Stock options backdating rules

There is a five-year statute of limitations for securities fraud, and under the Sarbanes-Oxley Act of 2002, option grants to senior management must be reported within two days of the grant date.This all but eliminated the opportunity for senior management to engage any meaningful options backdating.

As of 17 November 2006, backdating has been identified at more than 130 companies, and led to the firing or resignation of more than 50 top executives and directors of those companies.

For instance, public companies generally grant stock options in accordance with a formal stock option plan approved by shareholders at an annual meeting.

Many companies' stock option plans provide that stock options must be granted at an exercise price no lower than fair market value on the date of the option grant.

Backdating stock options is not necessarily illegal.

Backdating becomes illegal when a company's shareholders are misled as a result of the practice.

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