Report Says Top Execs Failing to Pay Off Company Loans

Many top executives are failing to pay back money they borrowed from their employers before the Sarbanes-Oxley Act stopped the practice 18 months ago, according to a new report.

The Corporate Library’s study, released Friday, says the average outstanding loan is $4.7 million for the 44 companies that disclosed the information. The Union Pacific Corp. tops the list of companies with outstanding debt, having loaned Chief Executive Officer Richard Davidson $10.97 million, Reuters reported.

The Sarbanes-Oxley Act stopped almost all loans after a stream of accounting scandals raised questions about how CEOs were using the loan money. Former WorldCom CEO Bernard Ebbers, for example, was loaned $408 million, which played a part in that company’s eventual bankruptcy. The law did not, however, require that the loans made before Sarbanes-Oxley be repaid.

"One would think companies would try to clean up their loans as soon as possible," said the study's author, Corporate Library senior research associate Paul Hodgson.

Most of the loans were made so officers could buy company stock or exercise stock options. Executives, who were encouraged to buy stock, were left with lower-valued stocks and a big loan to repay when the stock market fell.

Hodgson said the second-biggest reason for the loans was paying relocation costs. A relocation loan could sometimes reach $5 million, he said.

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