Backdating and spring loading stock options

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Their theory: Companies time releases of bad and good news to depress prices before the grants and boost them afterward. Nobody off campus paid any attention - until 2004, when finance professor Erik Lie of the University of Iowa noted that many options grants were timed to exploit marketwide price movements that no CEO could predict.

"At least some of the official grant dates must have been set retroactively," Lie suggested in a paper.

In the meantime, these executives accepted options grants from the board.

The resulting backdating scandal has so far led to criminal charges at two companies and a paroxysm of what Stanford law professor and former SEC commissioner Joseph Grundfest calls "Maoist-style self-criticism" at many others, with more than 40 high-level executives losing their jobs.

The first lesson to be learned from this brief history is that we should pay more attention to number-crunching B-school professors, who now have played a key role in uncovering two major business scandals.

His findings began making the rounds in 1995, sparked a flurry of interest among finance and accounting scholars, and were published in The Journal of Finance in 1997.

Accounting professors David Aboody of UCLA and Ron Kasznik of Stanford followed up with an examination of companies that made options grants on more or less the same day every year, and found a similar stock price pattern.

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