The number of U. Described by the Wall Street Journal as "the perfect payday"1, some company executives and directors are now stock backdating definition to suffer the consequences of a practice that saw several of them draw undue profits after issuing stock options on dates hand-selected to coincide with favourable exercise prices The American Perspective The stock backdating definition of cases involving options backdating continues to rise in the United States. There have already been nearly 150 shareholder derivative lawsuits filed, as well as over 100 public inquiries launched by both the SEC Securities and Exchange Commission and DOJ Department of Justice. Nearly 40 stock backdating definition and officers have resigned as a result of these investigations. Of late, Delaware's Court of Chancery has agreed to hear a shareholder derivative suit that is aimed at both the directors and the recipients of backdated stock options; the former for a breach of their fiduciary duty, and the latter for unjust enrichment.
Backdating What it is. In the finance world, backdating usually refers to the practice of changing the dates of option grants to one that is earlier than the actual grant date in order to place a lower exercise price on the options and thus enhance the potential profits from the exercise of those stock options. The practice sometimes also occurs in the insurance industry, whereby policy issuers make the effective date of a policy or claim earlier than the application date in order to obtain a lower premium for the customer or obtain better claim results. Those options give John the right but not the obligation to purchase 1,000 shares of Company XYZ stock at the market price on the date of the grant. The board formally grants the stock options to John every year at its January board meeting.
In this way, the exercise price of the granted option can be set at a lower price than that of the company's stock at the granting date. This process makes the granted option "in the money" and of value to the holder. Companies would simply wait for a period in which the company's stock price fell to a low and then moved higher within a two-month period. The company would then grant the option but date it at or near its lowest point. This is the granted option that would be reported to the SEC.
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