Stock options backdating rules brad p the underground dating seminar

20-Nov-2019 11:54

Officers and directors could face criminal liability if they have intentionally falsified documents. Companies need to understand their historical option granting practices, address any potential problems and review their option granting procedures going forward.Plaintiffs’ attorneys have filed lawsuits based on backdating allegations, claiming breach of fiduciary duty, unjust enrichment, self-dealing, corporate waste and violations of securities laws. The first step is to review historical practices with counsel to identify areas of potential concern.It could also lead to delays in filing financial statements while the magnitude of the problem is determined.Adverse tax consequences may result from option backdating practices.But if these conditions are not met, a number of negative consequences can result, depending on the individual circumstances of the practice at issue.Options that are granted at less than fair market value result in higher levels of compensation expense.SEC Chairman Christopher Cox recently stated that the proposed SEC rules on disclosure of executive compensation will “almost certainly address options backdating explicitly.” I. Companies have considerable discretion in determining the timing of stock option awards.Most employee stock options are, or purport to be, granted “at-the-money,” meaning that the exercise price of the option equals the market price of the underlying stock on the date of the grant.

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Options granted as of the commencement of employment based on the market price as of the date of acceptance may be problematic if the plan does not permit below-market grants or the grant is not treated as a discounted option for accounting and tax purposes.

This problem occurs most often when boards or committees act by unanimous written consent but there is a delay in the receipt of all of the signed consents.

Even though no documents are backdated and there may be no intent to select a lower exercise price, backdating issues may arise if the stock price increases before the corporate formalities have been completed.

Option grants to new employees have their own set of backdating issues.

A company may want to give a new employee the benefit of any increase in the stock price from the date of acceptance of the employment offer.

Options granted as of the commencement of employment based on the market price as of the date of acceptance may be problematic if the plan does not permit below-market grants or the grant is not treated as a discounted option for accounting and tax purposes.

This problem occurs most often when boards or committees act by unanimous written consent but there is a delay in the receipt of all of the signed consents.

Even though no documents are backdated and there may be no intent to select a lower exercise price, backdating issues may arise if the stock price increases before the corporate formalities have been completed.

Option grants to new employees have their own set of backdating issues.

A company may want to give a new employee the benefit of any increase in the stock price from the date of acceptance of the employment offer.

Finally, an option granted at less than fair market value that either vests in whole or in part after December 31, 2004 or granted or modified after October 3, 2004 raises issues under the new deferred compensation rules set forth in Section 409A of the Code.