of Investigation, the Internal Revenue Service Criminal Investigation and the Washington State Department of Financial Institutions.

Further information may be found on the U.S. Attorney’s Web site.

About Division of Securities
www.dfi.wa.gov/sd ▪ 360.902.8760 ▪ 877.RINGDFI (746.4334)
The Division of Securities regulates securities investments, franchises, business opportunities, and off-exchange commodities sold in Washington and the firms and individuals that sell these products or provide investment advice. The Division handles complaints, conducts investigations, and takes appropriate enforcement actions to protect investors and combat fraud.

About DFI
www.dfi.wa.gov ▪ 360.902-8700 ▪ 877.746-4334
The Washington State Department of Financial Institutions regulates a variety of financial service providers such as banks, credit unions, mortgage brokers, consumer loan companies, payday lenders and securities brokers and dealers. The department has won numerous awards for its financial literacy and outreach programs developed to protect consumers from financial fraud. In addition to posting information about licensees and administrative actions, the DFI’s Web site features consumer tips on a variety of financial fraud-related topics.