VeriSign has reported that they are cooperating with a grand jury subpoena and a SEC inquiry into their historical stock option grants. More can be found here. Backdating of options is essentially a fraud against existing shareholders, as noted in the press or simply searching Google for “backdating fraud”.

Under the existing 2001 .com Registry Agreement, section 16.C would allow for termination of the agreement by ICANN in the event that VeriSign “is convicted by a court of competent jurisdiction of a felony or other serious offense related to financial activities, or is the subject of a determination by a court of competent jurisdiction that ICANN reasonably deems as the substantive equivalent of those offenses”, or “is disciplined by the government of its domicile for conduct involving dishonesty” or “Any officer or director of Registry Operator is convicted of a felony or of a misdemeanor related to financial activities, or is judged by a court to have committed fraud or breach of fiduciary duty, or is the subject of a judicial determination that ICANN deems as the substantive equivalent of any of these, and such officer or director is not immediately removed in such circumstances.”

The proposed New .com Agreement doesn’t appear to contain similar termination provisions (see sections VI.1 and VI.2). Short of bankruptcy, it’s nearly impossible for VeriSign to not have the .com agreement renewed perpetually, even if they are found to be fraudulent or dishonest.

Why would ICANN (and VeriSign) agree to remove those clauses? Does ICANN think that VeriSign is incapable of fraud or dishonesty? Perhaps ICANN hasn’t noticed that VeriSign switched their motto from “The Value of Trust” to “Where it all comes together”....

This is yet another reason why the DoC should proceed with caution, and send the parties back to the negotiating table until they have an agreement that reflects the concerns of all stakeholders. If indeed the current .com agreement stays in force, and VeriSign is found guilty of fraud due to backdating options, it might be a dream scenario for ICANN and .com domain holders, allowing termination of the .com agreement, and forcing a proper tender for managing the .com registry.