Stock Options Timeline

These are some of the highlights -- or lowlights -- involved in the ongoing scandal of stock-options backdating.

Saturday, June 2, 2007
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As of the spring of this year, more than 200 companies were either conducting internal audits of their stock-options dating practices or were under investigation by federal regulators or prosecutors.

Sums up Los Angeles-based compensation and employment consultant Mark Lipis: "There are some very bright people who did some very dumb things. In some cases, it was greed. In some cases, it was naiveté. In some cases, it was misplaced trust, meaning, 'Well, I didn't understand this stuff, but the people who I had faith in were telling me it's okay.' "

Here is a timeline of some of the events involved in the scandal:

1992: The Securities and Exchange Commission imposes a rule requiring companies to report executive stock options in detail. Even after the rule, some executives legally delayed reporting stock-options grants for so long that it was virtually impossible to figure out whether any individual grant had been backdated.

1995: David Yermack, a New York University finance professor, studies the exact dates of options grants in proxy statements -- that companies were obligated to publish, under the 1992 SEC decree. He found a pattern indicating stock prices often declined in value just prior to grants and rose afterwards. He theorized the options grants were timed to precede good news and follow bad news.

2004: Finance professor Erik Lie, of the University of Iowa, noted in a major report that many options grants were timed to exploit market-wide price depressions that nobody, including insiders, could predict, leading to the conclusion that at least some of the grants must have been retroactive.

"Unless executives possess an extraordinary ability to forecast the future market-wide movements that drive these predicted returns," Lie noted, "the results suggest at least some of the awards were timed retroactively."

Late 2005 and 2006: The issue of backdating stock options begins gaining a much wider audience, particularly with extensive, groundbreaking coverage by the Wall Street Journal, which spurs extensive media coverage in financial publications, general-interest newspapers and magazines, and the electronic media.

Mid-November 2006: Press reports indicate that backdating options has occurred at more than 130 companies, leading to the firings or resignations of more than 50 top executives and directors at those companies. Notable companies embroiled in the scandal include UnitedHealth Group, Comverse Technology, Apple and Dell.

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Nov. 11, 2006: Gary A. Ray, head of human resources for KB Homes, is fired after an internal investigation revealed improper accounting of stock-option grants. Reports indicated Ray had picked the dates for options to increase the pay of the company's chairman and CEO Bruce Karatz, who retired at the same time. Also retiring was Richard B. Hirst, executive vice president and chief legal officer.

June 29, 2006: Stephen Landry, former human resources director for Chelmsford, Mass.-based high tech firm Sycamore Networks, Inc. files suit against the company charging he was squeezed out of the job for claiming the company limited its internal investigation to only a small number of questionable backdating practices. A Superior Court judge subsequently ruled in the company's favor on all counts.

Aug. 30, 2006: Both founder and CEO Greg Reyes and director of human resources Stephanie Jensen of San Jose, Calif.-based high-tech firm Brocade Communications Systems, Inc. enter pleas of not guilty to criminal charges that they regularly backdated minutes of board meetings to make it appear that the committee in charge of stock options granted those options when Brocade's stock price was relatively low. Jensen and Reyes face up to 25 years in prison and millions of dollars in fines if convicted.


Feb. 23, 2007: The Justice Department embarks on a criminal investigation into stock-options backdating practices at KB Homes.

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