What are backdated stock options and why are they illegal?

Answer 1

Normally, when a company issues incentive options to executives, the options are priced on or after the date they are issued. Backdating means that the option is priced on a date before they are issued. The reason this is done is to add no-risk value to the executive's compenastion. There is no law preventing this, as long as the practice is exposed in the annual report. If this were done, shareholders would undoubtedly put a stop to it, since it's only slightly removed from theft. Recently, there has been an epidemic of backdating where the practice HASN'T been revealed to shareholders. This is blatant theft, and is being prosecuted.

Answer 2

To reduce taxburden some companies handout stockoptions to it's executives today with a date that is few years back in time. So that they can pay off the options now rather than issue now and wait for few years from now. This is deductable as expenses now rather than few years from now.
So it is illegal backdating stockoptions because the company that does so winds up paying less taxes presently.
The problem is executives cannot cash in on their stockoptions in the year it is handed over may due to Sarbens Oaxley act which wants mor responsibility and tranaparency to the whole stockoption process. By doing so the executives won't create just good performance for one year but will keep on doing it for years to come with the hope that when they are permitted to cash in th their options it will have good value. So executives cheat on this by backdating so that they can get their compensation this year itself instead of waiting for three or four years in future to cash in.

Answer 3

Let's say that company AA stock back in Sept was selliing for $10.00 a share. Today, that same stock is selling for $50.00 a share. Back dating means that someone high in the that company buys shares at Sept price and sell today at March price and everyone else can't do that.

Answer 4

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