WSJ Back to the Backdating Scandal

The Wall Street Journal, which broke the massive options-backdating scandal three years ago in one of the great enterprise stories of the decade, returns to the well today with a report on an academic study that finds the practice was far more widespread than thought.

The research found that 141 companies, including Omnicom and J.B. Hunt of 4,000 studied were “highly likely to have been involved in backdating.” Only about fifty of those have been previously linked to backdating. Even worse, the 141 number comes from a sample, which means the problem is much worse than that. The study predicts that some 500 companies backdated based on its sample.

Mark Maremont, whom we interviewed a few months ago, explains what the problem with backdating is:

Backdating companies reached back in time by weeks or months to select a date when their shares were trading at low points, then represented that options had been awarded to executives at that time. The practice gave executives a head start on rich options profits, generally contravening accounting and disclosure rules.

Can we have Round Two of this scandal? Please? It’d be worth it alone for a repeat of watching the WSJ editorial page and Holman Jenkins go googly-eyed trying to defend this—while going all internecine on the news side.

Actually, I won’t get my hopes up:

Stephen J. Crimmins, a securities lawyer at K&L Gates LLP in Washington, said the SEC devoted lots of resources to backdating cases but now is looking to other problems. “They came down like a ton of bricks on options backdating, and they believe the message has been sent and received,” he said.

Plaintiffs’ lawyers still could file fresh backdating lawsuits, but the statute of limitations may complicate claims involving grants made more than five years ago, Mr. Crimmins said.

If by some miracle, the SEC does go after this, these crooks will be wishing they’d been caught out three years ago during the bubble bull market. Illegally enriching yourself at shareholder expense is more likely to be a hanging offense these days than it was back then.

Good for the Journal and Maremont for sticking with this story three and a half years on.

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Ryan Chittum is a former Wall Street Journal reporter, and deputy editor of The Audit, CJR's business section. If you see notable business journalism, give him a heads-up at Follow him on Twitter at @ryanchittum.