News & Events

Editorial: Lie Research Led To Next Enron

More than 80 companies have come under scrutiny in federal investigations of possible stock option fraud, and you can't help but wonder if we're on the verge of Enron/WorldCom/Tyco revisited. So far, news of the investigations hasn't roiled the markets the way a spate of corporate scandals did a few years ago. But this does have the potential to shake the confidence of investors. Stock options have been particularly popular in the high-tech field because they provide a way for some start-up companies to reward executives with the prospect of future riches in lieu of big paychecks. So it comes as no surprise that many of the 80 companies under investigation in the backdating scandal are high-tech companies. But the practice may be far more common. More than 2,000 U.S. firms have engaged in the practice, according to an analysis by two professors, the University of Iowa's ERIK LIE and Indiana University's Randall Heron. They examined nearly 40,000 stock option grants to executives at more than 7,700 companies between 1996 and 2005. Their analysis revealed that 29 percent of the companies manipulated at least some option grants. The practice fell off four years ago after the SEC required companies to report option grants within two days, but it didn't disappear. Some companies apparently ignored the new rules. The same article appeared on the Web sites of the CHICAGO TRIBUNE and BELLEVILLE (IL) NEWS DEMOCRAT.


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