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That alone should prevent backdating and other option manipulation."The problem is people just blatantly ignored the Sarbanes-Oxley requirement," Seyhun said. The SEC did not enforce prompt reporting, so we had the backdating again." The researchers suggest that the SEC remove all incentives to engage in timing games.A decade after the stock option backdating scandal broke and then seemed to die down after some civil and criminal prosecutions, the practice appears to have resurrected itself.Michigan Ross Professor Nejat Seyhun was among the first to detect the practice that allowed corporate executives to manipulate their compensation by picking stock option grant dates that gave them the biggest windfalls.To understand Congress enacted the 1933 Act and the 1934 Act in response to the stock market crash of 1929 and the resulting Great Depression.
The Reform Act’s provisions apply to class actions brought under the 1933 Act and 1934 Act. Under the Reform Act, lead plaintiffs asserting 1933 Act or 1934 Act claims on behalf of a class are no longer selected based on who wins the “race to the courthouse” – instead, courts must engage in a process to determine which purported class member is “most capable of adequately representing the interests of class members” as the lead plaintiff. This discourages plaintiffs’ lawyers from filing class actions on behalf of “professional plaintiffs” who receive a “bounty for their services” and have no real interest in the outcome of the litigation. Congress understood that plaintiffs with more significant holdings – principally institutional investors – would exercise more control over class counsel, thereby improving the quality of the representation to the benefit of all shareholders. Naturally, Congress intended for the most adequate lead plaintiff to represent the class as to consolidated actions. In addition, the Reform Act imposes heightened pleading standards that make it easier for courts to dismiss unfounded fraud allegations.The Sarbanes-Oxley Act, meant to bring transparency and honesty to financial statements, was passed in reaction to corporate frauds at Enron, World Com and Tyco.The act requires that options be reported within two days of their award.The data includes 9.5 billion shares with a dollar value of roughly 0 billion.They found that stock prices rise abnormally by 6 percent in the year before the gift date and they fall abnormally by 5 percent in the year after the gift date.