Gradient Finds 532 Companies at Risk of Exercise Backdating

January 9, 2006 ( - The clients of equity research firm Gradient Analytics, Inc. will now have access to its Backdating Risk Assessment List, which includes 532 companies where it found instances of potential exercise backdating.

The Scottsdale, Arizona-based firm’s list examines companies where executive exercises at “look-back lows” occurred more than once, or where one well-timed exercise involved less than 10,000 options/shares, according to a news release.

“A select set of executives at numerous US companies appear at risk of losing their jobs and/or having underpaid taxes if exercise backdating is shown to have occurred at these firms,” said Carr Bettis, chief scientist for Gradient,  in the news release. “In many cases, the practice creates wealth for executives while at the same time costing the company valuable deductions, to the detriment of other shareholders.”

Exercise backdating occurs when a company executive (with a complicit corporate executive or stock plan administrator) waits until it is time to report their trades for a month to identify the lowest price of the month to exercise their stock options; lowering their own taxes and potentially lowering the company’s tax deduction at the same time, Gradient said.

Several companies have ousted chief executives and have restated their earnings amid the options backdating allegations (See  Corporate Carnage Continues in Stock Options Scandal with Monster Firing ). The most recent executive under fire for backdating is Apple Inc.’s Steve Jobs (See    Apple CEO Aware of Some Stock Option Grants ).