Backdating option scandal
Take this example, from The Wall Street Journal, which began investigating the practice last fall: "Suppose an executive gets 100,000 options on a day when the stock is at .Exercising them after it has reached would bring a profit of times 100,000, or million.But if the grant date was a month earlier and the stock then was at, say , the options would bring in an extra million."Such backdating is not necessarily illegal.But it could lead to a false disclosure, which may, in turn, violate federal securities laws.Company stock option plans are on file with the SEC, with a description of how the strike prices are calculated.But if the company later provides options at another price without further disclosure, then the company is violating its own plan.Backdating may also violate accounting rules because the stock options, which are equal to extra pay, affect the company's bottom line.
Dozens of companies – including United Health Group, Comverse Technology, Vitesse Semiconductor and Affiliated Computer Services – have caught the eye of the Securities and Exchange Commission and the Department of Justice for the timing of their stock option grants.
The question: did these companies backdate options grants – and falsify records – to make them more lucrative for their top employees?