NEW YORK, May 15 (Reuters) - Improper stock option backdating that rocked some corporate boardrooms in the last two years may not have caused the legal fallout that some had expected, a study from NERA Economic Consulting showed on Thursday.
Options backdating settlements have amounted to less than what would have been in settlements of comparable class action lawsuits, according to a model by NERA Economic Consulting.
Hundreds of companies have been investigated by the U.S. Securities and Exchange Commission or have conducted their own internal inquiries into possible manipulation of stock option grant dates. The Department of Justice and the SEC have filed criminal or civil charges against a handful of executives.
According to the study, of almost 250 companies that were potentially involved in backdating, 37 have been targeted in shareholder class actions.
Six backdating class actions have settled thus far, and the settlement figures were much lower than comparable shareholder class action settlements, the study showed.
The study found that, on average, the class action lawsuits over options backdating have settled for less than half the amount predicted by NERA.
“If the alleged wrongdoing is harder to prove that could be one reason (they are settling for less),” said Branko Jovanovic, a senior consultant at NERA.
“But another one could be that the cases that settled first may have been the weakest,” he added, suggesting that settlements could be higher in the future.
Another reason the lawsuits may settle for less is that it has been hard for shareholders to prove that they were directly hurt by the backdating, Jovanovic said. Options backdating problems were typically disclosed years after the event occurred, and with hundreds of companies disclosing backdating problems at once the disclosures rarely affected stock prices.
A 2005 Supreme Court decision involving Dura Pharmaceuticals made it more difficult for shareholders to bring lawsuits on the sole basis that misrepresentations by management caused an inflated share price without causing other types of harm.
“They have to show that they were actually damaged, and if there was no significant price decline as a result of backdating, there are really no damages,” Jovanovic said.
The six options backdating settlements in the study involved Newpark Resources Inc (NR.N), Meade Instruments MEAD.O, Rambus Inc (RMBS.O), American Tower Corp (AMT.N), KLA Tencor Corp (KLAC.O), and HCC Insurance Holdings (HCC.N). (Reporting by Emily Chasan)