Most of the cases were resolved without the companies admitting or denying wrongdoing.
Improper backdating occurred when stock-option grants to executives were timed to match yearly or quarterly lows in their company’s share price, but were often reported to shareholders at a higher exercise price.
XYZ stock was at a share 20 weeks ago; now it's at 0. The employee getting the strike price on 100,000 shares will have appreciated 0 per share times 100,000 shares or... But if the employee had received as their strike price the average of 0 and , assuming an arithmetic set of closing price gains, the strike on their options would have been 0.
Since then, laws about backdating have gotten stricter.
Technically speaking, backdating can be costly for shareholders because it reduces the corporate tax deduction at the time of exercise (the deduction amount is equal to the corporate tax rate times the difference between the exercise price and the stock price).
“The process and paperwork behind this has gotten much more rigorous,” Ms. Backdating litigation was often consolidated into class actions or brought by shareholders on behalf of the company.The cascading litany of alleged charges is not likely to stop with the Brocade case.Indeed, with more than 80 companies being reviewed by the SEC for potential illegal backdating practices, and one academic study claiming that more than 2,000 companies have engaged in the practice, civil and criminal charges will probably mushroom in the next few months. The purpose of backdating is straightforward: it gives options holders an immediate paper gain, and a real gain once the option is exercised.Last week the Do J brought criminal charges against two Brocade Communications Systems executives, while the SEC filed a civil suit against the same two and the CFO.As expected, the charges focused on backdating stock options by doctoring employment documents, neglecting to record the stock-option expense on the company’s books, and misleading investors.