Backdating cases called tough to pursue

Many of the companies that manipulated stock options since 1996 may not face sanctions because of the difficulties in pursuing such cases, said Erik Lie, the influential academic who played a key role in exposing abuse in the area, in a speech in Boston yesterday.

In previous research, Lie has estimated more than 2,000 companies likely manipulated stock options grants - a figure far higher than the several hundred companies that have faced public scrutiny by regulators or private suits by investors to date.

Lie, a University of Iowa professor, has driven some of the main investigations to date over the backdating of options, especially by technology companies.

"We only see the tip of the iceberg," said Lie, speaking at a conference sponsored by the Association for Financial Professionals, a trade group, at the Boston Convention & Exhibition Center . "There's still a lot of cleaning up to be done."

But Lie said many companies that committed abuse may not face scrutiny because of the difficulties of prosecuting such cases, and the limited resources of regulators such as the Securities and Exchange Commission.

He also said that for some companies, shareholders who could have been harmed by the actions of figures like Apple Inc. chief executive Steve Jobs might still want those leaders to continue running companies successfully. (Last year an Apple internal report found Jobs knew certain dates were changed in his favor, but put more blame on two former officials.)

Of Jobs, Lie said, "It's a bit of an ethical dilemma. The guy has made billions of dollars for the shareholders, so I don't think the shareholders want him to go, even if he's gotten money that essentially comes from the shareholders."

Lie's early morning speech was lightly attended and comes at a time when options issues have dropped off the front pages amid more pressing concerns in credit markets. But it underscores the breadth of ongoing investigations over the way companies awarded stock options during the late 1990s including both internal reviews, shareholder suits and government investigations.

Stock options are rights to buy shares of a company in the future at the closing price on a certain day. They were widely used as incentives for executives, who can profit handsomely if the stock rises. Start-ups often used them under previous accounting rules that made them cheaper to issue than other forms of compensation.

Studies by Lie, a Norwegian native, and others since 2005 suggested many award dates were manipulated to benefit executives and other company insiders at the expense of shareholders, sometimes in an illegal way known as "backdating," leading to widespread fallout. In Massachusetts, for instance, federal officials in July charged the former chief executive of Chelmsford software maker Brooks Automation Inc. with earning more than $10 million in a scheme to falsify its stock-option records, and with tax evasion.

Also in June another Chelmsford technology firm, Sycamore Networks Inc., said it would take charges totaling $216 million after finding evidence its former chief financial officer and others deliberately alternated options records before 2005.

In his talk, Lie said many of the worst abuses were cured unintentionally by the Sarbanes-Oxley Act of 2002 that tightened accounting controls such as requiring companies to disclose options within two days of being granted.

Ross Kerber can be reached at kerber@globe.com.