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11-Nov-2017 07:37

A Real-Life Example A perfect example of what can happen to companies that don't play by the rules can be found in a review of Brocade Communications.The well-known data storage company allegedly manipulated its stock options grants to ensure profits for its senior executives and then failed to inform investors, or to account for the options expense(s) properly.If the company sets the prices of the options grant well below the market price, they will instantaneously generate an expense, which counts against income.The backdating concern occurs when the company does not disclose the facts behind the dating of the option.This means they must wait for the stock to appreciate before making any money. Most businesses or executives avoid options backdating; executives who receive stock options as part of their compensation, are given an exercise price that is equivalent to the closing stock price on the date the options grant is issued.

In the worst cases of options backdating abuse, the stock exchange on which the offending company's stock trades and/or regulatory bodies such as the Securities and Exchange Commission (SEC) or National Association of Securities Dealers can levy substantial fines against the company for perpetrating fraud.Among the agencies that could be knocking on the door are the Justice Department (for lying to investors, which is a crime), and the IRS for filing false tax returns." data-reactid="20"In a worst-case scenario, bad press and restatements may be the least of a company's worries.Some executives have, well, at least when it comes to their stock options.

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In order to lock in a profit on day one of an options grant, some executives simply backdate (set the date to an earlier time than the actual grant date) the exercise price of the options to a date when the stock was trading at a lower level. In this article, we'll explore what options backdating is and what it means for companies and their investors. Most businesses or executives avoid options backdating; executives who receive stock options as part of their compensation, are given an exercise price that is equivalent to the closing stock price on the date the options grant is issued.As a result, the company has been forced to recognize a stock-based expense increase of 3 million between 19. It has also been the subject of a civil and a criminal complaint." data-reactid="24"A Real-Life Example A perfect example of what can happen to companies that don't play by the rules can be found in a review of Brocade Communications.