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.