Back dating of stock
As from that date, customers may have been invoiced by the transferee, employees may have been paid by the transferee, and accounting entries may have been made to reflect the purchase price payable for the assets.Together, these factors may indicate that the beneficial interest in the relevant assets has passed from a legal point of view.Most shareholder approved option plans prohibit in-the-money option grants (and thus, backdating to create in-the-money grants) by requiring that option exercise prices must be no less than the fair market value of the stock on the date when the grant decision is made. For example, because backdating is used to choose a grant date with a lower price than on the actual decision date, the options are effectively in-the-money on the decision date, and the reported earnings should be reduced for the fiscal year of the grant.(Under APB 25, the accounting rule that was in effect until 2005, firms did not have to expense options at all unless they were in-the-money.This process makes the granted option in-the-money and of value to the holder.This process occurred when companies were only required to report the issuance of stock options to the SEC within two months of the grant date.This is one of the most common issues which comes up in the context of group reorganisations or intercompany agreements. Giving a document a date which is earlier than the date when it was actually signed, would almost certainly constitute fraud.Although it may have been intended to put in place a new arrangement by a particular date – often a year end – that date may now have passed. Obviously the ideal position is to put in place the legal documents in advance. Well, it depends on what was transferred, and whether it can be said that the relevant transaction has already happened.
There are some cases where this approach is not possible.
This is the granted option that would be reported to the SEC.
The act of options backdating has become much more difficult as companies are now required to report the granting of options to the SEC within two business days.
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.