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Lie's Paper Exposed Stock Options Backdating

In 2004 finance professor ERIK LIE of the University of Iowa noted that many options grants were timed to exploit marketwide price movements that no CEO could predict. "At least some of the official grant dates must have been set retroactively," Lie suggested in a paper. Fiddling with options grant dates retroactively and lying about it in corporate financial reports is clearly illegal. So Lie sent a copy of his paper to the SEC and the agency began sniffing around. The resulting backdating scandal has so far led to criminal charges at two companies and a paroxysm of what Stanford law professor and former SEC commissioner Joseph Grundfest calls "Maoist-style self-criticism" at many others, with more than 40 high-level executives losing their jobs. The article appeared on the website of CNN MONEY.


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