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October 11, 2006
Allen Stock-Option Story Pays Thin Dividends

I haven't followed the latest controversy in the Allen-Webb campaign for the Virginia Senate seat, mostly because I found it less than compelling. Apparently, so do Virginia voters; they have Allen up by six points according to last week's Rasmussen poll despite the Webb campaigns weird smears of Allen as a secret Jewish racist.

This kerfuffle revolves around stock options owned by Allen in 2000 that supposedly didn't get disclosed. The Webb campaign, boosted by Bloomberg News, claims that they were worth $1.1 million dollars at one point (emphasis mine):

In March 2000, Allen held 60,000 options when Xybernaut shares closed at an all-time high of $23.75. That would have made the options worth $1.1 million, less commissions and fees, had Allen exercised them.

At that time, Allen could have paid $5.47 and $1.56 respectively for two groups of options, sold them and pocketed the difference. He was awarded another 50,000 options in October 2000.

Greg Walden, an attorney at Patton Boggs LLP in Washington who represents Allen, said the options with Xybernaut expired 90 days after Allen left the board in December 2000.

Walden said Allen never exercised the options. They became worthless as the share price fell. The company went bankrupt in 2005.

Now, I'm no financial genius, but I do believe that stock options that never get exercised are worth -- nothing. And expired stock options are worth -- nothing. The only thing that could make this story even less interesting is if Allen actually declared the stock options.

And look! It gets even duller:

Senator Allen did disclose the stock options in an amended 2000 financial disclosure report ...

The Senate Ethics Committee staff verbally advised the Senator’s office that stock options that are “underwater” have “no value” and are not required to be disclosed. This was consistent with the language of the preparation instructions for the report forms, and with the Ethics Committee staff’s subsequent lack of comment on their absence. When notified of a difference between the ethics form and the ethics manual, naturally, the Senator’s office quickly moved to ask for a clarification and will comply with the determination.

So to recap, Allen disclosed stock options that had a net value of $1250 by the time he was ready to take office, never exercised them, and therefore received absolutely no benefit from them. The only instance of supposed influence Webb can state is that Allen asked the Army to respond to a letter from the company, after which Allen never took up the issue again. He never realized a single dime from the options, not even after the company won a $2 million contract in 2003.

Oh yea, this is a compelling story for Virginians. What's next from the Webb campaign -- did Allen rig pinball machines in high school in order to get free plays?

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Posted by Ed Morrissey at October 11, 2006 5:22 AM

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