Barron's

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The prevailing take on the stock-options back-dating kerfuffle casts the granting of winning lottery tickets to insiders as a youthful indulgence by corporate boards caught up in the manic peer pressure of the bubble years. By this formulation, the post-Enron Sarbanes-Oxley regulations imposed maturity on chastened directors and executives, and indeed most of the admitted inquiries into suspicious propitious options grants have focused on the years before Sarbox emerged in 2003.

But a research group that specializes in scouring the fine print has come up with persuasive evidence that plenty of companies followed questionable patterns of option grants long after the supposed Sarbox reforms took hold.

Glass Lewis, in a study to be released this week, tracked the regulatory filings in which companies disclose option grants. Sarbox mandated that companies report option awards to the SEC within two days of the grants in so-called Form 4 filings. Lots of companies routinely miss the deadline, with rare enforcement action by regulators. Glass Lewis makes the case that filing Form 4s late and dating an options grant in the past when the stock price was much lower in itself can be suspicious.

Looking only at filings that arrived at least two weeks late -- and many of them were six months or more late -- Glass Lewis concluded that numerous companies not yet implicated in the back-dating flap should be scrutinized. The universe of late filers, covering thousands of individual option grants, saw their stocks rise an average of 6% from the stated grant date to the filing date, outpacing the Russell 3000's 4.4% gain in the relevant period.

Glass Lewis names nine companies whose grants seem suspicious under this light. Children's Place Retail Stores (PLCE), Hansen Natural (HANS), O'Reilly Automotive (ORLY), Digital River (DRIV), American Home Mortgage Investment (AHM), Websense (WBSN), Silicon Image (SIMG), Keryx Biopharmaceuticals (KERX) and Medis Technologies (MDTL) are on the list.

All either denied wrongdoing or couldn't be reached when Glass Lewis asked about the patterns. In each case, the tardy filings disclose grants dated to a day when the companies' share prices were appreciably lower.

This analysis is less a smoking gun than a where-there's-smoke-there-might-be-fire exercise. Still, it strongly suggests that if there was a moment when companies got scrupulous about the dating of option grants, it wasn't when Congress passed a new corporate-governance law, but when the Wall Street Journal exposed the irregularities last spring.

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E-mail: michael.santoli@barrons.com

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