Dating of stock option

In the end, if the Do J proves that the Brocade executives deliberately orchestrated a scheme to mislead investors and regulators by falsifying documents and forging financial statements, it could amount to criminal securities fraud, contends Kenneth Lee, a securities litigator in the New York office of Thacher Proffitt and Wood.

But the prosecutors would have to show that the backdating process was a deliberate attempt to mislead investors, rather than neglect on the part of the executives to properly understand and implement backdating.

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Furthermore, since 1995, when FASB issued FAS 123, Accounting for Stock-Based Compensation, companies have been required to record in-the-money grants as a compensation expense.

That promise is considered to be an in-the-money options grant.

In-the-money options are different from performance-based compensation in the eyes of the Internal Revenue Service and the Financial Accounting Standards Board.

The date chosen could be one when the company’s stock was at a low, so the options can be in-the-money at the time of granting itself.

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

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