In particular, he found that stock prices tend to increase shortly after the grants.
He attributed most of this pattern to grant timing, whereby executives would be granted options before predicted price increases.
Remy Welling, a senior auditor at the IRS, was asked to sign the deal in late 2002.
Instead, she decided to risk criminal prosecution by blowing the whistle.
Any remaining pattern is concentrated on the couple of days between the reported grant date and the filing date (when backdating still might work), and for longer periods for the minority of grants that violate the two-day reporting requirements.
We interpret these findings as strong evidence that backdating explains most of the price pattern around ESO grants.
Backdating allows executives to choose a past date when the market price was particularly low, thereby inflating the value of the options.