Stock options backdating back datedated dating option
Plaintiffs’ lawyers have seized upon this issue as yet another opportunity to bring cases against corporations and their officers and directors.Such cases are brought under the guise of both class actions and shareholder derivative proceedings.Class actions ostensibly are brought on behalf of the shareholders of the company who have been impacted by the option grants.Shareholder claims typically are grounded in some allegation of misrepresentation.
Of course, the imposition of an officer and director bar against those who are intimately involved with the backdating process can result in a corporation losing its founder or other key management personnel.The Internal Revenue Service has also joined a number of investigations due to the tax implications of options backdating, both with respect to the individuals who received the backdated options as well as the corporations that failed to account properly for the options when they were granted.Of course, disparity between a reported grant date and the actual grant date is not always intentional.Two indictments have been issued and multiple guilty pleas have been entered in the most egregious cases. To a public corporation, the potential consequences of engaging in options backdating are manifold and can range from none whatsoever to having founders and CEOs going to prison. For example, in the case involving Brocade Communications, the SEC charged the former CEO and the former Vice President of Human Resources with criminally violating the securities laws.In addition to the governmental investigations, more than 200 companies have completed, or are conducting, internal investigations — either because they want the comfort of knowing that they have not engaged in options backdating or they have an inkling that they did and want to be proactive in addressing the problem. In a follow-up study to his earlier work, Professor Lie estimated that 29 percent of 7,774 companies he surveyed backdated option grants to executives between 19. The facts of that case as set forth in the indictment were egregious.