Stock options backdating articles
Our identification strategies rule out plausible alternative explanations for these abnormal returns.The data appears to show that, at the companies in question, share prices tend to decline in the 90 days before grant and then rebound afterward much more than at comparable companies during the same period. The SEC’s complete overall of its proxy reporting rules, which occurred a few years late and included the CD&A requirement, suggested that companies disclose in their proxy statements whether they attempt to “time” the award of options to occur before or after the release of news to the market.In 2005, I posted on the major scandal involving companies’ backdating stock option awards.
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.
This sort of case can be brought against the corporation and its officers and directors and can result in the disgorgement of profits, stiff monetary penalties, and prohibitions against officers and directors serving any public company in those capacities in the future.
As in other enforcement areas, the SEC has a penchant for pursuing through civil actions matters that involve blatant and intentional misconduct.
In that case, corporate officers inserted backdated option grant dates into board of directors’ unanimous written consents that were transmitted to the compensation committee.
Options were also backdated for new employees to dates prior to the date employment actually commenced.
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As a consequence, the option is immediately profitable, or “in the money,” to the option holder.