Securities Law Prof Blog

Editor: Eric C. Chaffee
Univ. of Toledo College of Law

Sunday, June 14, 2009

Cicero on Stock Option Exercise Strategies

The Manipulation of Executive Stock Option Exercise Strategies: Information Timing and Backdating, by David C. Cicero, University of Delaware - Lerner College of Business and Economics, was recently posted on SSRN.  Here is the abstract:

I identify three option exercise strategies executives engage in, including (i) exercising with cash and immediately selling the shares, (ii) exercising with cash and holding the shares, and (iii) delivering some shares to the company to cover the exercise costs and holding the remaining shares. Stock price patterns suggest executives manipulate option exercises. They use private information to increase the profitability of all three strategies, and likely backdated some exercise dates in the pre-Sarbanes-Oxley period to enhance the profitability of the latter two strategies, where the executive’s company is the only counterparty. Backdating is associated with reporting of internal control weaknesses.

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I asked the editor this, but I would like to hear any opinions from the secuties law experts that visit this site...I recently pleaded guilty to securities fraud. In addition to probation I was "barred from association with any broker or dealer" by the SEC. I understand this is pretty standard language. What exactly does this mean? Has it been litigated at all? Does this preclude me from having a customer account?

Posted by: DAG | Jun 14, 2009 3:50:01 PM

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