An earlier version of this story stated that Kodak received a federal loan. In fact, it announced a letter of interest about the loan.
Some corporate executives have made huge profits from exercising “available” stock options to take advantage of information not available to the public, but U.S. regulators on Thursday Two have announced plans to stop this.
Securities and Markets Commission issues new guidance for companies on how to reflect the potential value of spring options when they reveal how much top executives actually earn.
A spring deposit bonus is a form of compensation where a company grants stock call options just before the release of market-moving information, such as the announcement of stronger-than-expected earnings or the disclosure of important transactions. Options are likely to increase in value once the news is made public.
This practice came to public attention in July 2020 when the share price of Eastman Kodak suddenly skyrocketed. KODK converted the option given to top executives into a potential profit of millions of dollars. The options were granted just a day before the company announced a letter of interest from the US government for a loan that ultimately went unreleased.
The unusual timing of options awards prompted Senator Elizabeth Warren of Massachusetts to ask the SEC to investigate whether any laws were violated. Kodak has not been charged with any violations.
According to new SEC guidance, infrequent options loaded in the spring “deserve specific scrutiny” from corporate officers responsible for ensuring their companies comply with financial disclosure rules. .
“It is important that the accounting and disclosures of companies reflect the economics and terms of these compensation arrangements,” SEC Chairman Gary Gensler said in a press release. “This is sent to the SEC to protect investors.”
In Kodak’s case, CEO Jim Continenza could have made more than $95 million if he had exercised and sold his options at the height of Kodak’s rise, The Wall Street Journal last year’s report. A Kodak spokesperson told MarketWatch that Continenza “never sold a single share of Kodak stock, even after exercising its options.”
More recently, an investor in Roku
sued the company in August after claiming company insiders issued cheap stock options to themselves in its early 2019 earnings report, sending the company’s stock price up 35%, Bloomberg Law reported.
https://www.marketwatch.com/story/sec-takes-stand-against-spring-loaded-stock-options-that-enrich-execs-at-investor-expense-11638206946?rss=1&siteid=rss SEC takes stance against ‘spring loaded’ stock options enriching executives at investor’s expense