The SEC and other federal authorities are currently investigating more than 50 companies suspected of illegal, undisclosed options backdating practices, and the first criminal charges relating to these practices are expected shortly.
The practice of backdating options is not illegal as long as it is disclosed to shareholders.
If a reasonable person would conclude after considering the possibility of further undetected misstatements that the misstatement either individually or when aggregated with other misstatements would clearly be immaterial to the .
In comparison, had the options been granted at the year-end price when the decision to grant to options actually might have been made, the year-end intrinsic value would have been zero.
Backdating does not violate shareholder-approved option plans.
The Wall Street Journal (see discussion of article below) pointed out a CEO option grant dated October 1998.
The number of shares subject to option was 250,000 and the exercise price was (the trough in the stock price graph below.) Given a year-end price of , the intrinsic value of the options at the end of the year was (-) x 250,000 = ,750,000.
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.The practice is illegal if it is not followed by proper disclosure and related expenses are not recorded in financial statements.Teakell delivers proven representation for companies and individuals in a variety of white-collar and other criminal defense matters, including grand jury proceedings and internal investigations involving allegations of fraud, bribery, embezzlement, insider trading, stock Altschuler has successfully litigated cases relating to multi-billion dollar buyouts, investment stakes, tender offers and contests for corporate control, breach of fiduciary duty, financial and accounting fraud, insider trading, requests for company books and records, stock ," an executive summary that includes a collection of 57 case summaries and litigation updates reporting on complaints, motions, briefs, other pleadings, settlements and rulings involving stock options backdating litigation.It is also an important figure in the basis of many other individual planning issues as well as a key line item on the group who studies a number of companies and makes buy or sell recommendations on the securities of particular companies and industry groups.Substantive tests of financial information which examine relationships among data as a means of obtaining evidence.In this way, the exercise price of the option can be set lower than the stock price at the granting date.