Stock Option Backdating - Under Scrutiny
Class action cases are being filed to stop the practice of stock option backdating. Backdating allows a stock option exercise price to be set using hindsight, by reporting the market price from a previous date. In most cases of backdating, a date on which the stock price was very low is chosen. Currently, there are over a dozen securities fraud cases in federal court and an unknown number of derivative actions in state courts related to the practice. It reportedly has hit hardest in the technology and telecommunications industries. Backdating is not expressly forbidden by statute but rather is being postured as a violation of SEC disclosure regs (SEC Rule 10b-5). With the recent US Supreme Court ruling in Dura Pharmaceuticals (requiring a casual connection between a company's misrepresentation and the plaintiff's economic loss), it appears that there will be proof issues in the cases that have been filed.
Eric adds™ -- Perhaps the next significant options backdating ruling will be rendered in the forthcoming U.S. v. Jobs matter. Although I don't know about doctors, it sure doesn't look like an Apple a day repels the SEC . . .
