Timestamp May Be Best Backdating Defense

As Cal Law readers now know, medical device maker Heartport exhibited curious stock option grant timing in the late 1990s. Of seven grants to executives between 1996 and 1999, four came at 90-day lows, the odds of which stand at an improbable 385,000 to one.

Among the three grants that didn’t come at a nadir, though, one came the day before an annual low. On July 15, 1996 — when the stock traded at $21.75 — two Heartport executives got more than 500,000 shares combined. The stock bottomed out at $21.25 and then went on a rampage, topping $35 by the middle of October.     

Shady, right?

Actually, amid the questionable options at Heartport, this one has a much more credible paper trail.  The SEC clocked in the reporting documents on Aug. 16, just one month after Heartport said it issued the options. That day the stock traded at $27.38: up from the previous month to be sure, but well in advance of the stock’s October highs.

For comparison purposes, consider a July 29, 1999, grant to CEO Casey Tansey. The company didn’t report that one to the SEC until the following January, a much more significant lag. By that time, the stock had tripled in value.

Such reporting gaps by themselves do not constitute proof an executive did anything illegal. But since a speedy SEC date stamp is the easiest way to demonstrate an option wasn’t backdated, tech executives who have them must be sleeping better than those who don’t.

Dan Levine



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