Stock options investigation widens

Concern about the questionable timing of executive stock options spread across the US technology sector on Monday as two more companies revealed that they had been approached by authorities investigating option-award practices.

Federal prosecutors and the Securities and Exchange Commission were already looking into several cases in which executives were awarded options just ahead of sharp rises in their company share prices.

The probes focus on whether the timing was purely coincidental.

The activity being investigated took place between the mid-1990s and 2002.

On Monday, Openwave, a maker of wireless software said it had received a letter from the SEC requesting documents related to the company’s stock option grants and practices.

Juniper Networks, a network solutions provider, said it had received a request for information from the office of the US attorney for the Eastern District of New York.

Companies already under investigation by the SEC include RSA Securities, which specialises in online identity protection, and American Tower Corp, an operator and developer of broadcast and wireless communications sites.

Merrill Lynch on Monday said its own study showed that six of the 16 companies in the main US semiconductor index had “consistently generated excess returns” after the award of options grants.

Joe Osha, the bank’s technology analyst, said he had studied the Philadelphia Semiconductor Index to see whether stock price performance after options were priced diverged from performance over time.

He found that stocks had “consistently generated excess returns” in the 20 days after the granting of options at six companies.

“It is difficult to avoid concluding that the timing of options pricing for the period we studied has been very advantageous for executives that received options,” Mr Osha wrote.

Meanwhile, a separate report by the Center for Financial Reporting and Analysispublished last week named 17 companies whose stock options grants had raised suspicions.

The first revelations over stock options pricing stem from a University of Iowa study commissioned and reported by the Wall Street Journal.

Jay Ritter, a professor of finance at the University of Florida, said: “This is yet another situation where the SEC was asleep at the switch.”

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