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Backdating of Executive Stock Options

 

Stock options backdating

Former UnitedHealth Group CEO/Chairman Settles Stock Options Backdating Case for $ Million; Settlement Is Largest to Date in an Options Backdating Case (SEC v. Options backdating occurs when a company issues stock options on one date, but reports in its financials an earlier issue date to create a “strike” or exercise price equal to . DEFINITION of 'Options Backdating'. Options backdating is the process of granting an option that is dated prior to the actual issuances of the option. In this way, the exercise price of the granted option can be set at a lower price than that of the company's stock at the granting date. This process makes the granted option "in the money" and of value to the holder.



Options backdating - Wikipedia


In this way, the exercise price of the granted option can be set at a lower price than that of the company's stock at the granting date. This process makes the granted option "in the money" and of value to the holder. This process occurred when companies were only required to report the issuance of stock options to the SEC within two months of the grant date.

Companies would simply wait for a period in which the company's stock price fell to a low and then moved higher within two months. The company would then grant the option but date it at or near its lowest point. This is the granted option Stock options backdating would be reported to the SEC. The act of options backdating became much more difficult after companies were required to report the granting of options to the SEC within two business days.

This adjustment to the filing window came with the Sarbanes-Oxley legislation, Stock options backdating. After the two-day reporting rule went Stock options backdating effect, Stock options backdating, the SEC found numerous companies were still backdating options in violation of the legislation. Disordered, Stock options backdating, untimely paperwork was cited as the cause in some cases of unintentional backdating.

Initially, lax enforcement of the reporting Stock options backdating was also blamed for allowing many companies to sidestep the rule adjustment that stemmed from Sarbanes-Oxley. The SEC would go on to investigate and sue companies and related parties that were found to backdate options, in some cases, as part of fraudulent and deceptive schemes.

For example, the SEC filed a civil lawsuit in Stock options backdating Trident Microsystems and two former senior executives from the company for stock option backdating Stock options backdating. The legal complaint alleged that from tothe former CEO and the former chief accounting officer directed the company to engage in schemes to provide undisclosed compensation to executives and certain employees.

CEO Frank C. Lin was accused of backdating stock option documents to give the appearance that options were granted on earlier dates than issued. This included options backdating presented in offer letters to new hires. Annual and quarterly reports filed by the company did not include the compensation costs that stemmed from the options backdating incidents. Corporate Finance. Advanced Options Trading Concepts. Your Money. Personal Finance. Your Practice.

Popular Courses. Login Newsletters. What Are Options Backdating? Compare Investment Accounts. The offers that appear in this table are from partnerships from which Investopedia receives compensation. Related Terms Enron Enron was a U. Bullet Dodging Bullet dodging is a shady employee stock option granting practice, in which grants are delayed until after bad news about the company has been made public, Stock options backdating.

Whistleblower A whistleblower is anyone who has and reports insider knowledge of illegal activities occurring in an organization. Whistleblowers are protected from retaliation under various programs and laws. How Clawbacks Work A clawback is a situation in which an employer or benefactor reclaims money that has already been given out, sometimes with a penalty. Partner Links.

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Ethics of Options Repricing and Backdating

 

Stock options backdating

 

Former UnitedHealth Group CEO/Chairman Settles Stock Options Backdating Case for $ Million; Settlement Is Largest to Date in an Options Backdating Case (SEC v. Backdating of Executive Stock Option (ESO) Grants. The number of shares subject to option was , and the exercise price was $30 (the trough in the stock price graph below.) Given a year-end price of $85, the intrinsic value of the options at the end of the year was ($$30) x . One study showed that backdating stock options added approximately $, to the average executive’s pay at 48 companies between and , but the market value decline in those companies since the investigations into the practice began has been approximately $ million, or more than $10 per share, on average (Eric Dash, “Report Estimates the Costs of a Stock Options Scandal,” .