Study: 17 US Firms "At Risk" for Options Dating Problems

May 19, 2006 ( - A Maryland research company reported in a new study that 17 of 100 companies examined were deemed "at risk" for having back dated option grants issued between 1997 and 2002.

The study, by the Center for Financial Research and Analysis, was statistical, based on information gleaned from financial reports and other public documents of the 100 companies worth $1 billion or more that were the most aggressive issuers of stock options, the Los Angeles Times reported.

In the study, researchers matched grant dates with the periods around troughs in the companies’ stock prices. Those grant dates were deemed “at risk.” The 17 high-risk companies had at least three such grant dates in the five-year period, according to the news report.

Although the center did not rank the companies it identified as high risk, some posed much less risk than others.

“We’re trying to identify companies that may have a high-risk profile and warrant further attention,” said Marc Siegel, research director for the Rockville, Maryland. firm, which specializes in analyzing the financial data of public companies, according to the Times. “We cannot conclusively say there was any back-dating. It’s very important to note that we’re not accusing anyone of back-dating grants.”

Until 2002, the Securities and Exchange Commission (SEC) allowed companies to report option grants several weeks after the date of the grant. The loophole tempted companies to select the most beneficial date to maximize the value of the grants, Siegel told the newspaper.

In 2002, after the Sarbanes-Oxley corporate reform law was passed, the reporting period for grants was reduced to two days.

The report comes as regulators are stepping up their inquiries into the practice (See  Six Companies Feel Heat From NY US Attorney’s Office Over Stock Options Timing ). On Thursday, Camarillo-based Vitesse Semiconductor Corp., which fired three top executives this week, including co-founder and Chief Executive Louis Tomasetta, said it received a subpoena from the U.S. attorney’s office in Manhattan. A federal grand jury there has begun a criminal probe of the practices involved in granting options.

At least two other companies, Minnesota healthcare giant UnitedHealth Group Inc. and drug benefits manager Caremark Rx Inc., said they received subpoenas Thursday for records related to their stock option grants.