The fixed price at which an employee can purchase stock is supposed to be whatever the selling price was on the day that the option was made available to them.
The practice is illegal if it is not followed by proper disclosure and related expenses are not recorded in financial statements.
recovery, the largest opt-out recovery, the largest credit crisis recovery, the largest corporate takeover recovery, and secured a historic jury verdict for the shareholder class after seven years of litigation and a six week trial against Household International, its CEO and CFO.
Awarding employees with stock options those are dated prior to the actual grant date.
The date chosen could be one when the company’s stock was at a low, so the options can be in-the-money at the time of granting itself.
This practice of changing the so-called date that the option was granted to the employee is called "backdating," and is illegal.
Companies generally use stock options as an incentive to the employees.The SEC plans to provide "additional guidance regarding disclosure of company programs, plans and practices relating to the granting of options, including in particular the timing of option grants in coordination with the release of material nonpublic information and the selection of exercise prices that differ from the underlying stock's price on the grant date." Now, backdating takes a bow.Described as the practice of granting stock options on one date, and then changing the date of the grant or award date to an earlier time when the stock price was lower, backdating is wreaking all sorts of havoc.Our event study of stock market reactions to the initial disclosure of backdating investigations shows that those reactions declined over our sample period.We also find that later backdating investigations are less likely to target individuals and less likely to be accompanied by a parallel criminal investigation.Executive stock options continue to grab headlines.