When is options backdating legal

Here’s how it works: Say you’re CEO of ABC Widgets Inc., and the company has issued you options on 100 shares of company stock, which today is worth 0 a share.Once the share price goes up, you can exercise your options to buy the shares and sell them for the higher amount, thereby making a tidy profit. But three months ago, your company’s stock was trading at a mere a share.How about, instead of saying you got your stock options granted today, when the stock is 0 a share, we claim you got the options three months ago, which instantly gives you a /share profit?

The date chosen could be one when the company’s stock was at a low, so the options can be in-the-money at the time of granting itself. In addition, any inadequate internal controls that led to the inaccurate reporting would constitute a separate violation. Intent Requirement For Securities Fraud Under the securities acts, a defendant must act 'willfully' or 'willfully and knowingly.' See 15 U. This intent requirement is important in options backdating cases to determine whether executives may face criminal, rather than merely civil, penalties. If an executive who participated in backdating certified the company's financial reports, and those reports did not disclose and account for backdating, then he would be liable for making a fraudulent certification. Though federal courts have inconsistently construed these terms, Where the statute requires the person acted 'willfully and knowingly,' however, some courts require the government to show not only that the defendant knew that backdating was wrongful (willfully), but also that it was unlawful (knowingly). Internal Revenue Code Section 162(m) Section 162(m) caps the annual deduction for compensation paid to top executives at one million dollars. The right way: being a visionary leader who inspires others to do such a fantastic job of keeping customers happy that the company’s stock price goes through the roof, thereby increasing both shareholder value and the value of one’s own compensation package.The wrong way: deceiving shareholders and regulators about the value of stock options through a little trick called options backdating.

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