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Options backdating is the practice of issuing options contracts on a later date than that which the options have listed. It is not, in and of itself, an illegal practice. Intentional backdating that coincides with low underlying stock prices and accounting reports that claim the contracts to have been issued at those times as “at the money” - rather than “in the money” - contracts has resulted in the SEC’s public view that backdating could be considered fraudulent. Options backdating has been used to enhance or increase the value of options contracts while reaping the tax benefits of having issued “at the money” contracts.
The SEC’s opinions regarding backdating and fraud were primarily due to the various tax rules that apply when issuing “in the money” stock options vs. the much different - and more financially beneficial - tax rules that apply when issuing “at the money” stock options. Additionally, companies can use backdating to produce greater executive incomes without having to report higher expenses to their shareholders, which can lower company earnings and/or cause the company to fall short of earnings predictions and public expectations. Corporations, however, have defended the practice of stock option backdating with ...
