Option backdating is “the abuse du jour” in the stock-based compensation area, according to Bob Duffy (Grant Thornton, LLP), who spoke at the recent BV track of the LEI National CLE Conference in Snowmass, Colorado. (See BVWire # 52-2). Backdating occurs when company management intentionally selects a pricing date that precedes the corporate action resulting in the employee stock option grant.
“Like steroids in sports, it became the normal practice to keep up with what other companies were doing,” Duffy says. He estimates a minimum of 160 companies were involved, to the tune of $75 billion. “That’s how much money was given to option holders through backdating.”
The costs could go even higher, given the recent ruling by the Delaware Chancery Court allowing a shareholder derivative suit to proceed against current and former board members of Maxim Integrated Products, Inc. for alleged breach of duty in the backdating context. For a copy of Ryan v. Gifford (February 6, 2007), click here.
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