Twenty years ago, I published a document that helped reveal one of the largest corporate scandals in US history. More than 100 public companies were involved, dozens of leaders resigned or facing criminal charges, and billions of profits had to be restored.
I have never intended to be a whistle. I just did what the academics were trained to do: to ask questions, to follow the data, and to leave the evidence to speak. But what revealed the evidence was stunning: the leaders in hundreds of companies manipulate grants dates to enrich their leaders at the expense of shareholders. The practice became known as the opposite.
Now, at the 20th anniversary of this study, I see anxious parallels that occur in other angles of the financial world.
My journey to this gloomy corporate behavior angle began to understand how the compensation of the executive influenced firm decisions. As I analyzed large sets of company compensation and prices, I noticed something special: the stock grants often coincide with the latest downturns in the company’s stock price. Too often.
The model was statistically incredible. It is as if executives have a crystal ball, repeatedly receive options at the most appropriate moment. But the truth was more light -and more anxious. The companies were selected with rear dates that coincide with low stock prices, effectively locking immediate, hassle -free profits. This allowed executives to buy discount shares while maintaining the illusion that they need to win the discount by raising the price of the shares.
What made the fraud so insidious was his simplicity. On the contrary, it did not require complex financial engineering or sophisticated concealment. It was a quiet manipulation of the documents – it chooses a date in the past when the price of the shares was low and pretended that it was the day when the options were provided.
This simplicity probably contributed to its spread. There is evidence that people in many tips have gone past practice. But even the isolated executives and directors could easily present the scheme like someone who supports a check to look like he paid an account on time.
What struck me most was that the rear move was unnoticed for at least a decade. It was a silent epidemic of opportunism. The grant data was public. Thousands of participants participated. Certainly some auditors have to see isolated traces of fraud. But no one connected the points.
My study, combined with timely pressing, ultimately prompted the SEC to initiate targeted investigations. Journalists followed, including a team of The Wall Street Journal With time, resources and incentives to pursue history. Their work won their first Pulitzer Prize for Public Service on the paper.