Is option backdating illegal

But abuse of stock options has been allowed to perpetuate for years.

is option backdating illegal-66

17, 2001, through the end of the month, 511 top executives at 186 of these companies got stock option grants. They were worth about $325 million when granted, based on a standard method of valuing stock options.“At Stryker Corp., a Michigan maker of orthopedic products, onetime stock option committee member John Lillard said he didn’t regret the decision to award options nine days after the attack. 20, 2001, at the bottom of a sharp ‘V’ pattern in the share price.“Mr.

The number who received grants was 2.6 times as many as in the same stretch of September in 2000, and more than twice as many as in the like period in any other year between 1999-2003.“Ninety-one companies that didn’t regularly grant stock options in September did so in the first two weeks of trading after the terror attack. ‘If you believe the company is going to do well, and here is an external event that is affecting the market, and you’ve made a decision to reward executives, you go ahead with it,’ Mr. ‘Life goes on.’ …“At Stryker…post-9/11 stock option grants to several executives appear to have been initiated by the chairman and CEO at the time, John W. Brown would ‘periodically tell us if he thought the stock was attractive,’ and then the board would decide whether to award options, said Mr. Besides, he added, no one could have known whether the stock would rebound immediately or continue to slide.“Mr.

In his new research paper, which analyzes options prices and share movements, Dr.

Lie estimates that 29% of the nearly 8,000 firms studied had backdated or otherwise manipulated grants to top executives at some point between 1996-2005.“The paper, authored by Dr.

Simply put, backdating a stock option grant amounts to ripping off shareholders by shortchanging the company treasury.

Shares are issued to option holders at artificially low prices and the company gets an artificially low amount of capital in return for its shares.

Instead of using excess cash to buy back stock at a short-term discount, a long list of blue chip companies used the post-Sept. A recent Wall Street Journal article entitled “Executive Pay: The 9/11 Factor,” describes the sequence of events (my emphases):“A Wall Street Journal analysis shows how some companies rushed, amid the post-9/11 stock market decline, to give executives especially valuable options.

A review of Standard & Poor’s Execu Comp data for 1,800 leading companies indicates that from Sept.

20 to recommend they choose that day to grant options.

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