The options backdating

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Q: Under what circumstances is backdating legal or illegal? If a company's executives are up-front about it with shareholders and the government, everything's probably fine. Attorney's office in New York have been conducting parallel investigations. Paul Caron, a visiting professor at the University of San Diego School of Law and author of the Tax Prof blog, outlined two possible tax law violations in an e-mail to CNET Typically the contact comes in the form of a grand jury subpoena.

The problem, though, is that the allegations that have come to light have not included full disclosure to shareholders, payment of extra applicable taxes, and earnings statements that reflect the modified grant dates. Some Bay Area companies have announced that they've been contacted by the U. They include: Altera Applied Micro Circuits Asyst Technologies CNET Networks Equinix Foundry Networks Intuit Linear Technology Marvell Technology Group Maxim Integrated Products Openwave Systems Power Integrations Redback Networks Veri Sign Zoran Source: Wall Street Journal database One consideration, Caron said: Did the companies take the backdating into account when calculating how much they owed under the tax code, which limits a public company's deduction of employee compensation to

Q: Under what circumstances is backdating legal or illegal? If a company's executives are up-front about it with shareholders and the government, everything's probably fine. Attorney's office in New York have been conducting parallel investigations. Paul Caron, a visiting professor at the University of San Diego School of Law and author of the Tax Prof blog, outlined two possible tax law violations in an e-mail to CNET Typically the contact comes in the form of a grand jury subpoena.The problem, though, is that the allegations that have come to light have not included full disclosure to shareholders, payment of extra applicable taxes, and earnings statements that reflect the modified grant dates. Some Bay Area companies have announced that they've been contacted by the U. They include: Altera Applied Micro Circuits Asyst Technologies CNET Networks Equinix Foundry Networks Intuit Linear Technology Marvell Technology Group Maxim Integrated Products Openwave Systems Power Integrations Redback Networks Veri Sign Zoran Source: Wall Street Journal database One consideration, Caron said: Did the companies take the backdating into account when calculating how much they owed under the tax code, which limits a public company's deduction of employee compensation to $1 million?Any of those three categories could yield civil (and perhaps criminal) legal action. Second, do the backdated options constitute "nonqualified deferred compensation," in which case the companies may be liable for excise taxes? If they had stock options that were backdated and not disclosed, that essentially provides executives (or other employees, but typically executives) with extra compensation.Q: What kind of legal charges could companies face? But in general, backdating a stock option (without communicating this to shareholders) could run afoul of tax laws, securities regulations and laws prohibiting fraud. That's an expense that must be disclosed to shareholders.Rather, he's accused of backdating stock options to lure an unnamed employee to take a "high-level sales position." An FBI affidavit says Reyes told Jensen to backdate an offer letter by more than two months to benefit from a more favorable share price in late 2001.Reyes' attorney has defended his client as wrongly accused, saying "financial gain is always the motive in securities fraud cases, and here there was none. The stock options are awarded just before news, usually positive, is announced.A paper (click for PDF) that Lie and Randall Heron, an associate professor at Indiana University's business school, published on July 14 estimates that 18.9 percent of unscheduled grants to top executives from 1996 through 2005 were backdated or manipulated.

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Q: Under what circumstances is backdating legal or illegal? If a company's executives are up-front about it with shareholders and the government, everything's probably fine. Attorney's office in New York have been conducting parallel investigations. Paul Caron, a visiting professor at the University of San Diego School of Law and author of the Tax Prof blog, outlined two possible tax law violations in an e-mail to CNET Typically the contact comes in the form of a grand jury subpoena.

The problem, though, is that the allegations that have come to light have not included full disclosure to shareholders, payment of extra applicable taxes, and earnings statements that reflect the modified grant dates. Some Bay Area companies have announced that they've been contacted by the U. They include: Altera Applied Micro Circuits Asyst Technologies CNET Networks Equinix Foundry Networks Intuit Linear Technology Marvell Technology Group Maxim Integrated Products Openwave Systems Power Integrations Redback Networks Veri Sign Zoran Source: Wall Street Journal database One consideration, Caron said: Did the companies take the backdating into account when calculating how much they owed under the tax code, which limits a public company's deduction of employee compensation to $1 million?

million?

While it's not necessarily illegal, in many cases it could be. The Securities and Exchange Commission said last week that at least 80 companies are the subject of a probe.There is not even an allegation of self-enrichment, or self-dealing." Q: That's backdating. The shares increase in value and--presto--the options are worth more.It works like this: If a CEO expects to make a new product announcement, he could allocate himself options when the stock is valued at . Attorney Kevin Ryan said the task force will be investigating spring-loading as well.Then, after the announcement boosts the share price to , each option would be worth . "Then you have both insider trading and you have an accounting issue," Ryan said."An old-fashioned cooking-the-books fraud." Q: Would fixing executives' grant date to, say, July 1 every year fix things? tax code limits companies' ability to deduct pay for certain executives if the amount exceeds

While it's not necessarily illegal, in many cases it could be. The Securities and Exchange Commission said last week that at least 80 companies are the subject of a probe.

There is not even an allegation of self-enrichment, or self-dealing." Q: That's backdating. The shares increase in value and--presto--the options are worth more.

It works like this: If a CEO expects to make a new product announcement, he could allocate himself options when the stock is valued at $20. Attorney Kevin Ryan said the task force will be investigating spring-loading as well.

Then, after the announcement boosts the share price to $25, each option would be worth $5. "Then you have both insider trading and you have an accounting issue," Ryan said.

"An old-fashioned cooking-the-books fraud." Q: Would fixing executives' grant date to, say, July 1 every year fix things? tax code limits companies' ability to deduct pay for certain executives if the amount exceeds $1 million a year.

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While it's not necessarily illegal, in many cases it could be. The Securities and Exchange Commission said last week that at least 80 companies are the subject of a probe.There is not even an allegation of self-enrichment, or self-dealing." Q: That's backdating. The shares increase in value and--presto--the options are worth more.It works like this: If a CEO expects to make a new product announcement, he could allocate himself options when the stock is valued at $20. Attorney Kevin Ryan said the task force will be investigating spring-loading as well.Then, after the announcement boosts the share price to $25, each option would be worth $5. "Then you have both insider trading and you have an accounting issue," Ryan said."An old-fashioned cooking-the-books fraud." Q: Would fixing executives' grant date to, say, July 1 every year fix things? tax code limits companies' ability to deduct pay for certain executives if the amount exceeds $1 million a year.

million a year.

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