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Lie Study Helps Prompt Stock Option Probe

From the start of the tech-stock boom in the 1990s through the Sarbanes-Oxley corporate reform act of 2002, some CEOs reaped millions by landing stock options when they were most valuable. Suspecting such patterns aren't due to chance, the Securities and Exchange Commission is examining whether some stock option grants carry favorable grant dates because they were backdated. The Journal's analysis of grant dates and stock movements suggests the problem may be broader. It identified several companies with wildly improbable option-grant patterns. The SEC's look at options timing was largely prompted by academic research that examined thousands of companies and found odd patterns of stock movement around the dates of grants. One study was by ERIK LIE of the University of Iowa. He found that share prices generally fell before option grants and rose afterward, with the result that recipients got options at favorable times. He concluded this was so unlikely to happen by chance that at least some grant dates had to have been filled in retroactively. In its analysis, the Journal asked Lie to supply list of companies that made stock-option grants that were followed by large gains in the stock price. The Journal article and Lie's study are also cited in a similar article in the TIMES OF LONDON. A subscription to the Wall Street Journal is required to read the article.


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