Charles Forelle and James Bandler explain how some executives managed The Perfect Payday:
On a summer day in 2002, shares of Affiliated Computer Services Inc. sank to their lowest level in a year. Oddly, that was good news for Chief Executive Jeffrey Rich.His annual grant of stock options was dated that day, entitling him to buy stock at that price for years. Had they been dated a week later, when the stock was 27% higher, they’d have been far less rewarding. It was the same through much of Mr. Rich’s tenure: In a striking pattern, all six of his stock-option grants from 1995 to 2002 were dated just before a rise in the stock price, often at the bottom of a steep drop.
Just lucky? A Wall Street Journal analysis suggests the odds of this happening by chance are extraordinarily remote — around one in 300 billion. The odds of winning the multistate Powerball lottery with a $1 ticket are one in 146 million.
Suspecting such patterns aren’t due to chance, the Securities and Exchange Commission is examining whether some option grants carry favorable grant dates for a different reason: They were backdated. The SEC is understood to be looking at about a dozen companies’ option grants with this in mind.