Contract law backdating

04 Apr

A quick examination of the cases against Brocade clearly identifies why backdating is synonymous with fraud, even though no U. The practice involves using hindsight to assign a stock-option contract an earlier date than its actual grant date.

By pushing the date into the past, to a time when the underlying stock traded at a lower price than it did the day the grant was issued, the option holder is, in effect, being given the promise of cash.

Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower.

This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.

These dates indicate when the contract or parts of it are due to have legal effect, if these dates are different to the contract and/or signature dates.

According to a study by Erik Lie, a finance professor at the University of Iowa, more than 2,000 companies used options backdating in some form to reward their senior executives between 19.

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 vs.

the much different – and more financially beneficial – tax rules that apply when issuing “at the money” or "out of the money" stock options.

Backdating refers to the procedure of dating any document to a date earlier than the application date.

Backdating is mostly used to make the age of the consumer at policy issue lower than the actual age to get a lower premium.