What is wrong with backdating stock options

Apple shareholders have been particularly unfazed by the revelation that Jobs was not only aware that backdating was occurring, but also intimately involved in picking the dates to which the stock options were backdated.

Many shareholders have rallied to defend Jobs' actions on the basis of his overall performance with the company.

Lawyers who were trained in commonwealth jurisdictions may have an ingrained concept that backdating a document is generally improper, if not illegal.

Law360 (April 29, 2010, PM EDT) -- The short answer is that there is nothing wrong with backdating stock options — if appropriate procedures are followed and the transactions are properly accounted for and disclosed.Backdating is a practice of locking in financial gains by retroactively pricing stock option grants on days when a company’s stock price is low, thereby increasing the value of the options.Backdating is the practice of marking a document, whether a check, contract or another legally binding document, with a date that is before what it should be.Backdating is usually disallowed and even can be illegal or fraudulent based on the situation.It would not be uncommon for there to be a lapse of days or even weeks between the time commercial terms are agreed and the date of final contract execution.

Even for a simple document such as a Non-Disclosure Agreement (or Confidentiality Agreement), the parties may legitimately want the document to take effect from an earlier date.

This practice is legal when properly recorded as a non-cash corporate expense.

Then why have more than 170 companies been investigated since 2007 by the U. Securities and Exchange Commission and other federal authorities for potential fraud in connection with stock option...

He had led the firm to phenomenal gains over a 15-year period, but perhaps because he was also richly rewarded as a result, it was easier to oust him. As a matter of fact, they argue, he actually cancelled the big 7.4 million share option grant he was given.

And surely few people had problems with the vilification of Kobi Alexander, the CEO of Comverse Technology , when he became a fugitive after his backdating scandal broke. While Saint Steve may not have really understood all the accounting mumbo jumbo that goes into play, it's hard to argue that he didn't benefit.

1990) held that: “Illinois courts have, in the past, permitted the “relation back” theory of contract effectiveness: that is, contractual terms may be effective for a period before the contract is executed, so long as such coverage is clear from the face of the contract: In the law of contracts, it is elementary that ordinarily a contract speaks from the day of its date, regardless of when it was executed and delivered.