As a consequence, the option is immediately profitable, or “in the money,” to the option holder. All stemming from the practice known as “options backdating.” Options backdating occurs when a company issues stock options on one date, but reports in its financials an earlier issue date to create a “strike” or exercise price equal to the earlier date’s lower price.You’re at the track and the pony you bet on came up a winner.Your homework paid off—you knew the horse likes the mud and the inside post and has a family tree full of Triple Crown winners.This sort of case can be brought against the corporation and its officers and directors and can result in the disgorgement of profits, stiff monetary penalties, and prohibitions against officers and directors serving any public company in those capacities in the future.As in other enforcement areas, the SEC has a penchant for pursuing through civil actions matters that involve blatant and intentional misconduct.Similarly, the FBI has reported that it has 52 companies under criminal investigation. Department of Justice has said it will bring criminal charges where defendants falsify corporate books and records; issue false financial statements; lie to boards of directors, auditors or the SEC; or file false reports.
“These investors have willingly agreed to assume risk. They expect honest jockeys, no horse doping, and nobody getting to bet on the race after it has already been run.”Of the FBI’s 492 pending corporate fraud cases, 61 center on options backdating.the release of bad news that cause the stock price to take a temporary dip, which increases the probability that the option will become profitable in the short term.With its attendant investigation, legal actions and executive fallout, the practice of options backdating is expected to have a short shelf life.Most corporate fraud cases involve accounting schemes designed to deceive investors and analysts about the true financial state of a company.Burrus said that while the number of those cases has remained fairly steady, options cases have spiked. Some 261 FBI agents today are working corporate, securities, and investment fraud cases, including four supervisory special agents working with federal prosecutors on a special options backdating task force formed last July in the San Francisco area.- Brocade Communications Systems: The company’s former CEO and head of human resources allegedly backdated stock option grants to give employees favorably priced options without recording the necessary compensation expenses. Options cases and corporate fraud are just a piece of the FBI’s battle against white-collar crime—there are more than 18,000 pending white-collar cases.