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Posted by / 20-Dec-2016 02:02

Option backdating illegal

And to say it's up to the bean-counters to catch this situation is silly, because the whole reason you're using phony dates is so that the bean-counters won't know what you really did.And this is why defenses to backdating sometimes get hard for me to understand.Recording the exercise as having occurred on an earlier date when the stock price was lower would minimize the executive's income tax liability, but constitutes tax fraud.New research (July 2006) by Eric Lie and Randall Heron found that 29.2% of companies issuing options to executives and/or directors between 19 have grant date patterns that suggest backdating or other manipulative practices (such as "spring-loading," the announcement of a grant before good news is released), and 23% of options issued to executives appear to have been backdated or spring-loaded.Several companies have expressed their intent to restate financial statements due to option timing issues, and opportunistic attorneys have already filed derivative and class action lawsuits.The author of the academic study who is credited with focusing regulators on this issue estimates that at least 10% of “at-the-money” grants of options to CEOs between 19—before Sarbanes-Oxley shortened the reporting period for option grants—were backdated.The practice of “backdating” stock option grants has recently captured the attention of regulators, prosecutors, the plaintiffs’ bar, shareholders and the media.

In essence, the revision enabled companies to increase executive compensation without informing their shareholders if the compensation was in the form of stock options contracts that would only become valuable if the underlying stock price were to increase at a later time.This article will attempt to provide reasons why this issue is important, why civil and criminal authorities are investigating, and why it is critical that public companies who issued options over the past...Financial Services Law360 UK and Insurance Law360 UK provide breaking news and in-depth analysis on U. and European Union regulation, enforcement, legislation, and litigation involving banks, investment firms, insurers, and more.Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower.This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.

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The SEC’s opinions regarding backdating and fraud were primarily due to the various tax rules that apply when issuing “in the money” stock options vs.