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In a major article on March 18, 2006, the Wall Street Journal reported that the Securities and Exchange Commission was investigating the possibility that corporate executives were back-dating their stock options to achieve greater profits when these options were exercised.

The article did not mention stock buybacks, nor the link between stock buybacks and the legalized price manipulation that is the key to giving value to executive options.

It's irrelevant if the pickpocket uses his right or left hand.

A silly diversion

It really doesn’t matter if executives back-date their stock options as long as they are free to choose the size and timing of stock buybacks that are effective in jacking up prices on the exchange relative to the price on their options.

See the essay “The Boeing Buybacks” for an example of how stock buybacks move prices on the exchange to the benefit of option holders.

To focus on the pricing of executive options seems a bit silly.

It is as if Congress made pick-pocketing legal, then the regulator was left to fret whether pickpockets are gaining an ‘unfair advantage’ by using their right hand.

When Congress passed Rule 10b-18 in 1982, granting safe harbor to corporations repurchasing their own equities, the great boom in stock options had not yet occurred.

There are obviously legitimate uses for stock buybacks, such as cleaning up outstanding issues after a merger of two public companies, that merit exemption from sanctions on market manipulation.

However, when stock buybacks reach $366 billion, as occurred in 2005, surpassing dividends of $234 billion, it should be obvious that the hands of corporate executives are already so deep in the cookie jar that the back-dating of their options to gain a few more dollars is just a side-show.