Restricted stock backdating

Posted by / 30-May-2020 15:34

Restricted stock backdating

Criminal proceedings for violations of the conspiracy and mail and wire fraud statutes are also possible.

Improper disclosures or accounting for options could render statements in a company’s proxy materials false or misleading.

More than 80 companies are currently the subject of one or more investigations.

Some state attorneys general have also begun investigations concerning option-granting practices.

The option-granting practices called into question by the regulators can be grouped into three general categories In view of the recent indictments, the intense media scrutiny of this issue, the inquiries now being routinely made by third parties, and the likelihood of auditor inquiries as part of 10-Q reviews and annual audits, we recommend that our clients educate themselves about the issues arising from the option grant investigations and review their past and current option grant practices.

If a review reveals questionable options practices, the company board should consider what action to take, which in some instances may include director-supervised investigations.

Although many of the alleged abuses under investigation took place prior to the Sarbanes-Oxley requirement that option grants be reported within two business days after grant and prior to the implementation of FAS No.

123R, Share-Based Payment (requiring companies to expense the grant-date fair value of all stock options rather than just those granted below fair market value), we believe the procedures outlined in this Commentary continue to provide relevant guidance to public companies today.

From our perspective, the key question (and distinguishing characteristic) between technical errors and more serious issues is whether the board of directors or the compensation committee knowingly approved the terms of stock option grants and the prices at which the options were exercisable.As noted below, the failure to record income tax expense properly can also trigger a restatement. Stock options granted at a discount, whether due to backdating or otherwise, may result in tax issues.Discount options are not exempt from the

From our perspective, the key question (and distinguishing characteristic) between technical errors and more serious issues is whether the board of directors or the compensation committee knowingly approved the terms of stock option grants and the prices at which the options were exercisable.

As noted below, the failure to record income tax expense properly can also trigger a restatement. Stock options granted at a discount, whether due to backdating or otherwise, may result in tax issues.

Discount options are not exempt from the $1 million cap on certain executive pay.

In connection with announcing the charges, SEC chairman Christopher Cox stated that “options backdating strikes at the heart of investor confidence in our capital markets [and] . An immediate risk facing some companies under investigation is the potential restatement of historical financial statements resulting from the failure to record compensation expense with any backdated options.

Under the long-standing APB 25 accounting standards (which have been superseded by FAS 123R), compensation expense for option grants needed to be recorded only if the exercise price was less than the fair market value of the underlying stock at the date of the option grant – so-called discount options.

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From our perspective, the key question (and distinguishing characteristic) between technical errors and more serious issues is whether the board of directors or the compensation committee knowingly approved the terms of stock option grants and the prices at which the options were exercisable.As noted below, the failure to record income tax expense properly can also trigger a restatement. Stock options granted at a discount, whether due to backdating or otherwise, may result in tax issues.Discount options are not exempt from the $1 million cap on certain executive pay.In connection with announcing the charges, SEC chairman Christopher Cox stated that “options backdating strikes at the heart of investor confidence in our capital markets [and] . An immediate risk facing some companies under investigation is the potential restatement of historical financial statements resulting from the failure to record compensation expense with any backdated options.Under the long-standing APB 25 accounting standards (which have been superseded by FAS 123R), compensation expense for option grants needed to be recorded only if the exercise price was less than the fair market value of the underlying stock at the date of the option grant – so-called discount options.

million cap on certain executive pay.In connection with announcing the charges, SEC chairman Christopher Cox stated that “options backdating strikes at the heart of investor confidence in our capital markets [and] . An immediate risk facing some companies under investigation is the potential restatement of historical financial statements resulting from the failure to record compensation expense with any backdated options.Under the long-standing APB 25 accounting standards (which have been superseded by FAS 123R), compensation expense for option grants needed to be recorded only if the exercise price was less than the fair market value of the underlying stock at the date of the option grant – so-called discount options.

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While technical issues may exist that could require changes in option-granting procedures going forward, absent evidence of fraud or manipulation, these technical issues should not, in many instances, be treated as a legal or governance crisis mandating special committee investigations, up-the-ladder reporting and disclosure, or similar extraordinary actions.