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HOW IOWA PROF ENDED LUCKY RUN FOR EXECUTIVE STOCK OPTIONS

May 25, 2006

The Des Moines Register has a piece today on Erik Lie, the University of Iowa finance professor who helped expose the backdating of stock options by corporate executives:

Lie, a University of Iowa associate professor of finance, said he never set out to uncover what's being called the next big scandal to shake corporate America. In 2003, he began hunting for a correlation between option grant dates and price movements of the underlying shares.

Instead, his findings suggest some companies were manipulating the timing of the stock options they granted to top executives. The result pumped up the executives' pay.

Because the tax law puts caps on deductions for backdated options, some companies could end up owing millions in back taxes.

Working with data from Lie and other academics who have studied options, the Wall Street Journal reported in March on six companies that granted options whose dates repeatedly coincided with share price low points. The newspaper estimated that all six option grants made to Jeffrey Rich, the former chief executive officer of Affiliated Computer Services Inc., came just before sharp runups in the price of the Dallas company's share price. The odds of that occurring were one in 300 billion. The odds of winning the Powerball lottery with a $1 ticket are estimated at one in 146 million.

Rich denied to the paper that any backdating occurred, and said the timing was a result of "blind luck."

If I had that kind of blind luck, Angelina Jolie would accidentally call me at work and ask to buy me dinner and Lexus would accidentally deliver new cars to my house twice a year.

Link: Prior coverage of backdated options

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