Option backdating why the fuss and how to avoid it

Pam provides executive compensation and securities law advice in public offerings and merger and acquisition transactions.She regularly counsels Mintz Levin’s public company clients with respect to securities compliance under both the Securities Act of 1933 and the Securities Exchange Act of 1934; executive compensation-related issues; and corporate governance matters, including compliance with stock exchange requirements, the Sarbanes-Oxley Act of 2002, and the Dodd-Frank Act of 2010.After all, stock option backdating is all the rage these days.You'd think they'd be up to their eyeballs in rope. Hermanson, Dinos Eminent Scholar chair of private enterprise and professor of accounting in the Coles College of Business at Kennesaw State University, says evidence of backdating is widespread and companies need to perform internal audits to make sure they aren’t penalized by an investigative agency.

She represented both corporations and investors in private placements, public offerings, mergers and acquisitions, and general corporate law matters.

This fact is often used as a reason to downplay the seriousness of the issue.

You’d think that shareholders wouldn’t tolerate the use of accounting sleight of hand to compensate executives while bypassing the traditional “selling, general, and administrative” line in the income statement.

The SEC and other federal authorities are currently investigating more than 50 companies suspected of illegal, undisclosed options backdating practices, and the first criminal charges relating to these practices are expected shortly.

The practice of backdating options is not illegal as long as it is disclosed to shareholders.

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