Summary
As a former Assistant Chief Accountant in the SEC’s Division of Corporation Finance, I have expressed publicly over the last few months my belief that it is “more likely than not” that the SEC will substantially pass on historical incidents of stock option springloading. The recent public comments of SEC Commissioners Glassman and Atkins seemingly validate my suspicion that they will align with Chairman Cox, as a Republican majority voting block, and opt for a prospective remedy to springloading.
Analysis
The act of springloading elicits a diverse range of opinions among securities regulators, accountants and lawyers. On one end of the spectrum, springloading is seen as being akin to insider trading, and thus must be prosecuted. On the other end of the spectrum, springloading is viewed substantially as a non-event given that traditionally structured stock options do not vest and become exercisable, even in part, for an extended period of time [usually at least one year], thus necessitating that a stock price be maintained in order for any economic benefits from springloading to ultimately be realized. In other words, some view the practice of springloading as outright criminal whereas others view it as a moral or ethical transgression as worst.
I suspect that the SEC and DOJ will ultimately make the conscious back-dating of stock options, absent corresponding accounting recognition, the principal focus of their respective civil and criminal enforcement actions. With respect to springloading, I suspect that the SEC will substantially waive off on past incidents, maybe imposing some modest civil sanctions at worse, and instead look to implement some form of prospective remedy. My best guess at this point would be that the SEC will ultimately advocate a “no stock options grants” blackout period to precede news releases. Then the battle will be as to what is an appropriate blackout period and should it apply to all news releases. Stay tuned for details!
