Five independent directors on CytRx's (CYTR) board are $3 million richer after they granted themselves stock options one day before the company shares soared on the announcement of clinical trial results.
The incredibly well-timed stock-option grants paid out to CytRx's directors last week may be perfectly legal but still stink of insider self-enrichment.
Here's how CytRx's directors Max Link, Marvin Selter, Joe Rubinfeld, Lou Ignarro and Richard Wennekamp each made $600,000 for themselves last week. It was really quite simple:
Step 1: On Dec. 9, the compensation committee of CytRx's board approves the grant of stock options to purchase 180,000 shares of common stock to each non-employee director. Directors Link, Selter, Rubinfeld and Wennekamp serve on CytRx's compensation committee -- only Ignarro is missing -- so the board truly did vote to grant themselves the stock options.
Step 2: The exercise price of the stock options is set to closing price of CytRx's stock on Dec. 10. That was $2.39 per share. The option grants are allowed vest immediately.
Step 3: On Dec. 11 -- the next day -- CytRx issues a press release announcing "highly statistically significant positive results" from a phase IIb study of the cancer drug aldoxorubicin in soft tissue sarcoma. CytRx shares close the day 57% higher.
Step 4: Cytrx shares close Friday at $5.72, meaning the stock ends the week 127% higher. CytRx is the best-performing biotech stock for the week.
The exquisite timing of the options grant plus the company's aldoxorubicin press release one day later -- a coincidence, I'm sure -- combine to boost the value of each 180,000-option grant by $600,000. The total take for CytRx's five non-employee directors: $3 million!