Option backdating list Webchatsexs
In its most basic form, backdating can range from the blatant falsification of a document to take advantage of a lower stock price to allowing executives to select a grant date during a specified period, for example during the 30 days after the grant is approved by the board or committee.Although these practices involve different types of conduct, both create problems because the date when the exercise price is set is not the same as the date on which the option is awarded.Options granted as of the date of employment acceptance are also troublesome if the plan does not permit grants to non-employees or if the additional tax and accounting issues relating to grants to non-employees are not adequately addressed.A company may decide to grant options on a specific date but the corporate formalities may not be completed until a later date.But if these conditions are not met, a number of negative consequences can result, depending on the individual circumstances of the practice at issue.Options that are granted at less than fair market value result in higher levels of compensation expense.Grants to new employees based on inaccurate employment commencement dates are troublesome.Options granted as of the commencement of employment based on the market price as of the date of acceptance may be problematic if the plan does not permit below-market grants or the grant is not treated as a discounted option for accounting and tax purposes.
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.Officers and directors could face criminal liability if they have intentionally falsified documents. Companies need to understand their historical option granting practices, address any potential problems and review their option granting procedures going forward.Plaintiffs’ attorneys have filed lawsuits based on backdating allegations, claiming breach of fiduciary duty, unjust enrichment, self-dealing, corporate waste and violations of securities laws. The first step is to review historical practices with counsel to identify areas of potential concern.If the compensation expense is not properly reflected in earnings, the company’s financial statements will be inaccurate and restatement of the financials may be required.The discovery of past backdating practices may raise issues as to the adequacy of the company’s internal controls and disclosure controls and procedures.