The Securities and Exchange Commission, which has been looking at company stock-option grants, has focused its investigation on whether companies backdated grants to provide insiders an even larger windfall, the Wall Street Journal reported Friday.
Mercury Interactive Corp. which admitted to such a practice last week, is one of about a dozen companies currently being looked at in an SEC investigation launched last year, the paper said.
Besides Mercury, companies that disclosed they are under investigation by the SEC include Brocade Communications Systems,Siebel Systems Inc. and Analog Devices Inc., the paper reported.
Driving the probe is academic research that shows a pattern of stock prices dropping ahead of the reported dates of option grants and then rising, the paper reported.
Backdating, not necessarily illegal, bolsters gains from stock options. By tying strike prices to earlier, more favorable dates, executives can receive options already deeply "in the money" that instantly lock in a gain or boost their returns, the paper said.
Academic studies show many instances of options dated after a drop in the underlying stock price, followed soon after by an increase in the stock.
Another study observed that these patterns all but ceased after August 2002, when Sarbanes-Oxley reforms required executives to report option grants to regulators within two days, instead of weeks or months, the paper said.
No charges have been filed against companies related to the probe, and it isn't known if backdating is specifically under investigation at any of the companies, the paper said.
