Back dating software

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If a company grants options on June 1 (when the stock price is 0), but backdates the options to May 15 (when the price was ) in order to make the option grants more favorable to the grantees, the fact remains that the grants were actually made on June 1, and if the exercise price of the granted options is , not 0, it is below fair market value.

If a company grants options on June 1 (when the stock price is 0), but backdates the options to May 15 (when the price was ) in order to make the option grants more favorable to the grantees, the fact remains that the grants were actually made on June 1, and if the exercise price of the granted options is , not 0, it is below fair market value.

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There is a five-year statute of limitations for securities fraud, and under the Sarbanes-Oxley Act of 2002, option grants to senior management must be reported within two days of the grant date.

This all but eliminated the opportunity for senior management to engage any meaningful options backdating.

It was forced to restate earnings by recognizing a stock-based expense increase of $723 million between 19, after allegedly manipulating its stock options grants for the benefit of its senior executives.

It allegedly failed to inform investors, or account for the options expense(s) properly.

However, if the company granted options with an exercise price below fair market value, there would be a compensation expense that had to be recognized under applicable accounting rules.

If a company backdated its stock options, but failed to recognize a compensation expense, then the company's accounting may not be correct, and its quarterly and annual financial reports to investors may be misleading.

The problem with this practice, according to the SEC, was that stock option backdating, while difficult to prove, could be considered a criminal act.

One of the larger backdating scandals occurred at Brocade Communications, a data storage company.

Toward the other extreme, where the backdating was a result of overly informal internal procedures or even just delays in finalizing the paperwork documenting options grants, not intentional wrongdoing, there is likely to be no formal sanction—although the company may have to restate its financial statements to bring its accounting into compliance with applicable accounting rules.

With respect to the more serious cases of backdating, it is likely that most of the criminal actions that the government intended to bring were brought in 2007.

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