Legal issues with backdating stock options
In some cases, the date of exercise, rather than the date of grant, was changed to an earlier date to convert ordinary income into capital gains.
In general, companies engaging in a classic backdating transaction chose a date when the stock price was at a low point and chose that favorable date as the grant date.
Whenever I write about backdating, many people write in to tell me that backdating's not illegal; you just have to account for it correctly.
Since so many people think this is an important point, I thought I'd do a post addressing just that contention. What I assume people mean is that granting in-the-money options is not illegal, so long as you account for it properly. But the whole point of backdating is to pretend that you're not granting in-the-money options when in fact you are.
Basically, a stock option is a contract right to purchase an amount of stock at a set price for a period of time.
It goes without saying that they also won't realize that, in reality, it's all being done a month later.Stock option backdating has erupted into a major corporate scandal, involving potentially hundreds of publicly-held companies, and may even ensnare Apple's icon, Steve Jobs.While the focus of the Securities and Exchange Commission ("SEC") centers on improper accounting practices and disclosures, thereby violating securities laws, a major yet little explored consequence to the scandal involves potentially onerous taxes on those who received these options.Sure the accounting rules are arcane and most people don't know them.But if someone asks you to write down a date from a month ago on a legal document, rather than today's date, doesn't it give you pause?