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Lie: More Backdating Revelations May Come

You could make a fortune if you could place a bet now on last month's Kentucky Derby. Too bad you can't find a sucker dumb enough to take it. But many corporate executives have found a similar sure thing -- obtaining the right to buy company stock in the future at an old, lower price. Evidence is growing that dozens of executives have been enriching themselves by "backdating" their stock options to lock in low purchase prices from previous days or weeks. Although backdating per se is legal, the Securities and Exchange Commission and federal prosecutors are investigating companies' options practices because, in many cases, hiding or lying about backdating is illegal. There may be more revelations to come, say the two business professors who were instrumental in bringing the practice to light. ERIK LIE of the University of Iowa says that 13 percent of the reports supposed to be filed with the SEC within two days of an option grant are late. And those late filers' stocks, on average, happen to rise more than 7 percent in the 30 days following the date their option price was set. The odds that so many executives would get so lucky are infinitesimally low, concluded Lie and Randall Heron, an associate professor at Indiana University's Kelley School of Business.


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