However, by 2002, the time the control measure, Section 403 of the Sarbanes-Oxley act, was passed, 1 out of every 5 companies were suspected to still utilise the practice.
Widespread backdating caused a media stir in 2006, with prominent companies such as Comverse and United Health being indicted.
Do you ever wish that you could turn back the hands of time?
Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower.
This is a way of repricing options to make them valuable or more valuable when the option “strike price” (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.
This means they must wait for the stock to appreciate before making any money.
Although it may appear shady, public companies can typically issue and price stock option grants as they see fit, but this will all depend on the terms and conditions of their stock option granting program.
Additionally, companies can use backdating to produce greater executive incomes without having to report higher expenses to their shareholders, which can lower company earnings and/or cause the company to fall short of earnings predictions and public expectations.