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Academic researchers had long been aware of the pattern, exhibited by some companies, of share prices rising dramatically in the days following grants of stock options to senior management.However, in late 2005 and early 2006, the issue of stock options backdating gained a wider audience.When company executives discovered that they had the ability to backdate stock option grants, thus making them both tax deductible and “in the money” on the date of actual issuance, the common practice of stock option backdating for financial gain began on a widespread level.The problem with this practice, according to the SEC, was that stock option backdating, while difficult to prove, could be considered a criminal act.There are certain situations, however, when backdating is acceptable; however, the parties involved must agree to it.
To avoid having to pay higher taxes, many companies adopted a policy of issuing “at the money” stock options in lieu of additional income, with the idea that the executive or employee would benefit through the option by working to increase the value of the company without exceeding the one million dollar deductibility cap for executive income.
This is a way of repricing options to make them valuable or more valuable when the option "strike price" (the fixed price at which the owner of the option can purchase stock) is fixed to the stock price at the date the option was granted.
Cases of backdating employee stock options have drawn public and media attention.
Another example, in simpler terms, might be that if something antedates something else, it predates it, or is older than it.
Options backdating is the practice of altering the date a stock option was granted, to a usually earlier (but sometimes later) date at which the underlying stock price was lower.