Do you ever wish that you could turn back the hands of time?
Some executives have, well, at least when it comes to their stock options.
New evidence suggests that corporate executives may have found another way to manipulate their stock options, this time to cheat on their income taxes.
In a paper that began circulating in recent days, a Securities and Exchange Commission economist concludes there is strong statistical evidence that executives manipulated the exercise dates of their options as part of a tax dodge.
Take auto insurance, for example: if you backdate your car insurance policy so that it says you were covered for an accident you had the month Life insurance is different because by making your policy retroactive by a short period, the insurer isn’t taking on any more risk.
It’s unlikely that you actually died last month and are faking being alive today so you can cash in on a death benefit. The reason has to do with your age and how it affects the price of your new policy. Your insurance company may use something called your “insurance age” or “insurance birthday” when processing your application.
(To learn more, read .) In short, it is this failure to disclose - rather than the backdating process itself - that is the crux of the options backdating scandal. To be clear, the majority of public companies handle their employee stock options programs in the traditional manner.
However, when granting options, the details of the grant must be disclosed, meaning that a company must clearly inform the investment community of the date that the option was granted and the exercise price. In addition, the company must also properly account for the expense of the options grant in their financials.In order to lock in a profit on day one of an options grant, some executives simply backdate (set the date to an earlier time than the actual grant date) the exercise price of the options to a date when the stock was trading at a lower level. In this article, we'll explore what options backdating is and what it means for companies and their investors. Most businesses or executives avoid options backdating; executives who receive stock options as part of their compensation, are given an exercise price that is equivalent to the closing stock price on the date the options grant is issued.This means they must wait for the stock to appreciate before making any money.Backdating is dating any document by a date earlier than the one on which the document was originally drawn up.Under most circumstances, backdating is seen as fraudulent and illegal, although there are some situations in which backdating can be used in a legal and beneficial way, such as backdating a claim for a past period.But because of how insurers determine age, there can be up to a window when the insurer considers you 35 even though you’re still 34. When you’re deciding whether it’s worth it to backdate or not, be sure to factor the extra premiums into your calculations.