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This is not always the case, according to a ruling by federal judge William Alsup of the U. District Court for the Northern District of California.

According to Alsup’s reasoning and subsequent ruling, it is improper to infer fraudulent activity based solely on the occurrence of options backdating – further facts must be present and proven before the act can be considered to be fraudulent.

Continue Reading The recent media coverage surrounding stock option practices primarily has been focused on options backdating, and to a lesser extent on options springloading.

However, in late 2005 and early 2006, the issue of stock options backdating gained a wider audience.

Numerous financial analysts replicated and expanded upon the prior academic research, developing lists of companies whose stock price performance immediately after options grants to senior management (the purported dates of which can be ascertained by inspecting a company's Form 4 filings, generally available online at the SEC's website) was suspicious.

While this conclusion is logical in cases of options backdating in which executives knowingly participated in the criminal actions, options backdating can be a result of normal accounting or corporate policies that are not criminal in nature, and is a legal practice as long as the backdated contract is appropriately reported for tax purposes.

Academic researchers had long been aware of the pattern, exhibited by some companies, of share prices rising dramatically in the days following grants of stock options to senior management.

Erik Lie is a Norwegian finance professor at the University of Iowa who published a report about options backdating that led to many investigations by the SEC into the potentially illegal practice.

He was the subject of profile in Business Week for his contribution to uncovering options backdating scandals.

Corporations, however, have defended the practice of stock option backdating with their legal right to issue options that are already in the money as they see fit, as well as the frequent occurrence in which a lengthy approval process is required.

In 1972, a new revision (APB 25) in accounting rules resulted in the ability of any company to avoid having to report executive incomes as an expense to their shareholders if the income resulted from an issuance of “at the money” stock options.

New allegations have surfaced that may evidence options “springloading.” Options backdating involves retroactively dating the grant and exercise price of an options issue to a time … La Croix is an attorney and Executive Vice President, RT Pro Exec, a division of R-T Specialty, LLC.

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