Your company is about to report spectacularly good news. You get a big grant of options just before the announcement. Is that a crime? Texas Gulf Sulphur Co.

Or timing releases of bad news to precede a regularly scheduled options grant—a practice for which there is apparently no nickname? These are all a bit icky, and certainly give insiders an advantage unavailable to outside shareholders.

Options backdating - Wikipedia

But are they illegal? The consensus of the legal experts on hand Monday was that they would be very difficult cases for prosecutors to win.

Forging documents to make it seem that options were granted before they really were—backdating—turns out to be just the most obviously illegal tip of an iceberg of dodgy corporate behavior regarding options grants. These practices were discovered by accounting and finance professors looking at the interesting behavior of stock prices before and after options grants.

Study after study has found that the stock price of a company granting options tends to underperform the market in the days leading up to the grant, and dramatically outperform it afterwards.

Yermack speculated that companies timed their options grants to take advantage of pending news. Aboody and Kasznik theorized that companies timed their news releases to maximize the value of their options. It was only in , though, that Erik Lie of the University of Iowa proposed that some companies might actually be rewriting history and pretending that options were granted well before they actually were. What about the less-obviously illegal practices of timing options grants and news releases to maximize gains?

Such actions amount to, in more or less innocent form, insider trading. There is a school of thought, most vigorously represented through the years by Henry Manne , which holds that insider trading is an good thing, because it facilitates the rapid transfer of information—through the mechanism of stock prices—from insiders to the market at large.

But Manne has never been able to convince Congress or the SEC or most of the securities bar of the rightness of his views.

Options backdating - Wikipedia

Are springloading and bullet dodging and messing with the timing of news releases—all of which appear to be far more widespread in corporate America than options backdating—things we ought to be up in arms about? My Fortune colleague and fellow blogger Roger Parloff has posted his own take on the backdating mess. MY ACCOUNT SIGN IN SIGN OUT SUBSCRIBE SUBSCRIBE. Politics World Business Tech Health TIME Health Motto Entertainment Science Newsfeed Living Sports History The TIME Vault Magazine Ideas TIME Labs.

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