The backdating molehill grows another mountain

The WSJ Law Blog's Peter Lattman writes in the WSJ on hedge funds declaring defaults when firms delay their quarterly reports. The problem is that the backdating scandal has caused myriad such delays recently. This means potentially big bucks for the hedge funds as they get early payment or extort additional payments, with commensurate losses and possible disasters (cross-defaults, bankruptcy) for the defaulting firms.

You might chalk this up to opportunism by the hedge funds – they're easy to blame lately.

Or make this another cost of the egregious sin of backdating. However, as I've been discussing at length (see my Executive Compensation archive) it's not an egregious sin. Indeed, as I pointed out in my most recent post, backdating may not cause much harm at all.

One might say, nevertheless, that the companies brought this on themselves by misreporting. But the journalists and their overheated reported obviously affected the materiality of the problem, which in turn triggers criminal allegations, and now this default problem.

So I prefer to see this as an example of how irresponsible financial journalism can create an atmosphere of regulatory uncertainty that imposes real costs on businesses.