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WSJ.com - The Perfect Payday

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denied that it had misdated options or had made grants just before releasing good news that would tend to push up the stock. The Norwood, Mass., computer-chip maker tentatively agreed to pay a $3 million civil penalty and re-price some options. CEO Jerald Fishman tentatively agreed to pay a $1 million penalty and disgorge some profits. Analog didn't make him available for comment. The company said it will not restate its financial records.

In some instances, backdating wouldn't be possible without inattentive directors, securities lawyers say. At one company the SEC is looking at, lawyers say, it appears that someone picked a favorable past date for an option grant and gave it to directors for retroactive approval, perhaps counting on them not to notice. In another case, the lawyers say, a space for the grant date appears to have been left blank on paperwork approved by directors, or dates were later altered.

Until 2002, companies didn't have to report option grants until months later. The Sarbanes-Oxley law, by forcing them to report grants within two days, left less leeway to retroactively date a grant.

The new rule reduced stock patterns suggestive of backdating, but didn't eliminate these altogether, according to a study by M.P. Narayanan and H. Nejat Seyhun of the University of Michigan. They found that companies report about a quarter of option grants later than the two-day deadline -- and that such delayed reporting is associated with big price gains after the grant dates. It is a pattern Mr. Narayanan calls "consistent with backdating."

Before the stricter rules, Brooks Automation Inc., a semiconductor-equipment maker in Chelmsford, Mass., gave 233,000 options to its CEO, Robert Therrien, in 2000. The stated grant date was May 31. That was a great day to have options priced. Brooks's stock plunged over 20% that day, to $39.75. And the very next day it surged more than 30%.

A June 7 Brooks report to the SEC covering Mr. Therrien's May options activity made no mention of his having gotten a grant on May 31, even though the report -- which Mr. Therrien signed -- did cite other options-related actions he took on May 31. Not until August was the May 31 grant reported to the SEC.

It wasn't the only well-timed option grant he got. One in October 2001 came at Brooks stock's lowest closing price that year, once again at the nadir of a sharp plunge. The Journal analysis puts the odds of such a consistent pattern occurring by chance at about 1 in nine million.

Mr. Therrien, who stepped down as CEO in 2004 and retired as chairman this month, didn't return messages seeking comment. Chief Financial Officer Robert Woodbury said Brooks is "in the process of revamping" practices so grants come at about the same time each year. Mr. Woodbury, who joined in 2003, said no one at Brooks would be able to explain the timing of Mr. Therrien's grants.

The highly favorable 2000 grant also benefited two others at Brooks -- the compensation-committee members who oversaw the CEO's grants. Although Brooks directors typically got options only in July, that year a special grant was awarded just to these two directors, Roger Emerick and Amin J. Khoury. Each got 20,000 options at the low $39.75 price. By the time of their regular July option-grant date, the stock was way up to $61.75, a price far less favorable to options recipients.

Mr. Emerick, a retired CEO of Lam Research Corp., declined to be interviewed. Mr. Khoury, the CEO of BE Aerospace Inc. in Wellington, Fla., didn't return messages left at his office.

Another company, Comverse Technology Inc., said Tuesday that its board had started a review of its past stock-option practices, including "the accuracy of the stated dates of options grants," following questions about the dates from the Journal. The announcement reversed a prior Comverse statement -- given a week earlier in response to Journal inquiries -- saying all grants were made in accordance with applicable laws and regulations.

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