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As a result, numerous companies are conducting internal investigations to determine if, when, and how backdating occurred, and are filing amended earnings statements and tax forms to show the issuance of “in the money” options in place of the “at the money” options that were previously reported.
This is not always the case, according to a ruling by federal judge William Alsup of the U. District Court for the Northern District of California.
Backdating is the practice of marking a document, whether a check, contract or another legally binding document, with a date that is before what it should be.
Backdating is usually disallowed and even can be illegal or fraudulent based on the situation.
An antedated contract is a contract whose date is in the past; formally, a contract where the effective date on the contract is prior to the date on which the contract is executed (written, signed, made effective).
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 versus the much different – and more financially beneficial – tax rules that apply when issuing “at the money” or "out of the money" stock options.
In the modern business world, the Sarbanes-Oxley Act has all but eliminated fraudulent options backdating by requiring companies to report all options issuances within 2 days of the date of issue.
Options backdating may still occur under the new reporting regulations, but Sarbanes-Oxley compliant backdating is far less likely to be used for dishonest reasons due to the short time frame that is allowed for reporting.
This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.
Cases of backdating employee stock options have drawn public and media attention.