Federal Regulators Probe Option Backdating

The Securities and Exchange Commission (SEC) is investigating a broad pattern of felicitously timed stock option grants, looking into the possibility that they were improperly backdated. Academic studies have found that stock prices tended to go down sharply just before options were granted, rising quickly afterwards. The pattern stopped after enactment of Sarbanes-Oxley. The data raise concerns that this is more than coincidence, coming instead from a pattern of at least some companies backdating grants to take advantage of market fluctuations. Backdating is not per se illegal, although it can raise accounting and tax issues. If there is an intention to backdate to take advantage of stock fluctuations, however, it could constitute securities fraud.