Reply #26: Report Estimates the Costs of a Stock Options Scandal [View All]

[54anickel]

http://www.nytimes.com/2006/09/06/business/06options.html?ref=business

WASHINGTON, Sept. 5 — A new study estimates that the stock options backdating scandal may cost shareholders hundreds of millions of dollars. The study was released on the eve of two Senate committee hearings that plan to examine the scope of the widening investigation into improper options practices.

Three researchers at the University of Michigan estimated that backdating stock options between 2000 and 2004 helped sweeten the average executive’s pay by more than 1.25 percent, or about $600,000. But the fallout from the recent options investigations has caused those executives’ companies to fall in market value by an average of 8 percent, or $500 million each.

“For about $600,000 a year to the executives, shareholders are being put at risk to the tune of $500 million,” the study concludes.

The working paper, expected be made public later this week and to be published in The Michigan Law Review next year, appears to be the first to put dollar figures on the costs and benefits of backdating. It analyzed thousands of stock option grants at 48 companies that announced they were under investigation as of the end of June, and measured the maximum gains for those executives if their options were backdated over a 90-day period as well as the drop in value at those 48 companies in the 10 days before and after news of a backdating inquiry was released.

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