Close

Are you in compliance?

Don't miss out! Sign up today for our weekly newsletters and stay abreast of important GRC-related information and news.

Get updates on Compliance Week offerings, including new features, databases, research, and other resources, along with announcements of upcoming Webcasts, conferences, seminars, CPE/CLE opportunities and more.

Published every Thursday, Compliance Week Europe offers a condensed summary of risk, audit, and compliance news either originating in Europe, or of special interest to European compliance professionals. This newsletter will follow developments by the European Commission, as well as those of national governments across the region, or any U.S.-based news that might have consequence across the Atlantic. Frequency: weekly; Thursday a.m.

A fresh edition of Compliance Week delivered via e-mail and online every Tuesday morning, relentlessly focused on the disclosure, reporting and compliance requirements of our 25,000+ paying subscribers.

Published every Friday, Compliance Weekend was launched at the behest of subscribers, and offers a quick Plain English review of the week's key developments. We hope you enjoy this supplement to Compliance Week's Tuesday edition.

CEOs' Stock Hedges May Be Buried in Footnotes

Bruce Carton | February 26, 2010

BusinessWeek's Jane Sasseen had an interesting article yesterday about CEOs who shield themselves from drops in the price of their company's stock by contracting with third parties to hedge shares they own against a decline below a certain price. Hedging allows any investor--including 107 CEOs and other executives in 2009--to contain losses while still keeping some upside potential if the price keeps rising. Sasseen explains that when it is done by CEOs and other top executives, however, it may deprive investors in their companies of clues about future issues. Unlike insider sales, which are closely watched and scrutinized, disclosures of hedging are often quite vague or buried in footnotes of SEC filings.

Carr Bettis, the co-founder of forensic accounting firm Gradient Analytics and co-author of a recent study on hedging, says that his research found that in the year after executives and directors had engaged in hedging, their company's stock often dropped markedly and there was an increase in financial restatements and shareholder lawsuits. Bettis says that like other transactions, hedges must be reported on Form 4, but not in the two standard tables on the form. Instead, hedges are reported in footnotes, and he says details are often incorrectly reported or missing.

Meredith Cross, the SEC's Director of Corporate Finance, confirmed that the agency is studying whether its disclosure rules on hedging are adequate.