Monday, May 22, 2006

Today’s Blockbuster, Brought to You by...Merrill Lynch

It’s not often Wall Street Research breaks new ground or gets a leg up on investigative reporters, but hitting my email this morning is a Merrill Lynch report that appears to do just that—and I am not, as longtime readers might suspect, being sarcastic.

For the record, I started my career at “Mother Merrill,” and it’s not easy doing timely, groundbreaking, stock-moving research at a vast shop whose constituents include bankers, bond guys, big institutions, small institutions, hedge funds, traders and brokers—not to mention the vast retail account system that feeds the Merrill beast. It’s hard enough keeping those constituents happy and up to speed, let alone finding something new to say about whatever group of stocks you happen to cover.

But the Merrill technology folks today put out a piece examining stock option grant patterns among their companies (“Options Pricing—Hindsight is 20/20”) that adds more fuel to the rapidly spreading fire that the Wall Street Journal, to its eternal credit, sparked some months ago, when it reported that certain company executives had been awarded option grants that had been so timely and profitable that it was extremely unlikely that such grants could have been made without backdating the actual grant date.

In the wake of the Journal’s truly groundbreaking report, at least one CEO has been fired, several executives have quit, and even the SEC (mon dieu!) has stirred into action against several companies.

Being a Merrill client and having plenty else to do, I will not paraphrase the Merrill options analysis or its conclusions here. However, if you are a Merrill client, I’d advise you to get your hands on it ASAP. If not, I suspect you’ll be reading about it soon enough.

Wall Street’s Finest come through!

Jeff Matthews
I Am Not Making This Up

© 2006 Jeff Matthews

The content contained in this blog represents the opinions of Mr. Matthews. Mr. Matthews also acts as an advisor and clients advised by Mr. Matthews may hold either long or short positions in securities of various companies discussed in the blog based upon Mr. Matthews' recommendations. This commentary in no way constitutes a solicitation of business or investment advice. It is intended solely for the entertainment of the reader, and the author.


Honorable Justice Jorge P. Smythe said...

Backdating was first hypothesized by a University of Iowa professor building on something noticed by a NYU professor.

hedged said...

Remember that it was also an academic paper that revealed the collusion among Nasdaq market-makers way back when. Sometimes econometrics is actually worth something.

EricBrock said...

Jeff, can you recall the analyst's name who produced the analysis?

Skylaker said...

Amazing how strange the discovery process is (or how strange the SEC is). Academics have known this for years but it isn't priced (or prosecuted) at all.