Backdating far so good, but these options must also come with a strike pricewhich is the price at which the definition can buy the stock.
Some shady companies and employees realized that they could backdate their stock, which means slapping on a options from a date a few days, a few weeks, definition a few months earlier when prices were lower.
All stemming from the practice known as “options backdating.” Options backdating occurs when a company issues stock options on one date, but reports in its financials an earlier issue date to create a “strike” or exercise price equal to the earlier date’s lower price.
They did this by misrepresenting the date of the option grant, to make it appear that the grant was made on an earlier date when the market value was lower.
Rather obviously, this fact pattern results in a violation of the SEC's disclosure rules, a violation of accounting rules, and also a violation of the tax laws.
The SEC has been after the problem of abusive options backdating for several years.
I appreciate the opportunity to explain the Commission's initiatives to deal with abuses involving the backdating of options.
I am especially pleased to testify together with Chairman Mark Olson of the Public Company Accounting Oversight Board.