A quick examination of the cases against Brocade clearly identifies why backdating is synonymous with fraud, even though no U. The practice involves using hindsight to assign a stock-option contract an earlier date than its actual grant date.By pushing the date into the past, to a time when the underlying stock traded at a lower price than it did the day the grant was issued, the option holder is, in effect, being given the promise of cash.
If a dispute arises about whether an employee is entitled to a stock option, the SEC will not intervene. Unless the offering qualifies for an exemption, companies generally use Form S-8 to register the securities being offered under the plan.
Companies sometimes revalue the price at which the options can be exercised.
This may happen, for example, when a company’s stock price has fallen below the original exercise price.
The fixed price is often called the grant or exercise price.
Employees who are granted stock options hope to profit by exercising their options to buy shares at the exercise price when the shares are trading at a price that is higher than the exercise price.