Wall street journal options backdating
What values and norms should guide the board of directors in protecting the shareholders’ interests?
To examine these issues, we first discuss the role values and norms can play with respect to underlying corporate governance and the proper role of directors, such as .
"It's fitting that the Journal should be recognized for breaking the biggest business story of the year, using proprietary algorithms to uncover suspicious timing of stock options, and for putting in full context the enormous growth of China's economy," said L.
Gordon Crovitz, executive vice president of Dow Jones & Company and publisher of The Wall Street Journal.
The reason for doing this was simple: stock options priced at or above where the stock is trading (aka, "out of the money" options) get favorable tax treatment compared to stock awards priced below the market price (aka, "in the money" options).
It was a tax advantaged way for companies to pay executives. Shareholders were correctly told the number of options granted and the price of the options.
The academics concluded that something funny was going on.
The companies were awarding the options later but then marking the awards to earlier dates, when the stock's price was low.
Attorney's Office in Northern California has launched a series of investigations and in July issued criminal and securities fraud charges against two top executives at Brocade Communications. National concern about the practice has been spurred by a series of articles in the Wall Street Journal. Companies found to have practiced this could be forced to restate their earnings.
"These Pulitzer Prizes underscore our commitment to bring readers a unique perspective on news, providing the insight and analysis they demand," said Paul E.
Steiger, managing editor of The Wall Street Journal.
It was the pseudo-scandal launched by the Wall Street Journal's investigative unit, after its reporters began following up on an academic report that demonstrated many executive stock options awards were too well-timed to be plausible.
The basic idea was that many companies seemed to award stock options on days when their stocks were at low-points, which increased the value of the options when the stock increased and made the stock cheaper to buy for the executives.