The SEC is investigating more than 100 companies to determine if any were involved in inappropriate or illegal options granting practices.

Backdating is when a firm sells an executive a share of the company’s stock at a price from a few days before the actual option grant. Usually that price is lower than the sale date’s price. The practice itself is not illegal as long as the firm discloses the fact that it did so and lists the discount in its financial statements

The SEC addressed the issue when it released its final rule on executive compensation in July. According to the new rule, firms will be required to not only list the dates when they grant options, but they must also include a discussion of why they were granted on those dates.

The regulator is not stopping at just implementing new rules on the practice. It has also sweep investigations to see if companies’ backdating policies are above the board.

So far, the regulator’s Division of Enforcement has investigated more than 100 companies throughout the country, according to SEC Chairman Christopher Cox. He recently told the Senate Committee on Banking, Housing and Urban Affairs that just because 100 firms are under investigation does not necessarily mean it will result in 100 cases. But, he warned, more enforcement actions are on the way over the practce.

Cox did not go into details about the types of firms the SEC was looking at. But at the Practising Law Institute’s Broker/Dealer Regulation & Enforcement Conference earlier this month, Linda Chatman Thomsen, director of the SEC’s Division of Enforcement, emphasized that the firms were located throughout the country and across industries and capitalization sizes.

Later in the same conference, SEC Commissioner Paul Atkins said he was optimistic that the ongoing investigations were not reflective of an epidemic of backdating abuses in the industry.

“Hopefully this problem is not widespread and that the egregious acts are isolated,” Atikins told the crowd.

By initiating the sweep investigation, the SEC wants to inspire companies to look at their options policies and make sure executives are obtaining and selling them properly.

“I don’t think it will take 100 cases to get the message out there to firms,” said Robert Romano, of the law firm Morgan, Lewis & Bockius, who was on the panel with Thomsen. “In the post-Enron era, many eyes are on that stuff.”

One of the common elements among the investigated firms is that the records firms keep about their options program are often a disorganized mess, Thomsen complained. She added that unlike other violations, where problems can be traced to one or two underlings who work independently, in these cases the violations are taking place at the “very high levels” of the company.

In order to get to the bottom of options backdating, the SEC has been using techniques that it had not used before, such as using academics to look into the problems at individual companies. Thomsen said academics have the tools to analyze the data and to look at the industry in a broad sense.

“It’s something we will try and use and exploit in other investigations,” she told the crowd at the PLI Conference. “It’s not unique to this situation.”

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