• Stock Option Backdating--How Big Are The Problems And What Should You Do?
  • June 21, 2006 | Authors: Ronald W. Breaux; Marilyn Doolittle; Daniel H. Gold; William R. Hays; Noel M.B. Hensley; Charles F. Plenge
  • Law Firms: Haynes and Boone, LLP - Houston Office; Haynes and Boone, LLP - Dallas Office; Haynes and Boone, LLP - Houston Office; Haynes and Boone, LLP - Dallas Office
  • Recently, over 40 public companies have come under investigation by the SEC or the Justice Department for improperly backdating options, and it is likely that more public companies will come under investigation in the future. At issue is whether option grants to executives and others were backdated to coincide with dates when a company's stock price was low, thereby increasing the potential profits realized by the holders of the options if and when exercised. Specific practices currently under scrutiny include (i) using a grant date that is prior to the date of the compensation committee meeting or other meeting at which the option awards were actually authorized, (ii) if awards were approved by unanimous written consent in lieu of a meeting, using a grant date that is prior to the date all signatures were actually received, (iii) using an "effective as of" grant date that is different that the actual award date, and (iv) changing the date of a board or committee resolution or option agreement to a date that is different than the actual award date. The SEC has also launched investigations where options were granted immediately preceding the announcement of good news relating to the company that caused the company's stock price to rise.