Start Option backdating and board interlocks

Option backdating and board interlocks

But he and his fellow researchers are confident, he said, that the number of companies that backdated at least some options is close to the total reached in their study.

It isn't necessarily illegal, but it must be disclosed under federal securities law.

*A company was deemed to be a likely options backdater if the effective dates of more than 20% of the options it granted occurred immediately after a big drop in the company's stock and immediately before a big run-up.

We examine the role of board connections in explaining how the controversial practice of backdating employee stock options spread to a large number of firms across a wide range of industries.

Federal prosecutors and the Securities and Exchange Commission are investigating numerous companies in connection with options backdating.

How did the practice become trendy in boardrooms across America?

That's because the odds are extremely small, they say, that a company would randomly pick a date so conveniently sandwiched between a large price drop and a subsequent price hike.

Even so, the researchers didn't assume that a company had engaged in backdating unless at least 20 percent of its option grants were suspicious.

The researchers found that the probability that a company would start the practice rose by a third to a half if one of its directors was also on the board of a company that was already backdating options.