Please Login to Mondaq or Register for unlimited free access and a complimentary news alert. An options holder stock option backdating scheme has to wait at least one year before exercising his or her stock options at the exercise price.
It allegedly failed to inform investors, or account for the options expense s properly. Secondly, backdating of stock options must be effectively communicated to the shareholders both within the Qs and K, as well as during quarterly and annual shareholder meetings.
As of December 7,the SEC had concluded its investigation of only one of the more than companies without punitive stock option backdating scheme. Lin, and Peter Y. Since stock can be cashed out to pay the cost of converting options and pay related taxes, higher prices on exercise dates necessitate fewer shares to cover associated costs.
As a result, companies are subject to investigations, fines, penalties, loss of key executives, and financial restatements. The American Perspective The number of cases involving options backdating continues to rise in the United States.
Options backdating has become much more difficult since the introduction of Sarbanes-Oxley as companies are now required stock option backdating scheme report option grants to the SEC within two business days. Register For News Alerts.
In financeoptions backdating is the stock option backdating scheme 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. Partner Links.
Backdating options has been considered to be an unethical or illegal practice, and is now subject to legal and regulatory enforcement since the Sarbanes-Oxley Act of
Wong, SEC v. Read More. Investopedia requires writers to use primary sources to support their work. In essence, the revision enabled companies to increase executive compensation without informing their 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.
While there are legal methods for backdating option grants, as will be discussed in the foregoing section, few companies succeed.