Each Director Was Just Granted A 5,000 Share Stock Option, At $7.70?!

It bears noting here (click image at right, to enlarge) that these entirely discretionary 5,000 stock option allotments were each granted at the May 18, 2012 NASDAQ closing price for MATR. I am pretty sure that Mr. Conway would argue (and in fact is so-arguing, through his corporate investor relations representatives) to so-called "buy-side" analysts that -- at the $7.70 price -- MATR was significantly under-valued. [I might suggest otherwise, but that doesn't matter in the analysis of conflicted transactions, under the law, below.]

Remember that about ten days earlier, it was trading at $9.45. Also remember that Mr. Conway told the world -- on May 10, 2012 -- that the restatement would not affect future results, and would only affect one line, on the historical income statements. He plainly minimized the $0.55 per share 2011 increase in GAAP losses per share, from continuing operations, on the quarterly call (that shocking jump in GAAP Loss Per Share for 2011 wasn't disclosed until effectively five days later -- May 14, 2012, after market-close).

So, I ask: how -- given Mr. Conway's supposedly-genuinely expressed views -- regarding the triviality of the GAAP losses per-share "errors" -- can it be appropriate to choose a grant date for the board of directors' stock options that transfers an unwarranted, undeserved (in Mr. Conway's own view) discounted exercise price? At $7.70, this is the moment when the directors' fiduciary duties -- to avoid engaging in conflict of interest transactions, vis-a-vis the company itself -- trump the regular incentive compensation calendar. Or, in a well-governed public corpotation, those duties ought to.

Of course, if asked, Mr. Conway and the compensation committee will likely say that they grant the options in the same week of every year -- so they are just adhering to the prior schdule. That ignores the fact that the company announced what is -- in actuality -- a major GAAP financial restatement just three days prior to these "regular" but discretionary grants of options. That created an "unwarranted windfall opportunity" for the board -- if management's rosy predictions for the future of the Mattersight businesses are to be believed. And those predictions are governed by the SEC rules of being completely truthful, and non-misleading in any way (again, if Mattersight is complying with its lawful obligations, as a public company).

In sum, Mr. Conway -- as CEO -- cannot have it both ways: it cannot be that the restatement wasn't important -- and that the stock is undervauled -- and so, he is free to make rose-tinted forward-looking projections (all on the revenue-, not net profit- line) especially where (as here) insiders are to benefit (and benefit mightily, in Mr. Conway's own view) from the supposed pricing "anomaly".

Here endeth the lesson -- in conflicted transactions, by public company insiders.