Latest Trend in Business Scandal: Backdated Stock Options

You must have heard this one by now. Company after company is involved in schemes to make their executives rich by issuing stock options after the stock price jumps, but backdating them to appear that they were issued before the rise.

Option timing abuse first came to light earlier this year after a number of media reports questioned why executives had exceptionally good luck in obtaining stock option grants just before large increases in the related stock price. Erik Lie, a University of Iowa finance professor issued a study that claimed as many as ten percent of all option grants appear to have been backdated. A similar Merrill Lynch study found that 40 companies in the S&P 500 likely backdated their options.

Hey, people–if you already know that insider trading–buying or selling based on information you have that will affect the stock price but isn’t yet public–is enough to go to jail, surely it should occur to you that this sort of thing is essentially insider trading coupled with outright fraud.