The practice is illegal if it is not followed by proper disclosure and related expenses are not recorded in financial statements.Altschuler has successfully litigated cases relating to multi-billion dollar buyouts, investment stakes, tender offers and contests for corporate control, breach of fiduciary duty, financial and accounting fraud, insider trading, requests for company books and records, stock ," an executive summary that includes a collection of 57 case summaries and litigation updates reporting on complaints, motions, briefs, other pleadings, settlements and rulings involving stock options backdating litigation.Of course, Sarbanes-Oxley, the massive rewrite of U. Securities laws that went into effect in 2002, was supposed to address options backdating by requiring companies to report grants of stock options within 48 hours.Although this may have lessened the problem of options backdating, it certainly hasn’t completely been eliminated.Executives looking to maximize their compensation have many ways to do so besides a bump in salary, including bonuses, stock, stock options, retirement plans, retirement insurance, golden parachutes, and other perks of the company-jet and season-ticket variety.There is great temptation to do everything possible to increase the value of individual elements in one’s compensation package, but there are right ways and wrong ways of making that happen. To avoid criminal liability, the company must have disclosed the fact that it was backdating and explained particularly how the option strike prices had been determined. Previously, companies were allowed to wait until the end of their fiscal year before reporting these transactions. Now option grants must be reported to the SEC within two business days of the grant date.
There are three major areas of potential criminal liability for former executives involved in stock options backdating: securities fraud, tax fraud, and mail or wire fraud. Backdating only becomes illegal when executives fail to disclose the practice in financial reports, and fail to properly account for backdated options according to Generally Accepted Accounting Principles (GAAP) and the relevant tax laws. Three possible violations of the Internal Revenue Code ('Code') could create criminal liability for backdating: (1) exceeding the compensation deduction limits of Section 162(m), (2) failing to qualify options under the rules that govern incentive stock options in Section 422, and (3) violating the provisions of Section 409A regulating deferred compensation.
R.240.10b-5, which prohibit the use of manipulative and deceptive devices in connection with the purchase or sale of securities.