Media Alarmism on the Market: WSJ On 9/11

by: Eddy Elfenbein

Eddy Elfenbein submits: The Wall Street Journal is at it again. The newspaper ran an article today about possible back-dating of stock options after 9/11:

Amid the stock-market swoon that followed the Sept. 11, 2001, terrorist attacks, dozens of companies granted stock options to top executives or other employees. Now, some of those companies are saying the grants were in fact made weeks later -- and backdated.

The disclosures are the latest wrinkle in a backdating scandal that involves more than 140 companies and has resulted in more than 70 firings or resignations of corporate officials. The new information suggests that some executives profited from the market's plunge following Sept. 11 by manipulating options grant dates.

Larry Ribstein writes:

Let's put this in perspective. The fact that the backdaters picked a date that has been depressed by tragedy has nothing whatsoever to do with what the backdaters did or didn't do wrong.

I usually don’t pass along quotes like this without comment, but Ribstein says all that needs to be said.

This isn’t the first time the WSJ has tried to attach 9/11 to back-dating. Last summer, the same three authors of today’s story wrote:

On Sept. 21, 2001, rescuers dug through the smoldering remains of the World Trade Center. Across town, families buried two firefighters found a week earlier. At Fort Drum, on the edge of New York's Adirondacks, soldiers readied for deployment halfway across the world.

Boards of directors of scores of American companies were also busy that day. They handed out millions of bargain-priced stock options to their top executives.

At the time, I wrote:

Not very subtle, is it? The soldiers readying for deployment was nice touch. Those evil corporate plutocrats just couldn’t wait to profit off 9/11.

But hold up, how exactly did those boards know that the options grants were, as the Journal points out, “bargain-priced”? The answer is, they didn’t (assuming the options were at-the-money). More importantly, they couldn’t have known. The grants were based on nothing more than faith in the future, which was hardly in overabundance at the time.

It’s true that stocks nosedived when the markets reopened, but that alone doesn't mean the options were a bargain. After all, the market had already been falling, and it continued to fall for more than a year. In fact, the S&P 500 was still below its pre-9/11 level nearly three years after the attacks (and, of course, those soldiers readying themselves).

John Carney sums it up nicely:

Yelling “9/11” in an argument is usually a sure sign you’ve already lost it. It’s a desperate, pathetic move. So maybe there is something hopeful about the resort to it on the front page of the Journal. Maybe it means that the official backdating storyline is becoming less plausible.


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