Subsequently, the Securities and Exchange Commission (SEC) took an interest, followed by the securities plaintiffs’ bar and many corporations. The practice of options backdating, apparently widespread from 1996 through 2002, is widely believed to have been short-circuited by the enactment of Sarbanes-Oxley in 2002.Although backdating had not yet been recognized as a problem, the provisions of Sarbanes-Oxley requiring that insiders report the acquisition of securities, including options, within two days of receipt greatly hindered the ability of corporations to backdate options.The Internal Revenue Service has also joined a number of investigations due to the tax implications of options backdating, both with respect to the individuals who received the backdated options as well as the corporations that failed to account properly for the options when they were granted.
Public announcements that a company or the SEC is investigating possible backdating issues have spawned a rash of civil suits.
Class actions ostensibly are brought on behalf of the shareholders of the company who have been impacted by the option grants.
Shareholder claims typically are grounded in some allegation of misrepresentation.
Likewise, in a case involving Comverse Technology Inc., the U. Attorney charged the former CEO, the former CFO, and the former General Counsel with violating securities laws.
In that case, corporate officers inserted backdated option grant dates into board of directors’ unanimous written consents that were transmitted to the compensation committee.