News & Events

Lie Discovered Options Backdating Pattern

The Securities and Exchange Commission (SEC) is reportedly examining the timing of stock option awards by corporations. The SEC is concerned that some executives have been gaming the system by "backdating" their options to increase their value. ERIK LIE, an associate professor of finance at the University of Iowa, looked at 1,500 publicly traded companies and saw a pattern. "What I found was that they're marked by indexes. They also increased after stock option grants. So I said, well, that means either executives can actually predict how the whole market will do, or they're backdating their options," Lie said. Lie says despite the odds against such perfect timing, in some cases, as high as 100 million to one, he still had a hard time convincing anyone of what the data was showing. "There wasn't any anecdotal evidence out there. It took a long time before anybody detected any of these cases," he said. It isn't clear how many companies will be caught up in the probe. Lie says he wouldn't be surprised if as many as 10 percent of corporate stock options were backdated; though he says that will be difficult to prove. Listen to audio of the story.


Return to top of page