The Five Dumbest Things on Wall Street This Week

4. Artful Dodgers

Don't be surprised if Michaels Stores (MIK Quote) leaves this week's clippings out of its official scrapbook.

The arts-and-crafts retailer conceded in a regulatory filing Tuesday that it may have understated compensation expense by $60 million between 1990 and 2001. In making the announcement, Michaels joins a string of companies trying to pin down stock-option accounting problems.

Michaels cited apparent backdating of options in certain "nonroutine" option grants. Backdating allows companies to increase option holders' gains by putting an artificially low exercise price on their shares.

The company, which is trying to sell itself, said it doesn't expect a restatement. But regulators are looking into the stock-option issue all across the market. Michaels says two shareholders have sued, alleging breach of fiduciary duty. The Irving, Texas, company already faces a host of other legal challenges, including a probe of trusts tied to the family of Chairman Charles Wyly.

And that's not all.

"As the Audit Committee's review is not complete and is ongoing as of the date of this filing," Michaels explains, "additional information may become available which could cause the current estimate of potential unrecorded compensation to change materially."

Sounds like some financial embroidery may have taken place at Michaels.

Dumb-o-Meter score: 78. The findings came just days after Michaels trumpeted that its audit committee had "initiated an internal review on a proactive basis into the Company's historical stock-option grant practices." Way to be proactive five years later, guys.