The amount of Corporate Fraud in our system is far greater and more endemic than most people want to believe.

That is the conclusion I have reached after watching The Street and senior corporate executives for 20 years. Not just at Wall Street banks, but at a vast number of publicly traded companies, the executive suite is rife with moral relativism, a daring catch-me-if-you-can attitude, and plain old venal criminality.

Now, there is further quantitative proof of this:

“The majority of companies that improperly backdated stock options never were caught by regulators or confessed to the practice, according to a new academic study.

Researchers at the University of Houston’s C.T. Bauer College of Business used a sophisticated statistical test to sift through more than 4,000 publicly traded companies for those with patterns of granting options at abnormally favorable times, often at low points for their share prices.

The study identified 141 companies with such advantageous options-granting practices that the researchers concluded they were highly likely to have been involved in backdating. Ninety-two of those companies never were publicly linked to investigations or announced earnings restatements related to backdating.”

So much for the market discovering and punishing transgressors . . .

>

backdate-20090817

>

Source:
Backdating Likely More Widespread
MARK MAREMONT
WSJ, AUGUST 18, 2009

http://online.wsj.com/article/SB125017806662329445.html

Category: Legal, Markets, Options, Regulation

Please use the comments to demonstrate your own ignorance, unfamiliarity with empirical data and lack of respect for scientific knowledge. Be sure to create straw men and argue against things I have neither said nor implied. If you could repeat previously discredited memes or steer the conversation into irrelevant, off topic discussions, it would be appreciated. Lastly, kindly forgo all civility in your discourse . . . you are, after all, anonymous.

18 Responses to “Widespread Fraud, Option Backdating, Exec Felonies”

  1. call me ahab says:

    BR-

    everyone knows what these corporate suits were doing- greed and fraud usually go hand in hand- also-

    BR – a few observations on your Nightline appearance-

    liked the “sport shopping” and “retail therapy” references- the blond was better on the eyes- and the “choo choo train” graphic left a bit to be desired- I can only assume that Nightline is on a tight budget

  2. call me ahab says:

    also- been awhile since i have seen Nighline- what the hell happened to Ted Koppel?

  3. Moss says:

    The result of the Conservative Movement.

  4. cvienne says:

    …and then there’s poor old Aubrey McClendon

  5. constantnormal says:

    The evidence of continued fraud in options backdating leads one to speculate about the torrent of recent insider stock sales — how many of them would qualify as being based on insider knowledge? I’ll bet a lot, as that would be awfully difficult to prove in the current climate.

  6. constantnormal says:

    Sadly, it appears that what we need in this area is more restrictive legislation government concerning the form and structure of corporate options awards in publicly-owned corporations, something based on a formula involving the average price of a number of months or related to a moving average rather than an arbitrary point in time that is selected internally, either by people reporting to or people who owe their jobs to the people being rewarded.

    But I forgot, we are not yet at the point of recognizing that fraud and corruption need to be stamped out, we are still at the stage where it must be supported by bailouts.

    Wake me up when they start hanging the perps.

  7. TDL says:

    How about some perspective on that study. These authors (this is merely from the blurb above) say that 3.5% of companies studied may have been or were involved in this fraudulent activity. How is 3.5% an indictment of anything?

    Regards,
    TDL

  8. leftback says:

    It’s all so early 1930s. The crooks know the game is up and they are grabbing everything that isn’t nailed down.

  9. WaveCatcher says:

    This is old news. Several years ago in Silicon Valley, several hundred public hi-tech companies were found to have back dated stock option grants. Some of the first to be uncovered were delisted, such as MERQ (Mercury Interactive) which was subsequently acquired by HP.

  10. Mannwich says:

    We have become a culture of fraud, greed, and consumer vapidity. This is why most people no longer blink an eyelash at this stuff anymore. It’s not only ACCEPTED but it’s EXEPECTED behavior. It’s taken over the country at this point. Time for an exit strategy.

  11. Onlooker from Troy says:

    That’s exactly right Mannwich. Everybody’s just looking for their piece of the action; their chance to pick up some easy money. Not that this is new in the history of mankind, but it’s about time we expunge this crap for a while; ’til the next time it comes around, of course.

  12. DeDude says:

    The simplest thing would be to demand that granting of options always must be reported to the SSC and published on the company website, AND that the effective date cannot be before those two things have been done. Simple way to end the fraud.

  13. TDL says:

    One simple way to end fraud is for “investors” to learn to read corporate filings (this includes footnotes) and identify discrepancies. If you can’t do this, than you should not be investing and you should hire a money manager. If your financial advisor can not do this, then fire them. As it stands, 3.5% of companies identified (in this one study) does not account for much of anything.

    I’m also curious, should Steve Jobs be prosecuted (or were we just going to string ‘em up)? After all, despite the tremendous wealth creation the Steve Jobs presided over, he was also involved in backdating options. Despite this fraud, Mr. Jobs was able to walk away without being penalized, and continue to create wealth. Before we reflexively start hanging C-Level execs due to a statistical study, maybe some more questions should be asked. For instance, why even bother with options? Why not use restricted stock or cash (easier to recognize than options are)?

    Regards,
    TDL

  14. farmera1 says:

    Greed is good baby, it’s the capitalistic system. Maximum greed.

    The founder of Vanguard (John Bogle) wrote the book on this warping of capitalism. His book from 2005 THE BATTLE FOR THE SOUL OF CAPITALISM (How the financial system undermined social ideals, damaged trust in the markets, robbed investors of trillions) covers most of this stuff very well.

    My take away from the book is that we’ve moved from ownership capitalism to managerial capitalism. Companies are now run for the benefit of the managers not the owners.

    My experience in a major corporation is that this is very true all the way from hundred dollar meals, million dollar added construction costs of “beautiful tile” to make buildings look nice, to white leather and crystal in corporate jets, to managing everything to meet this quarters numbers, to upper management openly stating that their number one job was to manage stock prices (left unmentioned was that is how the boys made the big bucks). The amount of waste, and manipulation was breath taking.

    It’s how upper management got rich. The owners, not so much.

  15. Pat G. says:

    If the average American were completely aware of all the scams in which the USG, Wall St and corporate America betrayed our trust by taking advantage of our ignorance, there would certainly be blood in the streets. Let’s hope that never happens…

  16. DeDude says:

    farmera1; and that is the main reason that the corporate cleptocracy is so scared of the public option in health care, and have mobilized their armies of shills and minions to fight against it. The only way they could win a fair competition with a public health insurance entity, would be to cut all their personal excesses out. If they can water health care reform down to some kind of small “non-profit” entity; then they can either strangle it with unfair deals and/or teach its leadership how to live the good life. In a true public option there is no way that salaries and “goodies” can get much bigger than what they are for public servants, and any attempt by the medical industrial complex to cut the public option lousy deals, would be exposed and fail. However, their friends in corporate media have continued to disperse the myth of public inefficiencies (compared to private corporations), so they have no problem mobilizing an army of fools to shill for them. You would have thought that the myth of private efficiencies would have been dead after the Irak war and its $500/day truckers compared to the $500/day privates driving trucks, but the fools keep singing that song of corporate efficiency that their Wall Street masters have drilled into them.

  17. flipspiceland says:

    So what it tells us is what we pretty much know in our bones: Cheating, lying, and otherwise losing your ethical moorings is essesential to getting rich.

    One day we will learn that Soros’ vaunted shorting of the British pound in which he made a billion dollars with a 10 billion dollar bet in a very short time is because he already knew by how much and when the pound would be devalued.