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Study of Stock Options Prompts Investigation


Erik Lie is not a whistle-blower, but his research into the obscure world of executive stock options has helped launch yet another nationwide investigation of corporate greed.

Lie, a University of Iowa associate professor of finance, said he never set out to uncover what's being called the next big scandal to shake corporate America. In 2003, he began hunting for a correlation between option grant dates and price movements of the underlying shares.

Instead, his findings suggest some companies were manipulating the timing of the stock options they granted to top executives. The result pumped up the executives' pay.

Lie reported his findings to the U.S. Securities and Exchange Commission in mid-2004. Now the agency and the U.S. attorney in New York have asked at least 20 companies to provide details on how they award stock options. And corporate governance experts predict the scandal will spread.

"When I first looked at the evidence, I thought it was pretty outrageous," Lie said.

A native of Norway — the Scandinavian nation, not the eastern Iowa town — Lie has taught in Iowa for two years. He said this week that he does not know whether information about any Iowa-based companies is included in the 6,000 corporate records reflected in his as-yet unpublished second study of options. He said many of the problems seem tied to young technology companies in California, where options often are a key component of executive pay.

But the options scandal has snared UnitedHealth Group, Iowa's second largest health care provider. Shareholders have sued the Minnesota-based company, which has suspended its stock option program and has seen its share price plummet 32 percent this year. Federal prosecutors and the Internal Revenue Service are investigating the company.

With proper disclosure and tax and accounting treatment, option backdating is not illegal, Lie said.

"Unfortunately, these conditions are rarely met," Lie wrote on his Web site,

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