Phillips Academy Graduate Wins 2007 Pulitzer Prize

Charles Forelle ’98 and three other Wall Street Journal reporters broke the scandal of companies back-dating stock options

April 19, 2007 — Journalism’s highest honor—the Pulitzer Prize—was awarded yesterday, and among the winners was Phillips Academy graduate Charles C. Forelle ’98, a reporter for the Wall Street Journal based in the newspaper’s Boston bureau. The Journal was awarded the Pulitzer Prize Gold Medal for Public Service for the work Forelle and three fellow reporters—James Bandler, Mark Maremont, and Steve Stecklow—did in uncovering and reporting the story of the widespread practice in corporate America of backdating acquisition dates of stock options in order to increase their value. This illegal procedure helped high-level management reap millions of dollars in excess compensation over the years covered in the reports, 1995-2002.   It was one of two Pulitzers won by the Journal this year, and its first-ever Public Service prize.

Forelle learned of the prestigious award when it was announced on Monday, April 16.  He said he and his fellow reporters “were totally elated, and a bit dazed.” He said, “it was very gratifying,” and that the impact of the series “is why we do what we do.” He also said he was eager for the excitement to quiet down so he could get back to writing.

To identify companies that were backdating options, Forelle and the other reporters worked with academic experts to develop their own statistical-modeling system using custom-built probability algorithms designed to assess the odds that an executive’s well-timed exercise of options resulted merely from chance. They found the odds were astronomical—300 billion to one, in one case. A math major at Yale, Forelle wrote a computer program called a “Monte Carlo simulation,” to calculate odds by repeating a test billions of time to identify companies most likely to be guilty of backdating their options.

Forelle, 27, joined the Journal as a summer intern in 2002, after graduating from Yale. He began working on the stock option series in late 2005, based on a stock option-related story one of his colleagues, Maremont, first reported. The first of nearly 20 big stories, called “The Perfect Payday,” broke on March 18, 2006 with wide repercussions throughout corporate America. More than 140 companies—including such household names as UnitedHealth Group Inc., Apple, Barnes and Noble, Monster Worldwide and KB Home—have been implicated and are under investigation by the (SEC).

In addition, approximately 80 top executives have been fired or left their positions. Ten former executives are facing federal or state criminal charges. The enormous scandal has lain hidden in corporate America for decades, taking billions out of the pockets of other shareholders. Forelle said the SEC investigation will likely take several more years and will be followed by a long, complex legal process.

Forelle said that he believed their reporting would have a lasting legacy. He hopes “it will shed light on a practice that has been going on for a long time that benefited the insiders to the detriment of the outsiders. It throws the issue of executive compensation into the limelight again, and companies are beginning to think more intelligently and carefully about executive compensation and corporate governance.”

During his Andover years, Forelle wrote for the Phillipian, serving as news editor from 1997 to 1998. He also had what he called “an undistinguished football career.” Kelly Wise, executive director of the Institute for the Recruitment of Teachers, was an instructor in English during Forelle’s years. He saw a journalist in the making. He remembers that in a novel and drama seminar, Forelle was “very thoughtful and very bright. He wrote very well and asked really itchy and penetrating questions about the texts we were studying.” He called him a “delight to have in class.”

Forelle said he was “bitten by the news bug” at Andover, and he found the spirit and comraderie at the Phillipian exhilarating. He said their “legendary advisor,” former faculty member Tom Lyons, instilled in him “the core journalistic values of fairness, accuracy, and devotion to the news.” He also said his English and math instructors—Wise and the late Robert Perrin—were great teachers, invaluable to his ability to accomplish the Pulitzer-winning project.

Tom Hodgson, chair of and instructor in Philosophy and Religious Studies, remembers Forelle as bright, funny, and articulate. Hodgson said he was “very proud to learn of his work, particularly his use of statistics in identifying anomalies in the dating of stock options given to top executives. He took what he knew, found creative ways to dig out the truth, and found others to collaborate where he needed them.  This is very impressive, and I think we at Andover can be proud of that.”

Forelle’s page in the 1998 yearbook carries this intriguing, perhaps prescient, quote from Dostoyevsky’s Notes from the Underground:  “Whether it is good or bad, it is sometimes very pleasant, too, to smash things.