US: Options Scandal Growing

Some execs' grants may have been timed for big payoff
Publisher Name: 
Associated Press

Like betting on a horse race after its finish, some executives were guaranteed to be "in the money." That is how investor advocates and irate shareholders describe it as signs emerge daily about possible manipulation of the timing of stock-option grants to enrich top company executives.

Two of the latest cases appear to involve novel twists that are taking the growing scandal down a new path as the government's investigations widen. Three dozen companies are under scrutiny by the Securities and Exchange Commission or federal prosecutors.

While backdating of options can be legal if properly disclosed to shareholders, SEC Chairman Christopher Cox said last week that companies may have broken the law if there wasn't proper disclosure or the options weren't accounted for correctly.

"The backdating of stock option grants is akin to picking lottery numbers on the day after the winning numbers are announced," says a shareholder lawsuit against Caremark Rx Inc., one of the companies being investigated.

On Monday, the parent of Internet job-search site announced that it had received a subpoena from the U.S. attorney's office in Manhattan regarding its stock-option grants and had opened an internal investigation.

The news came after The Wall Street Journal published a report that Monster Worldwide Inc. often gave top executives options that were dated at low points in the stock price - just ahead of steep increases.

That raised questions of whether the option grants were deliberately timed so that the executives could reap a bigger profit when they eventually sold their shares, with no connection to the executives' performance.

In the case of Cyberonics Inc., the company reportedly granted options to top executives shortly after it received positive news certain to boost the share price. The Houston-based maker of medical devices disclosed Monday that the SEC had started an informal inquiry into its option-granting practices.

Most of the cases under investigation appear to have involved backdating option grants to a low point in the company's stock price - thereby fattening the spread and the payoff for executives when they sell.

AMP Section Name:Corruption