Gimme What You Got

You can arm yourself, alarm yourself
But there's nowhere you can run
'Cause a man with a briefcasecan steal more money
Than any man with a gun
I said gimme, gimme what you got

-Don Henley

The cost of stock options is paid by shareholders of a company. The shareholders pay the cost with the understanding that these rewards motivate the management and employees of a company to perform well. It is a win/win scenario, in theory.

Options give their recipients the right to purchase shares at a fixed price, usually the market price on the date of the grant. Backdating involves pretending that a grant was made earlier than it really was, when prices were lower.

Here's the scam. Let's say I am CEO of UnitedWealth, Inc., and I am granted an option for 10,000 shares. Today's stock price is about $50. But instead of setting the price at today's market price, it is set to the price last June, when it was $40. My options are already $10 "in the money", before I even start. That is $100,000 bonus for doing nothing.

Stock options backdating is a way of skimming more profits away from shareholders.

Here is the list of 115 companies currently under scrutiny for stock option manipulation. If you own mutual funds or other pooled assets, or your retirement fund owns equities, it is possible you own some of these stocks and that these theives were taking money from your pocket without you even knowing about it.

Today's news:
Wall Street Journal, Sept 20, page A17
Monster Worldwide Inc. suspended its general counsel and Broadcom Corp.'s finance chief retired ahead of schedule, as the fallout from the options-manupulation scandal continued to spread.

Both Monster and Broadcom have disclosed problems with their stock-options accounting. Earlier this month, Broadcom doubled its estimate of the hit to its books, suggesting it will make a restatement to increase its past expenses by more than $1.5 billion.

In a short statement, Monster said lontime general council Myron Olesnyckyj was suspended "effective immediately" though it didn't say precisely why. Broadcom said William J. Ruehle "decided to accellerate his retirement".

At many companies, general councels are responsible for supervising aspects of the options-granting process, while finance chiefs typically supervise how grants are accounted for.