Stock backdating illegal

Posted by / 23-May-2020 15:28

Stock backdating illegal

Option backdating practices have resulted in broad regulatory scrutiny, formal inquiries by federal authorities, and internal investigations by companies.

In this paper, we investigate stock market reactions to option backdating probe announcements.

However, it can be permissible under certain circumstances.

For instance, one may backdate an insurance claim if there was an unavoidable delay between the date the insured event occurred and the day the claim was made.

In the context of corporate governance, the illegal practice of setting the date of options awarded as part of executive compensation to a period when the stock price was very low (rather than setting the date of the options on the date the award was made).

The act of dating a document before the date it was actually signed.

The stock option “backdating” scandal has implicated several (mostly technology) companies over the past few months.

But abuse of stock options has been allowed to perpetuate for years.

In all my reading of the backdating scandal coverage, I have yet to see a thorough analysis of the real victims of this scandal: shareholders.

Simply put, backdating a stock option grant amounts to ripping off shareholders by shortchanging the company treasury.

For example, if one signs a contract on February 1, one may backdate it to January 31.

Backdating is usually illegal; for example, one may use backdating to evade taxes.

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