Risk Management

Pension Fund to Review Countrywide’s Books

A judge gives the green light after expert testimony that it was overwhelmingly likely the company manipulated the timing of its stock option grants.
Stephen TaubOctober 4, 2007

A Delaware judge has ordered Countrywide Financial Corp. to provide detailed information about its stock options granting practices to a pension fund that filed a lawsuit claiming the company distributed executive stock rights at “unusually suspicious and lucrative times,” according to the Los Angeles Times.

The ruling orders the lender to turn over “minutes, notes, presentations, slides” and other materials regarding stock options granted to Countrywide officers or executives, according to the report.

The court also told Countrywide to give the Louisiana Municipal Police Employees’ Retirement System, an investor that filed the suit, any information that Countrywide may have produced for regulators related to any investigation into Countrywide’s stock option grants.

Countrywide said in a statement that the suit “presented no credible evidence of wrongdoing relating to the purported manipulation of option grants Â…. We will continue to defend against the sorts of allegations that appeared in the LAMPERS’ [pension fund] complaint and any other such claims vigorously.”

The investor group began looking into Countrywide’s stock grants after the Corporate Library alleged in a wider study that Countrywide granted stock grants to executives at times that were suspiciously profitable.

The pension fund then hired economist Richard Goldberg to conduct his own review of stock grants for a number of companies, including Countrywide. According to the Times, Goldberg concluded that there was a “statistically significant result suggesting that some type of option manipulation may have occurred.”

Goldberg said there was only a one in 978 chance that the 11 stock grants he examined would prove to be as lucrative as they turned out to be merely by chance—a result “akin to flipping a coin and always seeing heads,” the Times reported.

Countrywide has not admitted to any irregularities regarding its option-granting practices, and the judge earlier this week did not rule on whether there were improprieties.

Although a Countrywide expert asserted that Goldberg’s analysis was flawed, the judge ruled that the pension fund had met a sufficient standard of proof to at least get access to Countrywide’s documents, according to the report.