The comment generally necessitates a written response by the company to justify the pricing associated with the options. After the company responds in writing to the SEC cheap stock issue, there may be discussions between the registrant and the SEC related to the pricing of the options. Timing and Magnitude Historically, the SEC focused its attention on options granted within a 12-month period prior to the filing. More recently, they have extended that timeframe to 18 months to two years. Their focus continues to be the most recent 12 months, but scrutiny has increased beyond that timeframe.
Larger grants generate the most scrutiny.
This makes sense, if only from the perspective that any problems with the pricing will have a more significant impact on the reported compensation expense. Companies should be especially aware of their option pricing at, or around, the time of significant grants. When using this type of benchmarking logic, it is important to carefully consider the significant differences in the specific terms and conditions of the preferred stock versus the common stock. The timeframe of the grant, the third-party sale, and the filing are very important. In some instances, the timeframe impacts the relative importance in the consideration of the specific terms.