WASHINGTON — In a broadening investigation, the Securities and Exchange Commission is examining whether companies timed stock option grants so executives would benefit from company news.
Much of the recent scrutiny of the alleged misconduct has centered on whether companies backdated grants to periods when their companies' stock prices were lower, in hopes of providing profits for executives.
But authorities confirmed that they also were looking into possible instances of so-called spring-loading. In this practice, a company purposely schedules an option grant ahead of expected good news or delays it until after it discloses business setbacks that are likely to send shares lower.
In both cases, the idea is to "spring-load" the option to increase its value to the recipient.
"Going forward, we will be very interested in both kinds of spring-loading," said SEC Chairman Christopher Cox , acknowledging that it could be difficult to prove an improper connection between the timing of news and option grants. "Backdating is more easily determined than spring-loading, because of the nature of the evidence."
Many companies offer stock option grants on the same date each year, in part to guard against allegations of manipulation. But a recent study by the research firm Corporate Library suggested that companies could be timing the public release of news, if not the options themselves.
In one possible scenario, a company might hold off on releasing favorable news until shortly after options have been granted, hoping that the public release of information will boost its share price and make the options more valuable.
Cox said a forthcoming rule on executive compensation might be revised to require companies to explain how they chose particular dates for granting stock options to senior corporate officers.
The recent furor over stock options has centered on allegations that companies backdated grants to days when the stock traded lower. But regulatory changes now on the books, including the Sarbanes-Oxley corporate reform law, have made backdating more difficult.
"A good deal of what you're reading in the press about backdating relates to the '90s, because in '02 and '04, doors were slammed shut," Cox said.
Along with eliminating any potential for backdating, Cox said, the SEC "is equally concerned with misbehavior in using inside information to time the granting of options."
