Delta clears execs in options scandal

David Milstead, Rocky Mountain News

Published January 30, 2007 at midnight

Text size

More Money & Markets

The only Colorado company publicly identified in a wide-ranging options backdating scandal says an internal investigation has cleared it and its executives.

According to a Securities and Exchange Commission filing, Delta Petroleum's special board committee found "deficiencies in the documentation of (the company's) option grants in prior years," but said "there was no evidence of option backdating or other misconduct by our executives or directors in the timing or selection of our option grant dates."

The committee also said there was no evidence "that would cause us to conclude that our prior accounting for stock option grants was incorrect in any material respect."

The Denver-based oil exploration and drilling company was identified in May by the research firm Center for Financial Research & Analysis as having an unusual pattern of granting options at low trading prices for the stock.

The company formed a special board committee to investigate. The U.S. attorney for the Southern District of New York subpoenaed Delta Petroleum, and the SEC opened an informal inquiry.

An investigation by the Rocky Mountain News found that in four of the past eight years, when Delta Petroleum granted stock options to its top executives, it issued them with an exercise price equal to the stock's 52-week low. In two of those cases, the company disclosed that it was "repricing" previously issued options.

Delta said it provided the results of the internal investigation to the U.S. attorney and the SEC in August. The new disclosure is the first time the company has revealed the special committee's conclusions.

Delta's options have made its executives millionaires, with the former and current CEOs, Aleron Larson Jr. and Roger Parker, making more than $20 million in profits since July 2004.

Todd Fernandez, a senior research analyst with San Francisco-based Glass Lewis, authored a report last year on options backdating. After reviewing Delta Petroleum's disclosure, he said "it's hard to say" whether backdating occurred because it's "lacking significant details."

"They said there were deficiencies - what were they? Did they rise to the level of material deficiencies? What remedial actions were taken?" Fernandez asked. "They're basically saying (the pattern) was just chance."

Tim Beyer, a Brownstein Hyatt & Farber attorney who serves as the company's counsel, rejected the criticism. "Everything we did was done with total transparency to the auditors," he said. "If there was anything material that the auditors considered to be a problem, that would have been raised."

Delta faces a shareholder lawsuit over the options. Delta has filed motions to dismiss the suit.What is option backdating?

Stock options give the holder the right to buy a stock at a set price, typically the market price on the day the option was issued. Companies "backdating" options issue them with an older, lower price from the past to give executives instant profits, then fail to disclose or account for the windfall.Who's suspected of doing it?

At least 200 companies have disclosed internal or federal investigations and about 70 executives and directors have left their jobs.

Delta Petroleum

DPTR: Nasdaq

$21.06

- 3 cents

milstead@RockyMountainNews.com or 303-954-2648.

Subscribe to the Rocky Mountain News