Benefits of backdating stock options

With an option, the employee has the right to buy a share of stock at an "exercise" price.

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When a company grants stock options to its executives, they must file reports with the SEC.

Options backdating occurs when the employee manipulates the date that the option was granted.

For example, suppose an executive receives an option on April 15, when the company's stock price is $40.

"This dynamic organization is a prominent force in both judicial and regulatory arenas, promoting economic growth and allowing free enterprise to prosper.

If you share my beliefs that our countrys ability to compete in the world economy should not be hindered by excessive regulation and unreasonable court decisions, I encourage you to join WLF in defending free enterprise." By Sarah Hody, a summer associate at the law firm Fiore & Levine, PLLC in Arlington, Virginia, and Martin Kwedar, a public interest lawyer in Arlington, Virginia.

Legal Backgrounder, July 23, 2010, 4 pages WLF Legal Backgrounder By Sarah Hody and Martin Kwedar July 23, 2010 (Vol. 26) Following the sensationalized trials of Enron and Worldcom executives, the public has an intensely negative perception of the phrase "stock-option backdating." Contrary to media portrayals of the practice, stock-option backdating is not per se illegal.

Options dating is lawful as long as the three conditions exist: (1) the company's board has authorized the backdating, (2) the backdating has been fully disclosed, and (3) the company has reported the transaction under appropriate tax laws. By examining the recent criminal actions against Broadcom executives as an illustrative anecdote, the paper shows how prosecutorial indiscretion not only tampers with the lives of innocent people at taxpayers' expense, but can also complicate the pursuit of convictions against actual guilty persons.

Prosecutors can certainly address problems reflected in the Broadcom prosecutions by exercising greater restraint and respect for the rule of law.

A much more effective deterrent against inevitable overreaching, however, is to moderate the underlying incentive: vague federal criminal laws.

Greater precision in our criminal laws will decrease opportunities for abuse, while also increasing the likelihood that guilty parties will be convicted.

Stock Options, Backdating, and SOX Stock options are contracts that employers give to employees as a form of compensation. Information retrieved through

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