Definition of option backdating
Fourth, we proceed to an analysis of good corporate governance practice involving backdating options based on a series of ethical standards including: (1) trustworthiness; (2) utilitarianism; (3) justice; and (4) Kantianism.
We conclude that while executive compensation schemes (e.g., stock options) were originally intended to help remedy the agency problem by tying together the interests of the executives and shareholders, these schemes may have actually become “part of the problem,” and that the solution ultimately depends upon whether directors and executives accept that all of their actions must be based on a set of core ethical values.
The company would be liable for any taxes it failed to withhold, as well as interest and other penalties, and executives' concomitant personal liability would depend on whether they committed these acts 'willfully' and in violation of the Code's criminal provisions.
Internal Revenue Code Section 409A Section 409A requires companies that grant discounted stock options to treat them as a form of 'non-qualified deferred compensation' for taxation purposes.
Wire And/Or Mail Fraud Finally, improper backdating practices could also subject an executive to criminal liability for violations of the federal mail and wire fraud statutes, which prohibit the use of mail or wire communication in furtherance of a 'scheme or artifice to defraud' or to 'obtain money or property by means of false or fraudulent pretenses, representations, or promises.' 18 U. Two GAAP approaches, Accounting for Stock Issued to Employees , Accounting Principles Bd.
If an executive who participated in backdating certified the company's financial reports, and those reports did not disclose and account for backdating, then he would be liable for making a fraudulent certification. Though federal courts have inconsistently construed these terms, Where the statute requires the person acted 'willfully and knowingly,' however, some courts require the government to show not only that the defendant knew that backdating was wrongful (willfully), but also that it was unlawful (knowingly). Internal Revenue Code Section 162(m) Section 162(m) caps the annual deduction for compensation paid to top executives at one million dollars.
Early exercise is, by definition, the exercise of options before they vest, so no, backdating the vesting start date (or the grant date, albeit illegal) does not by itself mean you have to wait until the options vest.
The grantee’s right to exercise early is a matter of the option grant documents, or consent of the company at the time of exercise, as well as the grantee’s ability and willingness to deal with any tax consequences of exercise.
is right that companies and grantees may not backdate the grant date of stock options.
If you claimed that the options were granted earlier than they actually were, in an effort to gain a tax advantage (such as capital gains treatment based on holding period, or a lower basis / strike price), or to shift income or expense recognition from one tax and accounting period to another, then that could break any of a number of laws in the US and presumably elsewhere.