The goal behind such option practices is to boost the recipient's potential windfall.
Given the suspect nature of grants of this type, it is not at all surprising that the stock option backdating scandal of 2006 continues to thrive well into 2007.
Erik lie backdating
Against this backdrop, several key factors in the inquiry into possible corporate malfeasance relating to stock option backdating have emerged.
Most of the issues addressed by the Court of Chancery include: (1) an examination of the type of stock option grants permitted through the company's stock option plan; (2) an assessment of the knowledge possessed by the directors and officers responsible for approving the issuance of backdated stock options; (3) an inquiry into the vesting time period, if any, accompanying the stock options; and (4) an analysis of the adequacy of the company's disclosures to regulatory agencies and the company's own stockholders relating to the issuance of stock options.
Clearly, such a non-discretionary plan would allow the recipients of the option grants to enjoy the upside of a deflated strike price while at the same time ensure that they participated in any down swing of the stock price. Of utmost importance in determining the potential liability of those individuals responsible for approving backdated stock options is the knowledge possessed by those accused of involvement, primarily the company's officers and directors.
In circumstances where directors approve, with input from trusted advisors, the granting of options without knowledge that they are being backdated in violation of a stockholder-approved stock option plan, any liability for breach of fiduciary duty remains suspect.
The granting of stock options to executives and directors began as a method by which a company could award those that managed its future.