Stock options backdating issue

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Simply put, backdating a stock option grant amounts to ripping off shareholders by shortchanging the company treasury.Shares are issued to option holders at artificially low prices and the company gets an artificially low amount of capital in return for its shares.

On June 24, 2010, Reyes was sentenced to 18 months' incarceration and a million fine.

In a letter to Fortune Magazine she told an editor that she, as well as other high-ranking members of the finance department, had been aware of the practice of backdating stock options to rank-and-file employees.

Moore's conflicting statements were not disclosed during the trial, and prosecutor Adam Reeves made numerous statements to the jury using Moore's testimony to support his argument that Reyes had deceived Brocade's finance department; he presented a diagram to illustrate that no one in the finance department was aware of the backdating; he made statements in his closing arguments claiming that employees of the finance department did not have any idea that the backdating had occurred, adding that the government's theory, based on their investigational findings, supported this conclusion.

Stock options are promoted by their supporters as the most effective way to align executive and employee interests with those of shareholders.

They are supposed to transform executives from fly-by-night plunderers in the mold of former Tyco or World Com executives into rational leaders who make prudent, long-term-oriented decisions with shareholder capital.

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