Continue Reading For a period beginning in 2006, plaintiffs’ lawyers filed a wave of options backdating securities class action lawsuits.
Almost all of these cases have now been resolved, although one case continues to grind through the appellate courts.
Option backdating practices can have a two-pronged effect on an organization.
First, the ineffective corporate governance and internal controls that create the incentive and opportunity for option backdating violate Generally Accepted Accounting Principles (GAAP), SEC filing requirements, and Internal Revenue Service (IRS) rules.
) upper bound for the cost of backdating to shrink from 10% to about 3.7%, as a consequence of the regime change represented by the Sarbanes–Oxley act (SOX).
We frame the backdating behavior as a (compound) exotic option, considering both simple and extended models of the underlying ESO—in the latter case we draw on the analytical ESO models of Sircar and Xiong (2007).
Ultimately, the potential gain executives’ reap is far outweighed by the likelihood of detection.
As of April 2007, more than 264 companies have been the subject of internal reviews, inquiries by the Securities & Exchange Commission (SEC), or subpoenas by the Department of Justice (Do J) in regard to option backdating.
The authors would like to thank Erik Lie, Svein-Arne Persson, and Wei Xiong for comments and discussions.
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.
Continue Reading On January 27, 2010, NERA Economic Consulting released its updated annual review of Canadian securities class litigation entitled "Trends in Canadian Securities Class Actions: 2009 Update" (here). Continue Reading Over the years, legislative reforms of the U. securities laws have cycled back and forth, between initiatives, on the one hand, to discourage abusive litigation and, on the other hand, to restrain corporate misconduct.
The report presents an interesting study of the evolution of class action litigation in a jurisdiction outside the U. In the current Wall Street bailout, post-Madoff environment, sentiment may be running high for legislative reforms that could expand liabilities under …