Backdating Breakdown

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			IN THIS REPORT

Backdating, the act of retroactively selecting the date of a stock option grant to give it immediate value, has become as infamous a term as "Enron." Over the past year, more than 200 companies have conducted internal investigations to figure out whether their compensation programs included undisclosed backdating schemes. Many of those companies uncovered costly mistakes; others identified wrongdoing.

The Securities and Exchange Commission and the Department of Justice are targeting backdaters too, as the agencies continue investigations of companies that may have backdated options, and then knowingly hid the effort from investors and auditors. So far, only a handful of executives have been charged with illegal backdating, but the SEC says more charges are imminent.

To break down backdating into its myriad aspects, and analyze its affects on companies and its employees, CFO.com has compiled a collection of articles that examine key backdating issues, important regulatory and legal developments, and the corporate response to one of the most pervasive problems in Corporate America today.


		WHAT YOU DON'T KNOW ABOUT BACKDATING

		Backdating: Not a ''Judgment Call'' The stock-option practice qualifies as one of those "rare cases," according to the Delaware Court of Chancery, in which "a transaction may be so egregious on its face that board approval cannot meet the test of business judgment."

		Investigation Dilemma: Sing or Keep Mum? If your company wants to talk to you as part of an internal investigation, you may need to weigh your desire to be a team player against your Fifth Amendment rights.

		Backdating Fallout: D&O Coverage Will shareholder lawsuits stemming from the stock-option scandal hike D&O premiums?

		Backdating Sparks Bond Battle Were bondholders right to hand a default notice to UnitedHealth just because the company's review of option dating delayed its quarterly filing?

		When Is Backdating a Crime? The burden will be on DoJ prosecutors to prove Brocade executives deliberately misled investors.

		What Backdating Means For You Backdating and other option pricing practices can wreak havoc with your company's financials, but they can also mess up your personal tax return.

		Moody's: Backdating is a Credit Risk Moody's says it may lower ratings on companies that backdated stock option grants, even if the direct financial impact of those grants is not material.


		THE REGULATORY RESPONSE

		IRS Offers Rank-and-file Options Relief The initiative allows companies to step up and pay an additional tax liability for their employees, but not for top executives or other insiders ''who were the principal beneficiaries of the backdating schemes.''

		More Backdating Suits Coming, Says Cox ''Very aggressive program'' has so far targeted only Brocade and Comverse, but according to the SEC chairman, more than 100 other public companies are under investigation.

		Exec Comp: The SEC's Side of the Story Surprised by reaction to a change in compensation disclosure rules, the SEC contends that it's requiring more disclosure about corporate stock and option outlays, not less.

		Beyond Backdating: Fair-Value Fraud Risk Companies that try to minimize past experience in gauging the value of their option awards are at risk for fraud, the nation's auditing regulator advises.

		SEC Issues Option Accounting Guidance New guidance from the Chief Accountant tells companies how to respond to various outcomes of internal investigations into backdating and other stock option granting problems.

		Grassley Targets Backdating Advisors The chairman of the Senate Banking Committee wants companies to turn over the names of accountants, lawyers, and compensation consultants who pushed backdating as a strategy.

		Backdating Blamed on 1993 Tax Rule Disturbed by the manipulation of option grants, Congress is toying with eliminating the $1 million tax cap on executive compensation.

		PCAOB Alerts Auditors on Backdating Earlier this month, the SEC and the PCAOB had discussed delivering a one-two regulatory punch aimed at curbing backdating violations.


		BACKDATING PUSHBACK

		Ignorance Is a Defense Clarifying its views on director liability, the Delaware Supreme Court will hold shareholder litigants to a very high standard of proof.

		Backdating Nibbles The scandal hasn't had any obvious chilling effect on merger-and-acquisition activity.

		Companies Fire Back at Backdating Report The Corporate Library takes heat from companies it ties to the stock-options scandal — and decides to add a clarification.

		Defending Against Backdating Suits Lawsuits related to options backdating are on the rise, and directors and officers should consider both defense and insurance strategies as investigations turn into restatements.


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