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A quick examination of the cases against Brocade clearly identifies why backdating is synonymous with fraud, even though no U. The practice involves using hindsight to assign a stock-option contract an earlier date than its actual grant date.

By pushing the date into the past, to a time when the underlying stock traded at a lower price than it did the day the grant was issued, the option holder is, in effect, being given the promise of cash.

(In 2004, FAS 123 was revised to require that all stock-option grants be expensed.) Brocade’s crime, charges the Do J, is that between 20, company executives “routinely backdated stock option grants to give employees favorably priced options without recording necessary compensation expenses.” Ultimately, the alleged criminal fraud is a disclosure and accounting issue that violates Section 10 (Manipulative and Deceptive Devices) of the Securities Exchange Act of 1934.

The Do J claims that by not properly accounting for the options expenses, the company’s financial condition was misrepresented to investors. Tax Code, a company can take up to a

A quick examination of the cases against Brocade clearly identifies why backdating is synonymous with fraud, even though no U. The practice involves using hindsight to assign a stock-option contract an earlier date than its actual grant date.By pushing the date into the past, to a time when the underlying stock traded at a lower price than it did the day the grant was issued, the option holder is, in effect, being given the promise of cash.(In 2004, FAS 123 was revised to require that all stock-option grants be expensed.) Brocade’s crime, charges the Do J, is that between 20, company executives “routinely backdated stock option grants to give employees favorably priced options without recording necessary compensation expenses.” Ultimately, the alleged criminal fraud is a disclosure and accounting issue that violates Section 10 (Manipulative and Deceptive Devices) of the Securities Exchange Act of 1934.The Do J claims that by not properly accounting for the options expenses, the company’s financial condition was misrepresented to investors. Tax Code, a company can take up to a $1 million deduction for performance-based compensation awarded to “covered” executives.Indeed, if the practice was properly documented and disclosed in the financial statements, and given the appropriate tax treatment, there is an argument to be made that no law was violated, contends Lee.Awarding employees with stock options those are dated prior to the actual grant date.That means that if an option is in the money as a result of backdating, the company forfeits its tax deduction for the covered employees, explains Lehman Brothers tax expert Robert Willens.

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A quick examination of the cases against Brocade clearly identifies why backdating is synonymous with fraud, even though no U. The practice involves using hindsight to assign a stock-option contract an earlier date than its actual grant date.

By pushing the date into the past, to a time when the underlying stock traded at a lower price than it did the day the grant was issued, the option holder is, in effect, being given the promise of cash.

(In 2004, FAS 123 was revised to require that all stock-option grants be expensed.) Brocade’s crime, charges the Do J, is that between 20, company executives “routinely backdated stock option grants to give employees favorably priced options without recording necessary compensation expenses.” Ultimately, the alleged criminal fraud is a disclosure and accounting issue that violates Section 10 (Manipulative and Deceptive Devices) of the Securities Exchange Act of 1934.

The Do J claims that by not properly accounting for the options expenses, the company’s financial condition was misrepresented to investors. Tax Code, a company can take up to a $1 million deduction for performance-based compensation awarded to “covered” executives.

Indeed, if the practice was properly documented and disclosed in the financial statements, and given the appropriate tax treatment, there is an argument to be made that no law was violated, contends Lee.

Awarding employees with stock options those are dated prior to the actual grant date.

That means that if an option is in the money as a result of backdating, the company forfeits its tax deduction for the covered employees, explains Lehman Brothers tax expert Robert Willens.

million deduction for performance-based compensation awarded to “covered” executives.

Indeed, if the practice was properly documented and disclosed in the financial statements, and given the appropriate tax treatment, there is an argument to be made that no law was violated, contends Lee.

Awarding employees with stock options those are dated prior to the actual grant date.

That means that if an option is in the money as a result of backdating, the company forfeits its tax deduction for the covered employees, explains Lehman Brothers tax expert Robert Willens.

The practice is illegal if it is not followed by proper disclosure and related expenses are not recorded in financial statements.

Stock options that have been back-dated in order to set an exercise price for the option that is lower than the fair market value of the stock on the actual date of grant will generally run afoul of Code Section 409A to the extent they were (i) granted after October 3, 2004, (ii) granted before October 4, 2004, but not vested as of December 31, 2004, or (iii) materially modified after October 3, 2004.[1] As mentioned above, discount stock options are treated as a form of deferred compensation subject to Code Section 409A.

Section 409A requires that discount stock options have a fixed exercise date.

If such an increase to the exercise price of a discounted option is made during 2006, the vested portion of the option may be exercised in 2006 so long as the option holder is not compensated for the exercise price increase, except as described in paragraph (2) below.

Under most stock option agreements, the consent of the option holder will be required in order to increase the exercise price of the option.

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