Erik lie backdating study
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.This is not always the case, according to a ruling by federal judge William Alsup of the U. District Court for the Northern District of California.According to Alsup’s reasoning and subsequent ruling, it is improper to infer fraudulent activity based solely on the occurrence of options backdating – further facts must be present and proven before the act can be considered to be fraudulent.The SEC’s opinions regarding backdating and fraud were primarily due to the various tax rules that apply when issuing “in the money” stock options versus the much different – and more financially beneficial – tax rules that apply when issuing “at the money” or "out of the money" stock options.Additionally, companies can use backdating to produce greater executive incomes without having to report higher expenses to their shareholders, which can lower company earnings and/or cause the company to fall short of earnings predictions and public expectations.
With the addition of the Brooks Automation lawsuit, the number of companies named in securities fraud class …While this conclusion is logical in cases of options backdating in which executives knowingly participated in the criminal actions, options backdating can be a result of normal accounting or corporate policies that are not criminal in nature, and is a legal practice as long as the backdated contract is appropriately reported for tax purposes.Academic researchers had long been aware of the pattern, exhibited by some companies, of share prices rising dramatically in the days following grants of stock options to senior management.Continue Reading D & O insurers, concerned about lawsuits that have already have been filed and troubled by the possibility of an unknown number of lawsuits yet to come, have begun to respond to the options backdating investigation.
On June 20, 2006, the Wall Street Journal (subscription required) carried an article entitled "Options Timing Raises Concern Among …Corporations, however, have defended the practice of stock option backdating with their legal right to issue options that are already in the money as they see fit, as well as the frequent occurrence in which a lengthy approval process is required.