News

San Jose Mercury article re option backdating and Form 4 filings

News Brief
June 16, 2006

By:  Cydney Posner

The SJ Mercury News is reporting on studies that run counter to the conventional wisdom that SOX has virtually eliminated the option backdating problem because it imposed a two-business-day reporting deadline for section 16 filings. The article reports on a study concluding that, from August 2002 through 2004, more than one out of five grants was reported late -- and half exceeded the filing deadline by a month. The professors that conducted the study are "most suspicious of tech companies, smaller firms and the highest-ranking bosses who have the most to gain from cheating." According to the article, the study concluded that:

  • Longer reporting delays lead to bigger returns. Executives who filed form 4s at least a month late experienced an average 25% return within 90 days, which was 8% more than the average for executives who filed timely.
  • The highest-ranking executives filed latest, and large unscheduled grants were more likely to be backdated and most profitable.
  • Smaller companies, which have less oversight from analysts and institutional investors, have more problems with timely filing than larger companies.

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