ARTICLE · 25 JUNE 2010

What's Wrong with Stock Option Backdating?

Torys LLP

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What’s wrong with stock option backdating? The short answer is that there is nothing wrong with backdating stock options if appropriate procedures are followed and the transactions are properly accounted for and disclosed.

United StatesFinance and Banking

What's wrong with stock option backdating? The short answer is that there is nothing wrong with backdating stock options if appropriate procedures are followed and the transactions are properly accounted for and disclosed. Backdating is a practice of locking in financial gains by retroactively pricing stock option grants on days when a company's stock price is low, thereby increasing the value of the options. This practice is legal when properly recorded as a non-cash corporate expense. Then why have more than 170 companies been investigated since 2007 by the Securities and Exchange Commission (SEC) and other federal authorities for potential fraud in connection with stock option backdating (SOB) practices?

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