Options Backdating: Is Your Company at Risk?

Over the last four months, the media and law enforcement agencies have focused a harsh spotlight on public companies’ alleged “backdating” of stock options and other purported manipulations. More than 60 companies have announced investigations into their option timing practices by the Securities and Exchange Commission (SEC), the Department of Justice (DOJ) or the Internal Revenue Service (IRS). Many companies have also formed their own special committees to conduct internal investigations of their corporate option practices. In addition, companies face the specter of multiple civil actions based on alleged breaches of fiduciary duty and misstatements to the investing public. A recently released analytical study, conducted by Professor Randall A. Heron of the Kelley School of Business of Indiana University and Professor Erik Lie of the Henry B. Tippie College of Business at the University of Iowa, concluded that more than 2,000 public companies may have manipulated or backdated options at some point over the past 10 years.