An investigation on behalf of investors in Omnicom Group Inc. (NYSE:OMC) over possible breaches of fiduciary duty and other violations of the law by certain officers and directors at Omnicom Group Inc. was announced.

Omnicom Group Inc., located in New York, is a holding company, providing professional services to the clients through multiple agencies operating globally. Omnicom Group Inc. reported in 2007 Total Revenue of $12.694billion, in 2008 $13.3599billion, and in 2009 $11.7207billion. According to the investigation by a law firm the investigation concerns whether certain of Omnicom's directors and officers breached their fiduciary duties through the illegal practice of stock option backdating.

A stock option is granted to employees of a company and carries the right, but not the obligation, to buy a certain amount of shares in the company after a specified amount of time at a predetermined price called the exercise price. Typically, the exercise price of a stock option is the same as the closing price of shares of the companys stock on the date on which the option is granted. Accordingly, the lower the exercise price, and the higher the price of the company stock on the date on which the option is exercised, the more valuable the stock option becomes. Because the option value is higher if the exercise price is lower, executives prefer to be granted options when the stock price is at its lowest. By backdating the stock option grant dates, executives are able to choose a past date when the market price was particularly low, thereby inflating the value of the options.

Shares of Omnicom Group Inc. traded recently at $39.96 per share, down from its 52weekHigh of $44.08 per share, almost $50 per share in 2008, and over $53 per share during 2007.

The practice of granting an employee stock option that is retroactively dated to increase its value raises a number of legal and accounting issues, so the investigation, and the practice of backdating itself is not illegal, nor is granting of discounted stock options, but what is illegal is the improper disclosures in financial records and in filings with the United States Securities and Exchange Commission. The failure to disclose a compensation expense with the retroactive option grants is a violation of U.S. accounting rules as options backdating effectively transfers wealth from existing shareholders to management, so the investigation.