Stock options used to be a wonderful thing. Like printing your own money. Didn't even have to be expensed, so didn't impact company profit. Like money from thin air. But that wasn't enough for many executives.
The idea behind those options were that they'd make executives work harder to increase share holder value. That, of course, led to accounting fraud; WorldCom, Enron, and other scandals.
But that wasn't enough. The WSJ has for a long time shown how many companies also fiddled with the initial value of the stock options. In order for the options not to be expensed and impact profit, they had to have zero value when they were given. The idea was that hard work would then increase the share price and the value of stock options.
But that's too hard for most executives. I mean, they'd have to work.
So they soon realized that no one was looking, not share holders, not SEC and not auditors.
SO what they did was simple. They looked back at the year, checked when their stock was at the lowest point, and then simply backdated the options they gave to themselves, and of course, then the stock options suddenly were worth a lot right away, since stock value had usually increased.
But doing that changed the whole game. That meant the options should have been an expense to the company. But no one knew. Not until some researchers started digging and found this amazing correlation to dips in stock price and allocation of stock options. Like those execs had a crystal ball when they allocated options.
Well, they didn't. If it is too good to be true, it aint true.
The SEC, which doesn't do much on their own, of course had to take action when the whole thing was on the front page on the WSJ. That's how the SEC usually comes up with something to do. Read the WSJ.
SO, yesterday federal authorities issued civil and ciriminal securities fraud charges against one CEO, one CFO and one HR executive.
70 OTHER corporations are also under investigation, but a recent study indicates that as many as 2,000 companies may have abused the system. And of course the SEC will never have the resources to investigate them all.
A little cheating can go a long way. Why rob a bank when you can simply print your own money?
One executive with funny stock options is the CEO of UnitedHealth Group. His options are worth over a billion.
And so, the era of the Robber Barons goes on.
And the only thing that stands between them and the gold they can steel is the free press, such as the Wall Street Journal.
What an irony.
Read more here in the WSJ. Even the New York Times has picked up on WSJ's story, here. And here you can read about latest development.