Resources: Publication

online

Back to the Future - New Options Backdating Study
"Back to the Future - New Options Backdating Study," ONSecurities.com, August 25, 2009

(The following post originally appeared on ONSecurities, a top Minnesota legal blog founded by Martin Rosenbaum to address securities, governance and compensation issues facing public companies.)

August 25, 2009

A story in the Wall Street Journal last week (subscription required to read complete story) described an interesting recent academic study on stock options backdating. The study found that several hundred companies that improperly backdated options never were caught or confessed. In the study, out of the University of Houston's C.T. Bauer College of Business, the authors used computer models to determine companies that are highly likely to have committed backdating. These companies featured "lucky" officers, who received option grants at or near the low points for their stock prices.

Based on this sampling of companies the researchers found that only around one-third of these companies had ever disclosed evidence of backdating. The authors extrapolated that at least 500 companies engaged in backdating that was never disclosed.

We are reading very little about backdating these days, compared to how much the story dominated the business headlines in 2006 and 2007. It's hard to imagine that there will be a new wave of SEC enforcement actions against previously undisclosed companies that backdated options.

However, the legacy of the backdating scandal lives on in the SEC's compensation disclosure rules that became effective in 2006. The scandal caused the SEC to suspect that companies were unfairly manipulating the pricing of stock options through the timing of option grants - practices such as "springloading". The SEC's 2006 adopting release clarifies that a public company must disclose any plan or program to coordinate the timing of stock option grants with the release of material non-public information.

We recommend that public companies adopt a written stock option grant policy, if they have not already done so. Careful adherence to such a policy can make it easier to establish that options are not being granted in coordination with the release of material non-public information.

DISCLAIMER
Thank you for your interest in contacting us by email.

Please do not submit any confidential information to Maslon via email on this website. By communicating with us we are not establishing an attorney-client relationship, and information you submit will not be protected by the attorney-client privilege and cannot be treated as confidential. A client relationship will not be formed until we have entered into a formal agreement. You should also be aware that we may currently represent parties whose interests may be adverse to yours, and we reserve the right to continue to represent them notwithstanding any communication we receive from you.

If you would like to discuss possible representation, please call one of our attorneys directly or use our general line (p 612.672.8200). We can then fully discuss our intake procedures and, if appropriate, introduce you to an attorney suited to assist with your matter. Alternatively, you may send us an email containing a general inquiry subject to these terms.

If you accept the terms of this notice and would like to send an email, click on the "Accept" button below. Otherwise, please click "Decline."